The Idea technopark in Kazan has become a sprawling incubator for hi-tech start-ups
After 20 years in Russia, Kendrick White sees the new technoparks as crucial in identifying, nurturing and financing hi-tech winners.
If one investor typifies foreign involvement in Russia’s burgeoning technoparks, it would be Kendrick White, CEO of Marchmont Capital Partners, who has spent the past 20 years promoting horizontal integration and start-up financing to generate demand for hi-tech solutions in the country’s regions.
After stints at PricewaterhouseCoopers and the European Bank for Reconstruction and Development, Mr White set up Marchmont in his native Florida eight years ago. “As an entrepreneur, I’ve been interested in technology commercialisation for my entire life,” Mr White says. “Mathematics, which is the basic language of science, is in Russians’ genetic code – this is the logical place for me to be.”
But the opportunities in today’s Nizhny Novgorod were unthinkable even a generation ago, when the city (then named Gorky) was both closed to foreigners and a virtual open prison for famous scientists such as Andrei Sakharov, a Nobel Prize winner and Soviet dissident.
Following the Second World War, the Soviet government provided generous funding for national security-related research as closed cities – not unlike Los Alamos in the US – flourished across the country. Cities like Sarov (formerly Arzamas-16) – not far from Nizhny Novgorod where White has lived for the past 20 years – were home to millions of people and gave birth to projects such as the Russian atom bomb (directed by Sakharov).
But while the US had a matching wave of entrepreneurs ready to found start-ups and commercialise the offspring of state-funded research over the past two decades, Russia faltered at the first hurdle.
Following the end of the Cold War many of the closed cities opened up, but funding was slashed, and nobody filled the gap between science and the free market. But in the past five years, many special economic zones (SEZs) and technoparks have sprung up, aiming to benefit from Russia’s vast scientific potential and wean the country’s economy off its raw materials dependency.
Bright idea
“There are currently over 90 technoparks and special economic zones offering various tax breaks and cheap office space,” Mr White notes. “Probably about half of them are not effective because federal and local officials approached them as huge real-estate projects without establishing the critical relationships between scientists, entrepreneurs and venture funds.
“They thought they’d build the infrastructure and the market would take care of the rest. It doesn’t work that way – but now the technopark is finally seeing an influx of entrepreneurs.”
The sprawling Idea technopark in Kazan (450 miles east of Moscow on the Volga River) was set up on the grounds of an abandoned defence plant in 2004 with the aim of creating hi-tech businesses. By providing two key services – cheap rent and sound business advice – the technopark graduated enough firms within three years to become self-sustaining; by 2007, its companies were paying enough taxes into the local budget to repay the start-up capital.
“For the past few years, we’ve been independent of the regional budget, and this is important,” says general director Sergei Yushko. “Our experience proves technoparks are a viable model for economic development.”
Most of the companies at Idea provide engineering services, software or web design. One such company, Smarthead, has scored top-notch clients as diverse as Honda, Danone and L’Oreal.
After three years, graduates of Idea have the option to leave the technopark, usually securing bank loans independently to acquire office space, or moving into its business park, where rent is no longer subsidised. There, neighbours include the local R&D branches of international behemoths such as GE, Honeywell and Siemens.
“The foreign companies come, first and foremost, for the qualified personnel,” says Mr Yushko, arguing that intellectual capital is the key to added-value projects. “I’m a believer in the unpopular notion that we don’t need factories in Russia. Production will eventually be moved to where you have cheap labour. Our advantage is people and their ideas.”
Exciting times
Kendrick White believes that the government’s investment of billions of dollars into special economic zones and technoparks is now paying off. “They’re starting to get to the root of the issue – how to get the flow of new companies into them and successfully commercialise science,” he says.
“This is will be the exciting phase over the next five years because the officials in Moscow at Skolkovo, the Russian Venture Company and similar organisations now understand this.”
“Games and programming outsourcing have been the first signs of Russia’s emerging hi-tech sector, but I’m a lot more excited about projects in microelectronics, medical sciences, nanotechnology, chemistry, space and quantum mechanics that will gain global recognition in the coming years,” says Mr White.
“If you go into any Apple store in the United States, you’ll discover that a surprisingly large number of their top 100 products come from Russia,” says Pekka Viljakainen, an adviser to the Skolkovo Foundation. “But most of them have offices in California and hide their Russian origins.”
“I’m currently invested into the [St Petersburg-based] Speech Technology Centre, which is developing cutting edge voice-recognition software, and Borean Electronics. These will become well-known brands globally in the coming years.”
For his part, Mr White singles out Kuzbass technopark in the coal-mining Siberian region of Kemerovo for developing coal-based sorbents to absorb oil spills,and the pharmaceutical cluster in Obninsk (“home of the peaceful atom”) offering cutting-edge solutions to medical problems.
Horizontal integration
In the US, it was the Bayh-Dole Act of 1980 that played the “critical role of transferring patent rights from the federal government to universities and small businesses,” says Mr White.
“A Russian equivalent is currently under development in Russia’s parliament. This is critical. What Russia’s leaders are beginning to realise is that it all has to be part of a comprehensive ecosystem,” he says.
“In addition to building up the technoparks’ infrastructure, you need to link them with scientists in nearby universities and provide management training. You need a proof-of-concept centre to test the commercial viability. Then you need an accelerator programme that can contribute real money to developing a prototype.
“Soviet tradition has most scientists and entrepreneurs looking to budget-holders in Moscow for money; what needs to happen is local horizontal integration between all these forces.”
Source: telegraph.co.uk