A couple of successful IPOs - and we will have a venture boom
Undoubtedly, even sometimes incorrectly invested money will eventually lead to the emergence of successful companies and the growth of entrepreneurial activity, even if the percentage of success at the first stage will be small, but eventually a new industry and true innovative entrepreneurship will arise
In many ways, Russia's innovative, high-tech development in the coming years will depend on whether appropriate sources of financial support will appear. On the prospects for the development of the venture financing system to the Expert Channel OPEC.Ru Alexander Galitsky, a well-known Russian technology entrepreneur and venture investor in the West, told the story.
– Alexander, you spoke about your return to Russia back in 2004. Did it happen in full?
– Firstly, I have always remained a citizen of the Russian Federation. Secondly, I have a house here, I live here. Now I spend about 2-3 weeks a month here, which is already a lot, given the international nature of my business and lifestyle.
– Tell us about your new venture fund – Almaz Capital Partners. How will it differ from others operating on the market, for example, from Russian Technologies, where you were a partner earlier?
– Indeed, I left Russian Technologies, where I was a partner, in March 2007 to create a fund with partners with whom I have the same views on venture business. I don't believe in the funds that exist with corporations, they don't have a sufficient degree of freedom, and there are not many successful funds known to history. RT was created almost entirely with the money of Alfa Groups, and their corporate priorities and corporate style always remain in the first place. Having spent some time there with benefit and not only for myself, I came to the conclusion that I cannot and do not want to become their full-fledged partner, and that it is necessary to form a completely different venture fund. Therefore, Almaz Capital, which I am collecting now, will be a cross-border, California-Russian, high-tech-oriented venture business model adopted in world practice
– At what stage of development is he now?
At the stage of signing documents. We plan to close the first agreement just a few days ago, and I hope we will soon start investing in interesting projects, we already have them in mind. Our position is that we invest in Russian entrepreneurs, and where they consider it necessary and economically profitable to develop their business is determined by the current business opportunities. I believe that the modern world should have and practically has no borders other than political ones.
– What industries are you planning to invest in?
– We have two main areas of activity in the field of IT technologies – the development of service companies in Russia, as the modern Russian economy is optimally receptive to new business models and the promotion of innovative product companies with global potential to the global market. And the specialization, the set of industries in which we invest, depends only on the availability of relevant experts in our team. We are expanding our team and our knowledge, but, for example, I and the bulk of our team are IT specialists today, so it would be naive for us to invest in biotechnology without involving a specialist in this field in the team.
– Is Almaz Capital Partners going to participate in the competitions of a Russian venture company? How do you feel about this form of state support?
– To date, in terms of participation – negatively, and in terms of, in fact, the state initiative – positively, but with a few amendments. Firstly, I believe that the state should direct its funds, first of all, and support the risky stages of early stages of investment, i.e., practically, to zero, high–risk stages. One Bortnik fund is not enough at all. Secondly, today the model according to which RVC proposes to create venture funds is unconventional.
– A closed-end mutual fund?
– Yes, and not only that. Usually funds are created on the basis of a commitment – an obligation to transfer money as needed, and not a real transfer of money to the account of a certain company. Therefore, if a fund of $100 million is created, then limited liability partners gradually transfer this amount, being able to dispose of the money until the fund needs it. In Russia, if the state gives $50 million, then the other party must also transfer $50 million. In addition to state institutions, such as VTB, no one will or will be able to do this (the result of the three management companies that won the first RVC competition is only VTB.. If for VTB it is the transfer of money from one account to another, then for private investors it is the withdrawal of money from business.
The second restriction is a ban on investing in companies registered outside the territory of the Russian Federation. No successful Russian company, be it Vimpelcom or anyone else, has started its business as a 100% Russian company registered in the territory of the Russian Federation, because there is virtually no protection of shareholders' rights, protection of investments in the Russian territory. Until the legislative acts are put in order with international ones, taking money in order to invest in purely Russian companies is a very risky undertaking.
And third, let's say you have invested money in some promising company, and next to you someone has invested money in, say, the construction of a perpetual motion machine. The prosecutor's inspection of the use of public money will look at your investments (which may be unsuccessful for justifiable reasons) in the same way as investments in a "perpetual motion machine" for a certain "washing machine".
– Is public money able to play a key role in the creation of the Russian venture industry at all?
– Undoubtedly, this has played and is playing an important role in all states. Even mistakes, sometimes incorrectly invested money, will eventually lead to the emergence of successful companies and the growth of entrepreneurial activity, even if the percentage of success at the first stage will be small, but in the end a new industry and true innovative entrepreneurship will arise, and not eating budget money. Any movement in this direction is positive.
– What is happening now with the image of Russia as a technological power? What is our image in the eyes of California venture investors?
– In comparison with China and India, Russia is not popular, there are many reasons for this. First of all, we have an incomparably smaller population and besides, until recently, the market was not so dynamic to pay attention to it. Even if you take a large company, for example, Microsoft or another, then Russia will account for 1-2% of sales. But today there has been a rapid growth dynamics, so they began to look closely at Russia.
Secondly, the well–being of people who allow themselves to spend significant amounts not only on real estate, but also on goods has increased. You see how sales of, for example, cars are growing.
But still, in order for the global venture capital industry to pay attention to this, several events must happen. The emergence of a large potential sales market here is important. It is slowly forming, but nevertheless, it is 240 million Russian speakers or those who understand Russian, even if they claim that they do not understand it.
On the other hand, there should be criteria, examples of success. Therefore, the success stories of several companies with a successful IPO or exit will become precedents that people will want to repeat. This will be a lure for Western venture funds, a motive to come here.
Today, in the USA and Europe, everyone looks at Russia opportunistically. Because, even if we take those companies that participated in the Tech Tour in 2004 (Alexander Galitsky's initiative to search for promising Russian high-tech companies), they hardly received money from Western venture funds. Although the same SW Soft (now Parallels, today the world leader in computing virtualization) then bought several companies in which those people who came to the Tech Tour invested. Foreigners understand their mistake with the same SWsoft or Acronis, but in order for psychology to change, we need several examples of really great success. When Skype started playing, you can't imagine how many people from all over the world rushed to little Estonia, where it was essentially designed to look at the Estonian miracle and find a new a la Skype. It was a whole crowd of entrepreneurs and venture capitalists. If something comparable arises from Russia, they will come here.
To date, unfortunately, none of the familiar venture investors of the top league looks at Russia seriously enough. But several very good funds are interested. These are Asset Management, Index Ventures, Bessemer Ventures, Wellington partners, Benchmark Capital and others. These are people who have sensed that something is going on here and are starting to try with one or two attachments. But this, of course, is far from a mass campaign today.
– If the pace of economic growth and the political situation are maintained, how long can it take until the flow of foreign venture investments becomes noticeable?
– Not so much, everything is determined by success stories. If there are a couple, three successful IPOs tomorrow, then I assure you, the boom will begin in the same way as it began in Israel or Ireland. In the same Israel, there was no development for a long time, despite the built Intel plant, open R&D offices of other companies and many government initiatives. But as soon as Check Point and another company entered the IPO and announced their billion-dollar value, everyone realized that you can earn much more in the software and high-tech industry than in any other.
A good and smart state understands the need to stimulate this process – even if people leave and open offices abroad, this is a success, because they, like normal people, will still return to their homeland. The example of Israel, India, China and a number of other countries has turned out to be quite contagious: over the next 2-3 years, foreign venture investments may pour in to us.
Portal "Eternal youth" www.vechnayamolodost.ru19.02.2008