Innovation in Russia gets traction with state support

Russia

Skolkovo Foundation, a techno park and a science center located in Moscow, is the Russian version of Silicon Valley: 250 startups and $400 million in grants so far

Navigator Campus (Kazan) is the first private technology park completely dedicated to hardware projects


A recent program on engineering and industrial design initiated by the Ministry of Industry and Trade helps manufacturing companies to establish comfortable environment to develop alpha-prototypes for new products.

The Russian government has set up a number of investment funds with to support knowledge-based industries.- But support for innovation by the regional government is primarily concentrated in equity investments and technology parks, leaving many gaps in the innovation system unaddressed.- Investing in technologies usually has a long payback period, which makes innovation projects less appealing compared to such lucrative industries as retail, oil & gas or real estate.- The lack of entrepreneurial culture and underdeveloped SME sector makes a startuper career a risky venture compared to established streams in public service or a corporate function.

The fundamental Russian science has long been known worldwide for its achievements in the biology, physics, chemistry, and materials engineering. Although scholar papers and research results were described in high-impact papers little was available for successful commercialization. While in the Soviet period all research was fully funded by the state it left no intentions for scientists to make money on their inventions. Recent years showed that the government now seeks active involvement into incubating scientific inventions and finding ways to accelerate the transfer of technologies to daily lives.

Among major measures to support innovation ecosystem in Russia are state programs aimed to help knowledge-based industries, to build clusters in selected municipal zones and regions, and to support a country-wide network of technoparks.

For example, a recent program on engineering and industrial design initiated by the Ministry of Industry and Trade helps manufacturing companies to establish comfortable environment to develop alpha-prototypes for new products. This program through designated federal agencies creates favorable tax treatment to engineering companies, provides subsidies for capital expenditures, sets requirements for specialized educational programs in 12 universities, and provides financial support for the development of local engineering centers founded by small and medium companies. The program defines criteria for companies to be considered engineering firms and also sets reduced tax and social fees for companies in this field. Other programs include such industries as pharmaceuticals, composite materials, telecommunications, microelectronics, aerospace and energy sectors.

Apart from direct support from federal agencies, the Russian government has set up a number of investment funds

 with to support knowledge-based industries. Companies like Rusnano, Russian Venture Company, or Russian Fund for Direct Investments provide capital, management and subject matter expertise to innovators in established research institutes or to private start-ups and spin-off companies.

Skolkovo FoundationThe City of Moscow offers its own for engineering and innovation ecosystem. As a major national R&D hub with the highest concentration of venture capital, the city has selected a number of industries to bank on.

A famous example of Moscow-based innovation infrastructure is Skolkovo Foundation, a techno park and a science center located in the suburbs of the Russian capital. Founded by prominent leaders of the business community and government support this soon-to-be Russian version of the Silicon Valley is now home to more than 250 startups that accepted more than $400 million in grants so far. Although original idea was to attract investors and funds from abroad, now some companies and venture investors have relocated out of the country due to the current geopolitical situation and the remaining start-ups focus on the Russian market.

The Republic of Tatarstan is another positive illustration of rapid innovation in Russia. Ten years of efforts by the local government paid off with an ecosystem for growing companies in IT, biotechnology, composite materials and more conventional fields, such as energy, transport and communication. New and existing tech businesses enjoy a network of technology parks, business incubators and venture funds. Today, with its 14 technology parks, 4 industrial parks and 2 special zones for a population of only 3.8 million people, Tatarstan has more innovation sites per capita than in the United Kingdom, one of the birthplaces of technology parks.

A famous example of Tatarstan’s IT sector is the Innopolis project that has a chance to become the IT-capital of Russia. Rival to Malaysian Cyberjaya, Innopolis has extensive infrastructure including technology parks, development centers and the Russia’s first IT university to host more than 150,000 tenants, including 60,000 IT-professionals.

While startup incubators and accelerators have been springing up like mushrooms in Russia over the past few years, Navigator Campus located in Kazan deserves particular attention. It is the first private technology park in the country completely dedicated to hardware projects – from consumer robotics to 3D-printing. It has already attracted over 20 startups from Tatarstan, St. Petersburg, Tomsk (Siberia), Astrakhan (southern Russia) and Ukraine. Among these startups are iBlazr, a startup from Kiev building the world’s first smart LED-flashlight for smartphones and tablets; Krisaf, from Tyumen, which offers robotized gym equipment for accelerated rehabilitation of children with cerebral palsy; and Ennova, a startup manufacturing 3D-printers. Among the first international partners of Navigator Campus is Hax Asia, a hardware startup accelerator just launched in Singapore.Smart Cities in Russia

 

However, support for innovation by the regional government is primarily concentrated in equity investments and technology parks, leaving many gaps in the innovation system unaddressed. One of the barriers that holds innovation is a lack of established venture capital industry.

Venture capital market and a number of exists from successful investments in Russia is relatively small compared to European or North American countries, however the market shows signs of growth. According to the PwC’s MoneyTree report, in 2013, fast-growing companies, working in the Russian biotechnology, industrial, and IT sectors, received venture capital investments of $653 million from a total of 222 deals. The number of investor exits almost doubled, increasing from 12 to 21, while investors' proceeds from these exits grew more than fivefold, from $372 million to an unprecedented $2 billion.

A few other reasons hinder the development of the innovation sector and speedy implementation of new ideas. Investing in technologies usually has a long payback period, which makes innovation projects less appealing compared to such lucrative industries as retail, oil & gas or real estate. The lack of entrepreneurial culture and underdeveloped SME sector makes a startuper career a risky venture compared to established streams in public service or a corporate function. Low motivations to cash own research among scientific community and limited choice of technology transfer channels are other reasons why great ideas don’t become great products easy. Extended investment decision-making process and expertize that can take a government agency anywhere between two to nine months before first funds land on innovators’ bank account trains patience rather than motivation to start a new company.

Where some see difficulties others find opportunities. Artem Oganov, a Russian chemist specializing in materials design and running three laboratories in New York, Xi'an (China) and Moscow, thinks that Russia offers the best opportunities for innovation. “Russia has lots of talented students and restoration of its science is underway. Being here in such times is particularly exciting.” Oganov received a government megagrant to fund his research and hire world-class staff. His only concern now is about long-term stability of funding. “Some uncertainty exists, but one thing is clear – they do have science as top priority, there’s a plenty of talent and top-notch scientific equipment,” said Oganov.


By Dmitry Alenushkin and Renat Mustafaev

Dmitry Alenushkin is a technology consultant and an investment professional. He now works as an Investment Officer for Rusnano, a government investment fund focused on the materials science. Previously Dmitry worked for Creekstone Consulting in West Vancouver and dealt with feasibility studies for disruptive technologies and new materials. He holds a Master of Business Administration degree from the University of British Columbia and is a certified Project Management Professional

Renat Mustafaev, Deputy Director, Investment Relations, Technopolis Moscow.
Renat is responsible for the development of Technopolis business strategy and external relations.
Prior to joining the Technopolis Moscow team, Renat had an extensive background in investment promotion and foreign economic relations in both Moscow City Government and the administration of the Republic of Tatarstan.

Innovation in Russia gets traction with state support

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