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12 things you need to know about Russia’s tech scene

03.11.2015
Source: Techinasia
12 things you need to know about Russia’s tech scene

Russia just held its biggest yearly technology and innovation fair, called Open Innovations, in Moscow. Tech in Asia was invited to take a look around. (Disclosure: flight and accomodation was sponsored by them).

Let’s not kid ourselves. A few days in the capital don’t paint a comprehensive picture of Russia’s startup ecosystem. But based on chats with entrepreneurs, VCs, journalists, and tech community builders, we’ve come out with a rough guide to understanding Russia’s tech scene.

1. English-language coverage on Russian tech startups is rare

Why is it we hear so little about Russian tech companies and startups? For one, there isn’t much English-language coverage of these topics. The best gateway to recent industry news is probably East West Digital News. Arcticstartup is another tech blog that occasionally looks at Russia.

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A handful of journalists cover the Russian and Baltic tech industry for international tech media, like Andrii Degeler. You’ll find that Mike Butcher, editor-at-large for TechCrunch, occasionally writes about Russia.

2. All roads lead to Skolkovo

Skolkovo innovation center is a gargantuan vision set in motion by the Russian government in 2009, under the brief presidency of Dmitry Medvedev. Skolkovo is a vast territory outside of Moscow and houses startups, tech firms, and even a university called Skoltech. It accepts local and international students and offers master’s programs in biomedical science, product design and advanced manufacturing, IT, energy, and space science. It’s also open to applicants for a Ph.D.

By creating favorable conditions for startups, including tax cuts, easy access to government grants, venture capital, and industry networks, Skolkovo exudes a gravitational pull on young entrepreneurs. Skolkovo now claims to have 1,147 companies representing 49 regions of Russia participating in its program. It’s the Russian attempt at kickstarting a Silicon Valley-like innovation epicenter.

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Skolkovo booth at the Open Innovation Forum

Despite doubts about whether such top-down endeavors can lead to a healthy ecosystem, Skolkovo continues to grow. As one of the organizers of the Open Innovations forum, it had an impressive booth in the main exhibition hall, with a daily-changing array of Skolkovo residents showing off their work.

3. Russian Venture Company, a state-owned “fund of funds”

If Skolkovo offers the physical and intellectual space for innovation, Russia Venture Company (RVC) provides the financial fuel to keep it running. The government-owned venture capital firm manages several of its own funds, in addition to joint funds with private investors. The government has authorized about US$450 million for these investments.

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Oleg Plaksin, director of Intrenational projects of Russia Venture Company
“As a government fund, RVC tries to invest where market forces don’t apply,” Oleg Plaksin, RVC’s director of International Projects, told Tech in Asia. “We look at seed investments, and in particular technologies which are still a long way off before they are marketable, such as biotech.”

For later stage investments, private equity funds step in, or other major Russian VC firms like Russia Partners and Runa Capital take the fore, Oleg explained.

4. Fifth in the world in VC spending, second in Europe

RVC also commissions studies, such as the one conducted by Ernst & Young in February 2014. It looks at the global venture investment landscape and Russia’s position in it. The study concludes that the Russian venture capital market ranks fifth in the world in terms of its volume (US$1.2 billion) and second in Europe, behind only the UK.

It’s important to note that the study looks at data up until 2013, so we don’t know how large the effect of the recent political crisis that led to an economic downturn has been on venture investments in 2014 and 2015.

5. Strength in space, robotics, biotech, healthcare, B2B

Skolkovo’s startups are clustered in five groups: IT, biomed, nuclear, energy, and space. Like RVC, it’s placing emphasis on future technologies. Russian startups tend to work on B2B solutions and technical innovations with industrial application rather than consumer products. That’s no surprise, as these are sectors the government strongly supports.

Some of the startups we encountered were developing robots for things like surveillance and human assistance, or software for engineering simulations, or 3D printing technologies, or fuel cells, micro-satellites, or indoor-navigation systems.

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The team of ATEnergy, a Skolkovo resident startup working on hydrogen fuel cells.

6. ‘It’s complicated’ between large tech companies and the government

Russia has a first generation of strong internet companies. Yandex, a search engine, email service Mail.ru, and Russia’s version of Facebook, VK, rank among the most popular sites in the world.

But the relationship between the founders of these tech giants, their shareholders, and the government is messy, just like Russian politics.

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Pavel Durov, the “Russian Mark Zuckerberg.’ Source:Wikipedia


A prime example of this conflict is Pavel Durov’s story — the young founder of social network VK who is often called Russia’s Mark Zuckerberg. In April last year, he sold his shares in VK after disputes with the government over allowing anti-Putin protests groups to form on the social network. Durov is now developing Telegram, a secure instant messenger, living a nomad lifestyle in various countries.

