The New York Times Dealbook reports (note that a group of crazed Russian businessmen thought they could buy off this reporter with a free trip to Russia a la Valdai; it blew up massively right in their faces and we could not be better pleased):
From Matt Marshall at VentureBeat:
Russia is the sixth-largest economy in the world, but it’s also a country relatively untouched by foreign investors, especially investors in technology. Could Russia potentially be the home of the next massive tech boom?
The short answer is: No way. At least not anytime soon. That’s the conclusion I’ve come to after a week in Moscow, a week in which I took part in the first ever delegation of US venture capital investors to visit Russia.
The organizers invited me as the sole member of the U.S. media. (Disclosure: My trip was organized by AmBar, a group of U.S.-based Russian professionals, and paid for by Rusnano, a government investment fund. In return, I promised to write an honest account of what I found.)
Russia is making huge efforts to change. It is plowing billions of dollars into the planned high-tech city of Skolkovo over the next couple of years that it hopes will replicate Silicon Valley. Through $5 billion in other investments, it also plans to produce a $30 billion nanotechnology industry by 2015. Russian leaders, led by President Dmitry Medvedev, have convinced me they want to clean up corruption and that the only way they can achieve sustained economic growth is to diversify, and that means supporting the tech industry. Russia is trying hard to reform and progress. My brief visit makes me think it will get there. Eventually.
But right now, Russia is still a mess. It is totally reliant on its oil wealth, and as prices for oil inch upward again, Russia may once more gain comfort and lose the urgency to change. It has a long way to go, and much of its plans are being implemented through Soviet-style top-down government mandates. The government needs to reduce its size drastically and let personal initiative take over. “It’s the people, stupid,” U.S. angel investor Esther Dyson, one of the earliest successful investors in Russia, said to me.
Granted, the buzz is good
During our visit, we met with government officials, investors, parliamentarians, incubators and startups. I tagged along with 20 other investors. We also met several of the nation’s wealthiest tycoons, including the richest “oligarch,” Michael Prokhorov, who refused to do a video interview with me. Independently, I also organized a meetup of startups at the Ritz Hotel, just off Moscow’s Red Square. Some 45 entrepreneurs showed up. These guys are experimenting in all kinds of areas, but most of them are still focused on the Russian market. Still, there’s plenty of innovation evident here: Just a couple of examples: One company, Innosystems, has built a widget that lets you click a number to call online, with no software download. Another, QiwiPay, backed by Moscow-based venture capital firm DST, is building kiosks that let Russians pay their traffic violation fines automatically — so they can avoid waiting in line in court for a day, or worse, being shaken down by police soliciting bribes. I met others doing harder core stuff, such asLight Engines, which has a sophisticated lighting technology — although it is hardware, not the stuff Silicon Valley typically invests in.
Now, of course, I’d be delighted if I could report that this Russia is the next India, China or Israel — all places that have seen massive foreign investment in recent years. Russia has among the highest per capita number of students in the world, boasts high levels of mathematics and science education, and being in desperate need of modernization, you’d think Russia would be a gold mine for investors. President Medvedev greeted the delegation, and made clear that technology is needed to diversify from Russian oil, gas and metals — which make up 80 percent of Russia’s total exports. That legacy industry is highly influenced by a group of about 22 so-called oligarchs — many of them exerting their power behind the scenes through corruption. Technology entrepreneurship, if it is fostered, will lead to positive change — there is no question. Everyone agrees.
But investing in Russia can be “insanity.”
The more time I spent in Russia, the more complex the story became (and I’m not the first to say that about Russia). The more I learned — about corruption, the abuses of the courts, the terribly archaic educational system, the choked up traffic, the lack of investment in infrastructure, the cultural penchant for Hobbesian brute leaders, the lack of a truly independent media, and the assassination of journalists when they do show independence — the harder it is for me see a positive short-term future for U.S.-style tech investment for this country