Government, hands off innovation!
Don Wood, DFJ – to President Medvedev: "The best thing the government can do is get out of the way"UNOVA.Ru
The top 21 of the largest US venture capital fund met with President Dmitry Medvedev. This meeting is the key event of the first day of VC Trip to Russia, which started on Tuesday, May 25. It was held in a country residence in Gorki. The event turned out to be informal, and a real controversy broke out between the guests and the host on the issues of innovative development of Russia.
The general opinion of investors about the initiatives of the authorities was expressed by the guru of venture business, the head of the Draper Fisher Jurvetson fund, Don Wood.
My company has been on the market for 25 years and has invested 650 startups. We have done it not only in the USA, but also in India, China, Brazil, Europe, and we would like to start doing it in Russia. We have already established a partnership with VTB and Rusnano to create a new venture fund, and we are full of enthusiasm in this regard. We are ready to bring 25 years of our experience, to help local managers here in Russia in the search for a new generation of entrepreneurs.
Our company was lucky: among our past investments there is Hotmail, which is used by 400 million people, Skype, a free Internet telephony service, which is used by 800 million people around the world, the Chinese search engine Baidu, which is used by 400 million people. Among the outstanding companies that we are financing right now is the electric car manufacturer Tesla, which raised Toyota money this week, and Daimler–Benz money a little earlier, and if everything goes well, then in a few months Tesla will be the first car company since Ford to go public in the United States.
We are also financing the biotech company Synthetic Genomics, which this week got on the cover of Life magazine – the scientists of this company managed to create artificial life: with the help of a computer program, they managed to collect a bacterium that began to multiply itself. This is a historic event, and it was created by a young company relying on venture capital.
These are the companies we invest in in the USA. Over time, companies raised with venture capital money created 20% of US GDP. The venture capital industry is very important. These companies grew out of wild ideas, wild ideas put forward by 20-year-olds. In fact, if you look at the great companies founded in the USA – Apple, HP, Cisco, Google, IBM, Yahoo!, Facebook – they were all founded 20 years ago. At this age, people are not afraid of anything. They have nothing to lose, and they are ready to take huge risks and make bold challenges. I know that you, Mr. Medvedev, founded the company yourself at the age of 25. I do not know what she was doing, but it was a company. And motivation, entrepreneurial motivation – that's what Russia should support.
This morning we heard a lot about innograd from Viktor Vekselberg. Vekselberg turned to us for advice. He said – we have a plan, what can you advise us? And our group gave him a lot of valuable advice. He wrote everything down and eventually left the meeting with five pages of advice.
But he asked us to pass on his advice to you. And I have compiled a short list of our recommendations.
First, we believe that the creation of a special city is a noble attempt. But this is just a piece of the solution to the problem. Entrepreneurship, innovation is a state of mind, not a place or a building. Russia has yet to make a real leap to such a state, but for this to happen, one important thing must happen, and we also talked about it - you in Russia must begin to respect entrepreneurship, support and encourage it in every possible way. Young entrepreneurs should be your heroes. This is exactly how things are in Silicon Valley – our entrepreneurs are real heroes, not politicians. Politicians are heroes in Washington.
We also understand that 9 out of 10 (and in recent years even more – 19 out of 20) entrepreneurs fail. We forgive them their failures – we let them try again and again, we give them a new chance all the time.
Entrepreneurs should start a business. And not only in Skolkovo: let them start in the same St. Petersburg, where you opened your business at the age of 25. You have to create a virtual innograd all over the country.
Perhaps in Skolkovo you will have resources that will help entrepreneurs create companies, both in Skolkovo and throughout Russia. The main thing you should be sure of is that you encourage entrepreneurs all over the country.
One of the important things is that every employee of the company should receive a package of its shares. This practice appeared in Silicon Valley at the stage of its inception, and Hewlett Packard was a pioneer here. They gave each employee a piece of the company – this may require some changes in the law, in terms of options – but it was this, the ownership of shares, that created Silicon Valley.
It is also important to build innovation centers around good universities. The valley originated around Stanford University and the University of Berkeley. They have a very open policy: if a teacher or student has invented something, they have an idea, they can leave the university and create a company. In fact, this is exactly the way the current president of Stanford, John Hennessy, went: he was a professor at Stanford, then he founded a company, very successful, and left the university, then returned and became president, and he understands the importance of the university in the innovation ecosystem. Building around the university is the key thing.
Another tip from our morning meeting is that it is not so important to create benefits and incentives, for example, tax breaks or grants. This is good, but it is much more important to remove barriers to innovation. There are a lot of them now, and the best thing the government can do is get out of the way.
You have to create a good legislative system, protect intellectual property and private property, but you have to get out of the way and give entrepreneurs the opportunity to innovate.
Don't put a frame. I know that Rusnano is a great organization. But why are they only engaged in nanotechnology? It is extremely difficult to predict exactly where entrepreneurs will start creating innovations. If you force them to innovate in a certain area, it only limits their capabilities.
I think it is important not to put sectoral restrictions. Don't say, "Innovate here!". Open up! Perhaps it will really be nanotechnology, but in fact there are still many important sectors.
An important thing is the attraction of foreign capital. Attract Western partners to funds, attract investments from Western funds to companies, and let investors register wherever they want. About 10 years ago, the Chinese allowed entrepreneurs to register companies offshore, because investors were afraid to invest in China itself. As a result, a real stream of investments poured into Chinese companies, even if they were registered offshore. Today, investors are no longer afraid to invest in companies whose headquarters are located in China.
I would suggest that you do not put additional restrictions on investors in Russia related to "registration", you do not need to force them to register on the territory of Russia. Let them register wherever they want – do not put rules and restrictions.
In general, you should not get attached to borders – borders in the modern world with its telecommunications are absolutely not important. Don't lock people up in one city or one country – teach them at a good university and let them innovate.
One more thing: I know that you are interested in energy efficiency and clean technologies and are actively investing in this direction. This is very important for the venture industry – it is the fastest growing sector of the venture industry, what we call clean tech. These are wind, sun, biofuels, lighting efficiency, for example, LED. If the same USA switches to LED, they will save up to 20% of electricity. I know you have your own program switching to energy-saving lighting. So, today this is the second largest venture capital investment sector, and I want to say that when you invest in companies, these companies must be competitive in the global market. If it is a Russian company, then it should be able to sell its product in the USA, and vice versa – an American company that has achieved a breakthrough should be able to sell its product in Russia.
The last thing I would mention is that a significant part of the foreign investment that has flooded into Russia is direct investment. People bought real estate, shopping malls, cable TV channels and other infrastructure facilities. That's good, but it's not something that will change your economy. The economy is being changed by breakthrough innovations supported by venture capital. And venture capital does not tolerate restrictions. Be alert and draw the line between direct investments in reliable, low-risk projects and high-risk venture investments in innovation. Support the latter. Then, over time, your venture capital industry and technological innovations will give 20% of GDP. That's my advice to you.
Portal "Eternal youth" http://vechnayamolodost.ru27.05.2010