Ruminations on Russia

WHAT DOES EARLY IN A RUSSIAN CONTEXT MEAN?

I have been here before but the 30 minutes lying in a bath after exercise are full of clarity. Most of the technology investments that we see in Russia can be generalized as being strong technologically but weak commercially and in management. In many cases the technologically already has a commercial release, of sorts, and the Company is generating some limited revenue. Its worth differentiating between technology deals where there is some inherent technology, and software deals that are supposed to solve some issue that enterprises did not know that they had. As these are, for the most part, uninteresting we�ll ignore them from hereon.

So where does that place Russian tech deals in the early stage pantheon? I find it strange reading the wires of 2nd round investments in the $10mn+ range that are for; further product development and building sales and marketing teams. The latter part is fully-understood, there is little reason to make investments in Russian tech companies that have not already built virtually commercially available products.

But does early refer to the stage of technology, or more reasonably the stage of the company. Weighting in that pseudo-scientific way well known to venture capitalists everywhere; technology development, corporate development and management ability and experience. That would tend to mean that most Russian tech companies are very early stage � whatever their stage of technology or revenue development. The joy is that with revenues its possible to build management teams around technologies.

BBC NEWS | Europe | Russia plans Mars nuclear station

Whilst the rest of the world is only slowly coming out of its technology shell its always good to know that Russian "Instituti" are still dreaming big. If however you are looking for a different view on spending on R&D and education try Here

A word of warning; Gaidar was acting Prime Minister in the Government in 1992. He and his team were affectionately known as "boys in pink trousers / shorts." A reference to their being slightly wet behind the ears politically. Easy to scoff from here, they were part of a transition that is looking OK from here - for now.

Quite what they are going to do with the power once its been built is not entirely clear - but then the value of alot of R&D was not either.

Mecury News Says Entrepreneurs Don't Need Cash

Or have not learnt that the value which they could sell their company has come down so the entry valuation has come down.

This badly reported story does highlight an important issue. Tim Oren Ruminations on venture capital, trust networks, and information theory is a VC's view from the other side of the fence. Howevr, Tim is an entrepreneur turned VC, and the easy shots are against the finance / consulting types. Where there is a definite trend for prescription. I'm a finance type and would like to think that I might have a little humility; however, I'm sure that from time-to-time I have used prescription to mask ignorance.

Another factor in this story is the investment stage; or how early is early? A little commercial traction never hurt before making an investment. Indeed one of the joys of investing in Russian tech is how developed the technology is by the time that it gets close to being investable. The VentureOne reports make it clear that if you intend to be an early stage investor you had better be sure that you can keep "paying-to-play." Put another way Angel investors have the lowest returns of all the stages because they can't or won't pay up. Crammed down is only polite for wiped out. There are some good reasons to be very early; even better to pay early prices for more developed companies.

Back to ignorance; it should help to be an investor if you have just come from the industry. Taken to a logical extreme corporate venture teams should be the best investors in their own industry. Access to IBM's, for example, many divisons should give an IBM investor a massive head start in technology and market due diligence. Yet history does not hold this seemingly self-evident fact to be true. Maybe its the other factors associated with being in a corporate venture group that stand in the way.

Never having worked with a Venture Partner the following statement is somewhat devoid of personal empirical evidence. However, it seems from here to be a good idea; combining entrepreneurship with the discipline of an institutional investor. We'll see.

Apologies if you made it to here; this is a terrible blog. I'll have to come back to this theme later.

Airplanes can be good places to do thinking shorn as they are of telephones etc. Except that Illyushin 90�s on their way to Delhi do not qualify as good places to think. Not sure which Quasimodo freak they used to model these seats but he was not 180cm, weighing 90kg sitting in a row of three where every seat is occupied. Not to mention that this, being Aeroflot, there was one beer to alleviate the agony.

The excruciating passage through Sheremeytevo, Moscow�s much under-maligned airport, caused me to consider the nature of entrepreneurialism in Russia. The thought process that gets you from Soviet levels of service to entrepreneurialism are way too complex to describe.

Russia�s greatest business leaders have all had a hand up by using State assets from which to build empires � passim Khordokhovsky et al. The number of true entrepreneurs who have built meaningful businesses can be counted on the digits used to create this blog. On my return from St. Petersburg last week the guy in the next seat worked for GosStroi (State building company) and was actively perusing a Lexus brochure � bureaucrats get paid a maximum of $100 per month. He was in his early 30�s. Many of Russia�s youth actively consider joining the Governemnt bureaucracy because it�s a great way to make a fortune. Even the Government acknowledges that ist efforts are hindering not helping the development of a entrepreneurial business class. This is not an environment that is actively fostering entrepreneurs. And yet��

Last night I collected a video and CD for this trip to Delhi from an individual who played Olympic level hockey (field) for the Soviet Union, has a PhD from Moscow State University (�MGU�), helped create one of Russia�s most successful local fast food outlets, has identified some of the most promising technologies emanating from Russia�s universities and institutes, and is building a great commercial finance business. Just before that meeting (I was sitting in a traffic jam for over an hour) I met with another MGU PhD with a string of successful business behind him � and is now the CTO of one of the most enterprising. Oh and he won a prize in Pure Mathematics from MGU � this in a country where Mathematics skills are valued and don�t make you a geek.

They are not quite as prevalent as maybe they we would all like � but they are there. Slowly but surely the people who are building the service businesses that will support the diversification away from natural resources are beginning to surface. They are humbler than their mid / late 90 compatriots; and better businessman.

But every time I have an experience such as today in Sheremeytevo, where those theoretically providing a service lord their power over poor mutts such as I who have paid good cash for my right to be abused by them I doubt that things will ever change.

Due Diligence: "We should be careful not to confuse diversification with agility. Ross points to this post as evidence that portfolio behavior is called for. I can't agree. If you're venturing into an unknown market - 'social software' in that case - you'd bloody well better be ready to react when the customers don't behave the way you predicted. That's the whole point of my posting about OODA loops. If the market actually exists, and you can learn from your customers faster than an incumbent can adapt, you will diagnose the market need and get a long way ahead on serving it before they respond. If your board is worth a damn, they should be in there thinking about the process with you, and be open to the shifts required. (If not, you got the wrong investors.)"

I learnt about OODA loops whilst I was carrying heavy weights up and down (mostly up) big hills for the Queen. By far and away the best management tool ever invented; and if you should ever find yourself in a situation where the guy has a gun and wants to kill you - even better.

Back late from St. Petersburg, the home of our great President and the ad that states - "we can and must control the people." Told by my taxi driver that this was an attempt to restore order because the state cannot i was happy to return to the comfort of a tech environment;

Except that I was not particularly. Air conditioning has not reached St. Petersburg yet and it was definitely over 30 degrees. But they are doing some very coolthings technologically. Saw 3 companies in less than 9hours including 1 for just over 5. They have a cooling technology that today is as good as (I'm British, if this was an American blog I would be more forceful) as anything in the West, or East today. But are not trusted because they are Russian.

Two big thoughts for the weekend - Options. Caught up on some reading on the way to SpB regarding Stock Options and their value to Shareholders. They keep employees but not executives - and boards give options to employees as an afterthought and to executives to retain them. Also no quantifiable additionla value from companies that are option heavy. I sort of agree; except when paying with cash is the worst option.

Second thought; whither Anything over IP. Voice, video, data, anything. If a technology's life runs; hype, failed, adopted, commodity - VOIP is at adopted. Now the apps have to catch up.