Russian Startups – should go beyond borders and above politics

As the political situation in Russia become more uncertain with the international community, there was a decision to be made to go to Russia and attend the Startup Village event, organized by SKOLKOVO.

After a few deliberations with people in the region, I decided to go ahead and make the trip. I am glad I did and went to the event. The venue of the event was at the SKOLKOVO Innovation Center.  A major initiative of the Russian Government to establish a Silicon Valley style, innovation eco system in the outskirts of Moscow. When you talk to the local stakeholders, they have mixed feelings. Some say it is a waste of money as you cannot create an innovation eco system by having real estate oriented projects. However, I noticed that thousands of people did come to the event. Speakers came from all over the world. Any time when you create an event with  smart and ambitious people at one place, the social density will generate quite a bit of buzz. I don’t know what will come out of the event in terms of successful startups but if they can channel the collective energy going, they can overcome the skepticism.

I saw enthusiasm among participants.

Seven factors in favor of Russian startups:

1.  Russia has a deep skill capability in technology and mathematics. This can be leveraged for global markets.
2. Russia potentially has a huge domestic market of 140 million strong with massive natural resources.
3. There are local investors with deep pockets. The money can keep flowing from traditional businesses and oil businesses.
4. Silicon Valley has Russian success stories which can be motivating for the next generation of Russian entrepreneurs.
5. Russia can be a base for a lot of CIS country’s to establish their ventures.
6. The use of new technologies in traditional industries not only provides local traction but it can be leveraged for global similar markets.
7. Government and Universities are keen to create local innovation eco system.

However, I do feel that Russian startups are at a tremendous disadvantage.

Ten factors affecting Russian startups:

1. The lack of experience in the market based economy is evident.
2. They lack business models to leverage technologies.
3. They lack articulating their stories which is very important for international investors.
4. Local investors wants to have control over the companies and lack the sense of mentoring with limited return. Local investors have not understood that angel investment is not about making money but it is for creating a community of successful entrepreneurs like them. It can be much more satisfying for them if they nurture more successful people.
5. They have cool technologies but in many cases they look like science projects.
6. Culturally there is a lack of trust when you meet people for the first time. In the USA when you meet people, it is assumed that other people you meet are honest until such time they are proven otherwise. In Russia you start with distrust and it will take many meetings and transactions to prove the honesty.
7. Current political situations create uncertainty for tapping global markets.
8. I suspect that local laws are not swift to settle disputes.
9. I observed that people had tendencies to do what they are told and not go beyond the call.
10. Lack of exits and IPO does not complete the model of Silicon Valley

In my future blog entry, I will talk about what a Russian startup should do to be successful in global markets.

kaushal.com