Government fund of funds
Development institute of the Russian Federation

Press about RVC

"Strategy is the art of giving up some opportunities"

12.02.2018
Source: Expert

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“Expert” is told by the Chairman of the Board of Russian Venture Company Alexander Povalko on the problems of venture financing and the difficulties faced by the implementation of the National Technological Initiative

Russian Venture Company (RVC) is one of the main development institutions in Russia. A year ago, RVC changed its leadership. Recently, a new strategy for the company's development for the years 2017-2030 has been adopted — in many respects this was due to the fact that the government assigned to RVC functions of the project office of the National Technological Initiative (NTI). In particular, RVC is responsible for providing project management, implementation of road maps and NTI projects, effectively replacing the Agency for Strategic Initiatives in this field.

RVC has been holding a contest of rapidly developing companies called TechUspekh for many years, on the basis of which the Ministry of Economic Development selects "national champions" within the framework of the priority project "Support for private high-tech leading companies". This procedure was first carried out in 2016. In December 2017, the results of the second selection were summed up.

We met with Alexander Povalko, General Director and Chairman of the Board of Russian Venture Company, to find out what it means to be an NTI project office, what are the prospects for the RVC venture program and, in general, venture financing in Russia. Since our conversation took place at the Gaidar forum, where, in particular, the results of the selection of the national champions 2017 were discussed, we began by asking the following question:

— One of the goals of the competitions National Champions and TechUspekh — the cultivation of world champions. What has already been done for it? And what else should the State and business do?

— When last year we communicated with national champions, we were surprised to find out that an active expansion into the world markets is a task that very few companies set for themselves. That is, they do not want to become world champions.

It is more comfortable inside the country for many. Rather, they ask, "Give us some preferences within the country, we will practice here, build strength and mass, and then, of course, we will be a breakthrough in the foreign market."

In some ways, this strategy is correct, but they should not forget that on this way they are fatally losing time. Moreover, in the world markets, their replacement, perhaps the most advanced products today, occurs instantly. After this, in order for them to enter the world market, they will have to update again.

— For two years the number of national champions has reached 62. How many, in your estimation, do we have potential national champions? After all, not all possible contenders participate in competitions.

— According to the organizers of the contest, 15 to 20 per cent of the total number of those who can qualify for the championship took part in the contest TechUspekh last year and for the selection of this year.

"Why do not they show any activity?" Have not they began working in full swing yet or are they afraid to become visible?

— Firstly, it is not very clear to many that the State can offer them. The concierge service is fine, but they do not always understand exactly what this means.

Secondly, not everyone really likes extra attention. "We are already quite a successful company. We have a dynamically developing business".

Thirdly, participation in such competition, promotion of the company is a diversion of resources. The need for certain organizational efforts.

I think that if we achieve a clear value proposition on the part of the State that is understandable to the whole business, if we not only formulate it, declare it, but also realize it, the interest in these competitions will increase dramatically.

— Meanwhile, in recent years, China has grown many not just world champions, but super-champions ...

— China has a large internal market and a very tough decision-making vertical. If a decision to grow is made, for example, a telecommunications company that must occupy a certain share of the world market, then it is done consistently, without regard for compliance with the requirements of fair competition.

I'm afraid that having the capacity of the domestic market, which is not comparable with the Chinese one, will not work out of the desire to simultaneously observe abstract market approaches and grow global champions. At some point, we will have to withdraw from market restrictions, so that our companies can win global positions.

There is another problem: what and how should be done that companies that have won global positions could remain in the Russian jurisdiction. This is the main important thing for me. Because when companies enter the foreign market and start working according to the rules of the big market, they arise interest, and investors come to them. The company is tied to a large number of buyers in the foreign market, which make certain demands. For example, preference is given to companies that have left the Russian jurisdiction. Moreover, it is not very clear for the company why it should pay taxes in Russia.

— And what, in your opinion, can be done to keep them?

— We must have a competitive jurisdiction. Taxes, property protection, customs, quality of life of employees. We are competing with the whole world. Especially, if we talk about companies of the new digital economy, which are very mobile.

Our Government is moving in this direction. Quite powerfully, the support for exports has gained. Decisions were made to support IT companies in terms of payroll taxes. There are zones with individual regulation, starting with Skolkovo and ending with areas of advanced development. But, of course, all the time it is balanced by some measures to protect the interests of the state.

For companies, the question of which jurisdiction to work in is the issue of their risk assessment. But the state, when making certain decisions, assesses its risks. You can inflate any risks to cosmic proportions or you can assume that there is nothing special about them at all. This is a matter of balance. We will shift this balance towards a high assessment of the potential risks for the state.

In Belarus, which, for example, has opened all the possibilities for crypto currency, they are rather underestimated. However, the fact that there will come a large number of developers who will try, will look for new technological solutions and there will take off the development of technology — that's for sure.

