When tech startups are being considered for resident status at the Skolkovo innovation centre, one of the conditions for acceptance is that their product or service must have potential for export. Skolkovo’s mission is not import substitution; on the contrary, it is about creating innovative tech companies that will be in demand abroad. But the process of entering international markets is far from straightforward for small startups. To help Skolkovo companies navigate foreign markets, the Skolkovo Foundation last year launched a department of international investor relations headed by Benjamin Wilkening, a German businessman and business angel. Wilkening explained to Sk.ru how his department helps Skolkovo startups to enter foreign markets, what the most promising markets are for Russian tech startups, and how attitudes to Russian companies vary around the world.

Benjamin Wilkening, vice-president for international investor relations at the Skolkovo Foundation. Photo: Sk.ru.

Wilkening describes the mission of his department as helping startups with international expansion, business development and international financing. The office provides free international strategy audits for startups to determine whether they are ready to go abroad, and after that, it is a paid service consisting of four stages, the first of which is developing a market entry strategy.

“Many of our 1,800 startups have an internationally competitive technology, but that doesn’t mean they have an internationally competitive business,” explains Wilkening, who has been doing business in Russia since 1993. “It takes a lot of resources and company building.”

The first task therefore is to help the company to understand and plan its resources, and establish a clear path to the market.

“Theoretically, you can be anywhere in the world if you have a unique world-first technology, but you need to pick your battles and understand where you go with which resources. Is this a product for developed markets or emerging markets, where are the industrial clusters where this product or service is most in demand, how much money do you need to achieve these goals?” says Wilkening, who began his career in Russia at the McKinsey global consulting firm.

Many Skolkovo startups produce B2B services and products, and are accordingly focused on well defined niches, so Skolkovo helps the companies to find a relevant partner in their target country: for example, if the company has a product that is suitable for RZD (Russian Railways), Skolkovo will look into approaching national rail operators in their target country.

“The whole idea is to take something that has worked here and find the best application abroad,” says Wilkening.

"Germany is a good launchpad to conquer all of Europe ... if you can make it in Germany, you can make it anywhere in Europe" - Benjamin Wilkening

The second stage, known as “door opening,” is probably the most valuable for Skolkovo startups, according to Wilkening: the foundation draws on its network, knowledge and experience to open the door to major foreign companies and to win contracts with them for the startups.

“Getting in the door at [German rail company] Deutsche Bahn is one thing, but then following through and leading the whole process to a commercial contract can take six months or a year, and it’s not just a question of language,” explains Wilkening.

The third step is country entry support: setting up an office in the country, establishing the correct legal structure, and creating a permanent distribution network. Even if countries have several pilot projects and have found a distributor, “if you really want to be successful in the market, you need to have a presence there,” says the German businessman.

Hunting investors

Only once these three stages are complete does the international investor relations department embark on the fourth: international fundraising support.

“If you have an aggressive international expansion strategy, you will need money for that,” says Wilkening, pointing out that startups can get funding on more attractive terms from international investors than they can in Russia.

For Skolkovo startups, a likely source of investment is corporate venture funds of strategic partners, he said.

“If you have a product that’s attractive for Deutsche Bahn, there’s a good chance its VC fund will invest in you. So it’s a lot more strategic work in terms of finding the right investors rather than just going out in the market,” explains Wilkening.

“The real bottleneck is not the technology, market challenges or getting the money; the real challenge is getting a team that is able to implement such an international expansion,” he says, noting that the startups still have their Russian operations and often ongoing R&D to manage at the same time as opening and developing an office abroad.

One of the companies the international investor relations department is currently working with is Anisoprint, whose CEO Fyodor Antonov is seen here demonstrating his 3D printer to Prime Minister Dmitry Medvedev. Photo: Sk.ru.

The international investor relations department is currently working with Anisoprint, a resident of the foundation’s advanced manufacturing technologies cluster. Anisoprint has developed an innovative 3D printer that uses continuous fibers reinforced polymer (CFRP) composite materials, producing objects that are more than 15 times stronger than regular 3D printers. Wilkening’s team is currently working simultaneously on the market entry strategy and door opening, communicating with industrial giants such as Airbus, BMW and Siemens to help the startup find partners in Germany.

The potential of Skolkovo startups on international markets is huge, Wilkening believes, but a successful launch is not a speedy process, he cautions.

“Each of these projects can take six to 12 months in total. We can only do so many in parallel,” he said, noting that the department, which was set up last July, is something of a startup itself, and currently consists of three people.

“We pick the startups that are really ready for international expansion. It’s a limited number of startups right now, but it will have a very deep and long-term impact,” he says.

