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November 29, 2018

The missing steps. What prevents Russian startups from taking off

Physicist and theorist Stephen Hawking talked to the world until his death with a device that reads the direction of the eye and barely noticeable facial muscle movements. But this was not easy because of the disease that the scientist suffered.

Perhaps Russian developers could have made his life easier. They created a complex capable of turning mental efforts into computer teams for people with severe speech and movement disorders. The user has to focus on his or her intention in a way that does not require any muscular effort. The developers of this solution have recently joined the ranks of the winners of the EastBound contest, which we organized for Russian startups together with the Skolkovo Foundation. The company has been singled out by major investors from Japan, and now it plans to enter foreign markets.

There are dozens of such breakthrough developments in Russia. But the stage at which large foreign companies and foundations are beginning to take an interest in a startup still needs to be reached.

Before the project is ready to conquer international markets, it needs to be accelerated from the regional to the federal level. And there are often no sites for such acceleration in the regions. Historically, most of the venture capital activity has been concentrated in Moscow and St. Petersburg, but it is already evident that the level of investment activity in the Tatarstan, Novosibirsk, Sverdlovsk and Tomsk regions is increasing. Teams of new governors are actively working in this direction.

At the same time, there are plenty of interesting ideas and promising projects in other regions. In addition, there are separate elements of infrastructure for the development of high technologies - universities, technoparks, areas with special tax regimes. And interaction between these elements has yet to be established. The regions need to develop tools to support start-ups at an early stage in the form of accelerators or venture funds, laboratories and R&D centres in technoparks.

Of course, we should not have the goal of distributing technologies in an even layer throughout the country. Each territory has its own strengths and advantages. Now we at VEB Innovations are working on the creation of regional and interregional funds in Russia, which will help to ensure investment activity on the ground. But much will depend on the cities and regions themselves - on how life is organized there. And it's not just about living conditions: the general state of the economy determines the expectations of entrepreneurs about the prospects of their developments.

But even taking into account geographical difficulties, the initial stage of development is not the most difficult for a company. At the very beginning, the projects are supported by FRII, the RVC family of funds, Skolkovo and other institutions with state or quasi-state capital.

And here comes the real "valley of death". In Russia, it is much harder to get financing for projects in their infancy, and banks prefer to get involved much later, when the company has managed to prove itself and there are almost no risks.

Simply put, in the existing staircase to the market Olympus, which hopes to conquer startups, there are still not enough steps. We partially expect to solve this problem by filling the existing vacuum.

Decent projects are often stuck at the beginning of a journey and for other reasons. When creating a product, developers don't always understand what large corporations really need to sell their product to. A talented startup has one thing in his head, and the CEO of a multinational holding has quite another.

That's why now we are starting to create a matrix of corporate requests together with Rosatom, Rostec, Russian Railways, etc., and we are developing the rules of the game with startups together with the Agency for Strategic Initiatives, Skolkovo, and FRII. We need to literally come to us, ask potential consumers of developments and understand what exactly corporations lack and what kind of young company could provide such a product. In fact, we are ready to show the developers the target to hit. And the sooner they hit the target, the sooner the project will start working and payback.

However, to do this, startups need to be ready to talk to corporations in the same language, adapt to their needs and come up with products to increase their efficiency. Not everybody gets it the first time, sometimes you have to fall a lot and hurt. Where possible, we try to make this process less painful by involving accelerators and prototyping centers in partnerships, where startups can make and test the product in business. And if the product does not "fly", change it or propose a new one.

Developers are not always to blame for not being able to find a consumer: there are often not enough customers in Russia. For many technologically complex projects, the national market is not always in demand at the first stage, so startups successfully introduce the product and try to go abroad. The state is also interested in this. In order to increase non-raw-material exports seriously, Russia needs huge volumes of high-tech production and an international market.

The majority of startups dream of Silicon Valley or at least Europe. But due to several factors, it is time to reconsider this approach. The difficult foreign policy situation and rapid development of various regions have put other areas in the top of the list of most promising ones - East and South-East Asia, Latin America and the Middle East. For example, we are finalizing the formation of a joint venture with the Indians in the field of innovation and technology support for Viman Capital. Our partner is Srei Infrastructure Limited (SREI), which helps companies to conquer the markets of BRICS, EAEU and ASEAN countries.

Such joint funds with the participation of state institutions are the last and most large-scale element of accelerating startups from the regional to the international level. So far, only a handful of people have been able to pass this entire route successfully. But their experience shows that the system of support for promising companies in Russia has been formed and is still working. And in order to use it effectively and provide seamless financing of the project from stage to stage, it is necessary to coordinate the actions of institutions and foundations, find intersections between startup plans and client needs. And some flexibility will be required from each of the parties.

But if everything works out, innovations in Russia will finally cease to be just a hip word, which means more or less new and hip. The concept will find its initial meaning and will mean for us qualitative changes that can seriously facilitate the lives of people and the development of the economy.

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