7. VCs are turning their back on Russia

As much as the government is pushing an innovation agenda and supporting tech firms at home, there are many, not just Pavel Durov, who choose to invest their time and money elsewhere for now, while Russia sorts out its political and economic problems.

Among those looking for oppotunities abroad are VC firms like Life.Sreda and Frontier Ventures, who have relocated to Singapore. Others, like Almaz Capital and RTP have put a foot down in the US, but continue investing in Russia and the Baltic states.

Slava Solodkiy of Life.Sreda penned some thoughts on the reasons and implications of the Russian brain drain. It’s worth a read.

8. It’s not just the government

If the above points make it sound like entrepreneurship outside of government programs is impossible, that’s not quite true. There are independent hubs, like co-working and event spaces, where entrepreneurs meet and collaborate.

One such place worth mentioning is Telegraph, a co-working space in Moscow. It’s run by a company called Dream Industries, who in addition to managing the space have developed a number of digital services like the e-book reader app Bookmate.

Another event space in Moscow is Digital October. It hosts several high-profile conferences and meetups.

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9. Yandex, the Russian Google, is also the Russian Uber

Yandex, Russia’s homegrown search engine is hugely popular. It’s said to be at about 60 percent market share in Russia, though it’s losing against Google on mobile. Yandex is also the most popular search engine in Turkey, sources say.

Like Google, Yandex’s core business is search. But it’s now also transforming into the Russian Uber. The company introduced a Yandex taxi service, with which you can order rides on demand. Russians can also use Yandex to pay for a variety of services, like parking.

10. Russia wants to bring fiber optic broadband to every village

Russia’s minister of communication and mass media Nikolay Nikiforov is just 32 years old, and his ministry is touting another ambitious program to bring connectivity to the country. The goal is to get every Russian village with more than 250 people onto the broadband grid.

11. Russia is trying to force internet companies to build data centers locally

Russia recently passed a law that will require companies to bring their data centers to Russian territory if they store Russian user data. This affects companies like Twitter and Facebook. While the law has been in effect for a few months, Russia has avoided a showdown by giving affected companies more time to adapt.

Minister Nikiforov is convinced companies will eventually comply. Ways to enforce this would be introduced step by step, he told Tech in Asia at the Open Innovations conference. At first companies would be warned, then fined. The minister said that banning services was unlikely, but possible if they show no signs of compliance.

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Russia’s minister of communication and mass media, Nikolay Nikiforov (center), in discussion with foreign journalists at the Open Innovations Forum.

12. Russia is seeking high-level tech collaborations with Asia

High-tech international collaboration in emerging fields of industrial development are a necessary step for Russia’s economic future. It’s finding interested allies in Asia, particularly in China, Japan, and South Korea.

“Russians are very strong in research and core technologies, but lack the skills and experience to take those results to the international market,” Vasily Belov, senior vice president of the Skolkovo Foundation told Tech in Asia. For this reason, Russian entrepreneurs look to Asian companies like Samsung, who have established themselves as global brands.

The Open Innovations forum became the backdrop for several high-level collaboration announcements. For example, Russia Venture Partners (RVC) signed an MOU with South Korea’s strategic R&D Planning office. The details of this collaboration have yet to be revealed.

Other partnerships have reached a more advanced stage. In April, Skolkovo announced a US$200 million joint venture with the Chinese Cybernaut investment group, to finance Skolkovo startups in robotics, space, and telecommunication technologies. The Dauria Space micro-satellite project is part of this collaboration.

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Dauria, one of the resident companies in Skolkovo’s space cluster

Hong Kong based investment company REX Global recently acquired Yota, a Russian-made smartphone.

Strategic alliances like these will give Russian entrepreneurs access to better production facilities and international markets, RVC’s Oleg Plaksin explained.

About the Open Innovations Forum

The government-sponsored five-day fair and conference began on October 28, and was opened by prime minister Dmitry Medvedev. The event aims to bring together leading international and Russian tech companies and innovators.

For the first time this year, the event organizers invited a number of international journalists. Tech in Asia was one of them. Unfortunately, the last day of the event was cancelled as a show of respect for the victims of the air traffic accident involving the Russian airliner Metrojet flight 9268.

What can you add to this list of observations about Russia’s tech scene today? What do you think about the increasing number of tech collaborations between Russia and Asian countries?

Editing by Charlie Custer and Leighton Cosseboom (And yes, we're serious about ethics and transparency. More information here.)

ABOUT NADINE

I chase stories about startups, smartphones, and anything that sounds like it's out of a sci-fi novel. European based in Indonesia.



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