In Belarus, initially decided to support the IT sector. The result was, for example, the placement of the main development centre of a huge company Wargaming — a publisher and developer of computer games. These people are very pragmatic and mobile. They are ready to move and work where it is more convenient, more profitable, and surely more comfortable.

— RVC is a venture company. Nevertheless, there is an impression that something did not work out in Russia when it comes to venture financing.

— From the formal point of view, we have all the infrastructure of venture financing. However, it really is not that big yet.

To explain this phenomenon, when we started to deal with the new RVC strategy, we asked ourselves about the impact of socio-cultural gaps on economic activity, which are affected in particular by factors such as risk aversion - both by entrepreneurs and, to a lesser extent, by venture funds.

The funds have enough money. However, they lack the Russian market, because the number of projects is not sufficient. Even more so, the problem is that it is not very clear how the fund should get out of projects. The buyers of venture companies are usually large companies. In addition, we have large companies that are greatly interested in technological developments. Nevertheless, they are not interested in technological developments related to risks. They are not interested in looking for and taking start-ups — small companies from the market. This was well seen in the oil industry. Say, an oil refinery is building some new plants. Since the investment is huge, it takes a technology that has already been tested, is already installed somewhere, and there is a vendor who installs it. There are guarantees of this vendor (this is a big company) that everything will work as stated. Besides, you are not ready to take on any risks associated with some innovations.

However, at the moment when you are faced with the fact that you stop supplying these plants or stop supporting equipment, as it is now, due to sanctions, the question arises as to the company's technological independence. However, there are technologies that cannot be bought without sanctions; they are forbidden to sell to third countries.

Now we see changes. Because of the sanction history, the oil industry began to invest heavily in its development and in the development of the subcontractors. In addition, there are quite competitive programs already in place. For example, interesting solutions for the software for the oil industry have been introduced, which until recently was a problem.

— You've mentioned the work on a new strategy of RVC. What is the difference between the new strategy and the old one?

— Considering that RVC is a relatively small company, we, assessing our resources and starting from the logic of the need to overcome gaps, decided to focus on two things. The first one is a return to active politics as a financial institution. Secondly, we focused on the National Technological Initiative, limiting all other areas of its activities. In particular, we concentrate our infrastructural activities on selected areas.

RVC used to have quite a comfortable partner position, assuming that we invest a little bit, but everywhere. This "a little bit", unfortunately, does not provide a systemic shift. Now, we rather need point solutions, but significant ones. It's a very inertial system in which we are working; you need to concentrate in order to move it!

It is known that strategy is the art of giving up some opportunities, the art of choosing from all variety.

— You became the project office of NTI. What else is this activity about?

— There are several areas of work in the National Technology Initiative. First, the most obvious is the selection and support of projects. We have different mechanisms: grants, investments in the authorized capital, loan financing, non-financial mechanisms (for example, concierge support).

The second direction is working with the regulatory field. Here we rather accompany, and do not make decisions, because the main source of proposals and information about what barriers hinder and how to remove them, still come from business, and to work with these proposals, a special working group has been formed in RVC. It made a road map project: which documents should be changed, which ones should be cancelled, which ones have been developed. And this road map is being implemented with our help.

The third is the removal of technological barriers. RVC, of course, does not remove them. But as an institution of development, we are an operator in the university centres of NTI. A government decree on technological competitions is being prepared. These are big tasks, big challenges that are overcome by teams.

Now in the pilot, we have two competitions, for which there are technologies, but they are limited by certain limitations. For example, an unmanned car does not ride in bad weather such as snow and fog. We have one of the competitions called "Winter City": the movement of an unmanned vehicle in winter conditions, in conditions of variable traction, unexpected obstacles, poor visibility and so forth. Today, there is no such a solution. To solve this problem, all the manufacturers of drones joined together.

Another direction is educational. The NTI University is being established, educational activities on technological entrepreneurship are held there on the basis of our partner universities and our department at MIPT.

— The NTI University is exactly a university per se ...

— We communicated with our partners — various business and non-business structures - and came to understand that it is very difficult to solve the problem of personnel by standard methods in the changing markets.

Moreover, if we are talking about entering new markets, then the staff are a very difficult story, they are in a huge demand. Even for the positions that we have, we are talking about the shortage of tens of thousands of people. Both in IT and in mechatronics, as well as in biotechnology and energy. There, by the way, provision is made for the training of administrators. One of the first modules is designed just for data administration.

In other words it is rather a system of additional education based on modular solutions, courses of varying degrees of duration, from very short to fairly long ones. It will be built as a system of search and selection of courses, which are read by the best specialists in their field.

This is a project aimed at overcoming the personnel gap, and we plan to work with the best universities - both State and corporate ones.

— Approximately one year ago in Expert, there was published an article called Advanced Reality, in which the chosen directions of NTI were critically evaluated. In your opinion, how real are they from the point of view of conquering world markets? Maybe a rethinking of the chosen directions is required taking into account the new realities?

