beyondbrics

A group of US venture capitalists left Moscow this weekend intrigued, but not convinced by Russia’s plan to spur economic modernisation by building a Silicon Valley.

Dmitry Medvedev has championed the project to build the high-tech hub at Skolkovo, a village in Moscow’s woody suburbs. Dubbed “Inograd” by officials, it is the linchpin of the Russian president’s grand scheme to modernise the economy and wean it off oil and gas.

Russia has thrown money at modernisation, investing $6bn in Rusnano, the state nanotechnology firm, and bullying the country’s billionaire oligarchs to develop innovative industries.

The idea is to modernise quickly before oil prices rise to new heights distracting investors from risky, high-tech endeavors.

During a meeting at his residence last week, Mr Medvedev invited the US venture capitalists, many of whom were visiting Russia for the first time, to support Skolkovo.

Venture capital drives growth in the real Silicon Valley, but has not taken root in Russia. At present the country has just 20 funds managing about $2bn in capital – “almost nothing,” as Medvedev put it.

Russia has scores of Rockerfeller-type moguls who have made fortunes out of natural resources, but no success stories like Bill Gates.

For that to change Russia needs to change the popular perception of “bizness”, said Esther Dyson, an angel investor in the Russian internet who sits on Skolkovo’s advisory board. “A business guy is not an oligarch with three wives in a row and too many cars. It is someone who loves his work and takes delight in creating things and employing people.”

All of the venture capitalists were concerned about corruption and red tape in Russia and the absence of stable tax and customs regulations.

“If Skolkovo can make it easy for an enterprise to start to build a business, it will be doing its job,” said Peter Loukianoff, managing partner at Almaz Capital, a fund with offices in Moscow and Silicon Valley. The real Silicon Valley “is not so much a place as a state of mind,” he said.

Russia has history of excellence in science and has trained many of the so-called ‘tech geeks’t who have emigrated to prosper in Silicon Valley. But those left behind tend to be ivory tower, not entrepreneurial thinkers, said David Yang, the founder of ABBYY, a Russian software company. “The biggest shortage is business skills not ideas,” he said. To cure that Russia needs to do what Japan did 25 years ago, and what China is just beginning to do – invest in a nationwide network of technical universities.

While the US venture capitalist visitors welcomed Medvedev’s modernisation drive, they said his time frame for attracting investment was wildly optimistic.

But with oil prices expected to soar before long, time is not on the Russian president’s side.

“To put it bluntly $140 a barrel oil is a catastrophe for Russia. It means the destruction of all stimuli for development,” he told a meeting of the ruling United Russia party after bidding goodbye to his American visitors.

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Multinationals sign up to “Russia’s Silicon Valley” – but will Russians?, FT beyondbrics