Know your customer

The department’s network is, unsurprisingly, strongest in Europe. Wilkening lists two reasons for many startups to initially focus on Europe.

“What we work with is deep tech, sometimes hardware solutions for industrial B2B clients, and this is still a European strength, particularly a German one,” says the investment expert.

“In many cases, it’s a good launchpad to conquer all of Europe,” he said. “It’s like the song ‘New York, New York:’ if you can make it in Germany, you can make it anywhere in Europe. And frankly, as a German, my network is strongest there, so it’s a natural starting point – but we’re not limited to it.”

"There have still been far too few successful stories of Russian tech companies coming to the West, and I think that’s our main challenge." 

The second reason for Europe’s appeal is its proximity. The further away the foreign market, the more difficult it becomes for the company’s management to control the process, says Wilkening. Many tech startups of course dream of going to Silicon Valley, but it’s a “very local market” that it’s hard to break onto unless the company’s management is perceived as being permanently there, he said.

“It’s possible, but it’s very difficult and I would say mainly limited to internet or software solutions that can be made and distributed without a physical presence. I think having a physical product set up and distributed in the U.S. is really difficult. Even with an IT or software service, it’s still very hard: you still need to be closer to your investors and your customers.”

The target market can depend on the technology: if Germany is the Mecca for industrial tech, then for fintech, the U.K. can be a good landing point, while for retail tech, France is a leader, explains Wilkening.

“Really you should pick where the cluster of your clients is. If you look at Germany, there are two hubs. If it’s more IT-related, it probably makes sense to go to Berlin. If it’s more industry or hardware-related, you go to Munich – that’s where we’re going with Anisoprint. BMW is there, and Audi and Siemens. That’s the place to be for a company like Anisoprint.”

Next month, the department is planning to take several Skolkovo startups on a business mission to the Munich Mobility Hub, part of the government-backed Digital Hubs Germany initiative. The Skolkovo residents will demonstrate technology that could be used by industrial companies active in Germany.

“The Mobility Hub cooperates with BMW, Daimler, Audi and MAN in Germany; they’re big investors,” meaning there is major potential for Russian tech startups to find industrial partners and clients, says Wilkening.

Wilkening addresses a delegation of Japanese businessmen at the Skolkovo Technopark. Photo: Sk.ru.

There is huge demand for Russian products and technologies in China, but the risks associated with technology transfer there (non-secure intellectual property rights) add a level of complexity to those seen in the U.S. and Europe, says Wilkening. The Skolkovo Foundation has a Beijing office with which the international investor relations department is in close cooperation.

“We have [Skolkovo’s representative in Beijing] Evgeny Kosolapov on the ground, and he knows the [potential] partners, he can check them: he is the conduit to do business there in China,” says Wilkening.

“I think longer term, what we would want to do in cooperation with the international cooperation department is basically to have a network of hubs of our representatives who can develop the interests of our startups.”

Business as usual

Political tension between Russia and Western countries has not had a significant impact on international investment in Russian tech companies, says Wilkening, though it can depend on the industry.  

One of Wilkening's tasks is overcoming political barriers. Photo: Sk.ru.

“We have the best cybersecurity companies in the world: Group-IB is one of them,” he says.

“Some people say, ‘yes, we understand Russians are the best at cybersecurity, let’s work with them,’ others say ‘they’re going to spy on our stuff and go to the FSB and we will not deal with Russia;’ end of talks. I’ve had both reactions,” says the Skolkovo vice-president.

“That’s one of our tasks, to help overcome these political barriers and find partners who are open to work with them. Group-IB is an excellent example where I think we will be able to help find entry points where these political issues are not a criterion, but rather what happens business-wise.”

Europe is more open to doing business with Russia than the U.S., says Wilkening.

“In the U.S., it’s more difficult to separate. Some [companies] are unpolitical and only look at business, but it’s more difficult these days. When I talk to German industrial companies, they’re more annoyed that there are restrictions and sanctions. A lot of them have long histories of doing successful business in Russia and are still doing so. Formally, it has hampered the processes, but I think the attitude in general remains pretty open,” he says.

The international investor relations department also faces a general challenge: to make Russia as a tech nation understood.

“People in the West know that Russian scientific education is the best in the world and scientific minds are still the best, and they think it’s all theory. Our task is to convince them that there are commercially viable products and services, and companies that can act successfully in the West. There have still been far too few successful stories of Russian tech companies coming to the West, and I think that’s our main challenge,” says Wilkening.

“Our main task is to say: Russian tech is something to be reckoned with.”