— In my opinion, the journalist, being carried away by criticality, somewhat lost objectivity. Although, it was rightly drawn attention to the quality of some road maps in that article. They really were made very quickly. Due to this, not all problems were taken into account. But now there is a process of their system update. This year, we should update all road maps in the new logic of overcoming gaps and passing through certain stages. Based on the results of each stage, a decision will be made as to further development of the map.

Even now we can see that we were too optimistic about the timing of the development of some markets and solutions. For example, drones are developing much faster than we expected. In the world, there are already a lot of players, a lot of resources, and many solutions are offered. However, we were not fatally late: we have laid the foundation for the development of these areas, and everything remains important.

We constantly supplement the list of road maps. Now we have a separate roadmap for digital production and for factories of the future. It is actually a digital twin of production, which builds the whole logic of production organization. In Russia, there is yet no complete package of its software to solve this problem. Its basic solution is to create an integrator platform with its gradual expansion. At the same time, we came to understanding that the hard choice of performers, which kills competition, is wrong. The hard choice, a bet on one team lead to a very high price error.

The entire National Technology Initiative, as well as the program of the digital economy, that we should have global companies. Moreover, we are confident of such possibility.

— How does RVC's activities as a NTI project office be combined with participation in TechUspekh and National Champions competitions, which cover a much broader list of technological areas than the list of NTI projects?

— RVC plays a leading role in the formation of the TechUspekh rating. We are interested in attracting as many companies as possible. The National Technological Initiative assumes the outrunning development of new markets in the country and the achievement by Russia of global technological leadership in these markets in the long term. That is why we believe that it is of the utmost importance to involve new medium-sized fast-growing companies in NTI, identified during the tenders, perhaps with some adjustment of the focus of their activities in the NTI markets.

If the activity of the winners of these competitions does not fit, say, in the perimeter of NTI or in the projects of development institutes, then, in general, we have the opportunity to provide grant support to such projects. On the other hand, financial support in the form of entering into capital. We do not rely solely on our own strengths as we have partners. For example, the VEB Innovation Fund is of great help.

In turn, we count on what the national champions certainly possess — the ability to create new products fast, efficiently and effectively. We cannot ensure the viability of new projects as we lack enough powerful companies that are not trapped within their track, ready to accept the risks associated with entering new, even emerging markets, in exchange for the most comfortable support from our side.

NTI is a good idea. If we continue now its effective implementation, then in five to ten years we will be able to achieve leadership in the chosen areas.

"Almost all the institutes that are considered necessary for the successful operation of the national innovation system have been created by us. Nevertheless, there is always talk that it is still not functioning. To what extent are these complaints justified? What needs to be done to overcome this problem, if it exists?

— In terms of institutions, we have almost created everything, and those that do not work efficiently ... I am impressed by the explanation associated with insufficient consideration of socio-cultural factors. The enthusiasm of transferring someone else's experience to our native soil without taking these factors into account leads to the fact that you have everything formally, but these institutions turn out to be alien to a Russian reality. However, they can and should be adapted. It is necessary to adapt people to the ability to use these institutions. Meanwhile, institutions should consider these factors. It all depends on specific people who need to constantly look for and attract to our work.



Povalko Alexander Borisovich, General Director, Chairman of the Board of RVC.

1992 — Graduated from the Moscow Aviation Institute named after Ordzhonikidze, specializing in radio engineering; 1996 - graduated from the State University named after Maimonides with a degree in Applied Mathematics.

From 1994 to 2007 — senior consultant of the appraisal department, project director and director of business development of PAKK.

From 2007 to 2008 — Director of the Strategic Planning Department of Renova StroyGroup CJSC.

From 2008 to 2012 — Deputy Head of the State Committee of the Russian Federation for Youth Affairs, Deputy Head of the Federal Agency for Youth Affairs.

From June 2012 to December 2016 — Deputy Minister of Education and Science of the Russian Federation.

In December 2016, he was appointed to the position of General Director of RVC.

We cannot ensure the viability of new projects as we lack enough powerful companies that are not trapped within their track, ready to accept the risks associated with entering new, even emerging markets, in exchange for the most comfortable support from our side.

The enthusiasm of transferring someone else's experience to our native soil without taking these factors into account leads to the fact that you have everything formally, but these institutions turn out to be alien to a Russian reality. However, they can and should be adapted. It is necessary to adapt people to the ability to use these institutions.

RVC is a governmental fund of funds, the Institute of Development of the Russian Federation. The main objectives - to stimulate creation of Russia's own venture capital industry and execute functions of the Project Office of the National Technology Initiative. The authorized capital is more than 30 billion roubles. One hundred per cent of the RVC capital belongs to the Russian Federation represented by the Federal Agency for Management of State Property of the Russian Federation. RVC has formed 26 funds with a total volume of 35.5 billion roubles. The share of RVC in them is 22.6 billion roubles. RVC funds approved for investment 218 innovative companies. The total amount of monetary funds approved for investment is 17.9 billion roubles.

By: Alexander Mekhanik



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