The Impact of Equity Ownership on Returns -Knowledge @ Wharton: "Larcker, Guay and their colleague John E. Core did a broad survey of academic research and could not find compelling evidence that employee ownership, through options or shares, boosts shareholder returns. �Whether it translates to the bottom line is totally unclear,� Larcker said."
You have to sort of agree; especially in companies that are not performing that well. How often the refrain from managers; reset my options to incentivise me to work - nothing is more likely to turn me in to a miserable approximation to every managers worst type of VC.
Not that Options are a bad thing; how else do you pay people in companies that are short of cash?
31 July 2003
28 July 2003
Mercury News | 07/27/2003 | Dan Gillmor on the Bad news of the Recent Uptick: "I have no faith whatever in big technology companies' ability to bring sustainable growth back to the valley. Even when the economy picks up again, many of them will simply continue to export skilled technical and back-shop jobs to places like India and China. We have no choice but to participate in a global economy, but are we really ready for what we're setting into motion?"
Though this is probably a good thing - innovation is not created by things standing still but by upheaval. The last few years have seen an upheaval of sorts; now the innovation has to come.
Though this is probably a good thing - innovation is not created by things standing still but by upheaval. The last few years have seen an upheaval of sorts; now the innovation has to come.
25 July 2003
I have been here before many times but some late night reading of blogs from the Always On Conference meant that sleep was interrupted by random thoughts on how to invest in Russian technology. My sleeplessness can be attributed to Tim Oren's Thoughts on Venture Capital Investing etc..... so he should at least be attributed.
So back to basics;
There is some exceedingly interesting Russian technology out there in a more or less comercial or commercialisable form.
Where computational power matters (telecom's for instance) Russia's huge mathematical skills make a real difference.
Because Russia, and its predecessor, had to work with sub-standard equipment (you name it, it was sub-standard) scientists, programmers and the like had to find ways to make inferior products work, as well as, or better than the most modern equipment in the west. Most commonly this was achieved through a multi-disciplinary approach that is broadly lacking in the West. These generalisations are so easily challenged but they are broadly right.
The cost of building a product to Beta and beyond is a fator of 4-10x cheaper than a similar product in western Europe or US. This makes no comment about quality.
Russia's continuing isolation from the hotbeds of technology limit its ability to build products and applications that solve today's problems.
Russian management teams have not yet had exposure to the long term exposure to western management and customer interfacing that provides a pool of highly qualified management teams - even at the CTO level. Somewhere I read that 25% of Valley start-ups have Indian and Chinese CEO's.
There is almost no qualified capital looking at Russian technology.
So where is the value to be found? Somewhere in Tim's blogging he mentioned he questioned the stage of investing differentiation between venture funds that was caused by the bubble in the late 90's. Hopefully for the right reasons he decided it was a good thing, hopefully for the right reasons I agree with him. Inherently I believe in early stage investing, something about being a frustrated entrepreneur; but is that the right model for investing in Russian technology. Assuming the assumptions above are correct; the massive weakness of Russian technology is management and its applicability to global markets. Surely then it makes sense to invest at the point that these two problems are solved? Or is it not overly arrogant to believe that through appropriate mentoring of the right people applications and additional management can be added to overcome these shortcomings.
Assuming that we invest in companies that have the ability to see where their weaknesses lie - understanding what they don't understand - then early stage investing makes sense........I think.
Anyway back to the day job.
So back to basics;
There is some exceedingly interesting Russian technology out there in a more or less comercial or commercialisable form.
Where computational power matters (telecom's for instance) Russia's huge mathematical skills make a real difference.
Because Russia, and its predecessor, had to work with sub-standard equipment (you name it, it was sub-standard) scientists, programmers and the like had to find ways to make inferior products work, as well as, or better than the most modern equipment in the west. Most commonly this was achieved through a multi-disciplinary approach that is broadly lacking in the West. These generalisations are so easily challenged but they are broadly right.
The cost of building a product to Beta and beyond is a fator of 4-10x cheaper than a similar product in western Europe or US. This makes no comment about quality.
Russia's continuing isolation from the hotbeds of technology limit its ability to build products and applications that solve today's problems.
Russian management teams have not yet had exposure to the long term exposure to western management and customer interfacing that provides a pool of highly qualified management teams - even at the CTO level. Somewhere I read that 25% of Valley start-ups have Indian and Chinese CEO's.
There is almost no qualified capital looking at Russian technology.
So where is the value to be found? Somewhere in Tim's blogging he mentioned he questioned the stage of investing differentiation between venture funds that was caused by the bubble in the late 90's. Hopefully for the right reasons he decided it was a good thing, hopefully for the right reasons I agree with him. Inherently I believe in early stage investing, something about being a frustrated entrepreneur; but is that the right model for investing in Russian technology. Assuming the assumptions above are correct; the massive weakness of Russian technology is management and its applicability to global markets. Surely then it makes sense to invest at the point that these two problems are solved? Or is it not overly arrogant to believe that through appropriate mentoring of the right people applications and additional management can be added to overcome these shortcomings.
Assuming that we invest in companies that have the ability to see where their weaknesses lie - understanding what they don't understand - then early stage investing makes sense........I think.
Anyway back to the day job.
The news from the Yukos affair seems to get worse and worse - there are no angels in this game and it is extremely hard to determine which version of the spin is closer to the truth. Whatever the end game turns out to be three major facts are rammed home by these events;
We thought things were getting better, actually they look better on the surface but in reality little has changed.
The judiciary and police are a business, pressure tool and has almost nothing to do with enforcing the law.
Whilst their are skeletons in the closet, someone will seek to extract "rent" so that you can live a quiet life.
The last point is the most worrying - everyone, and I mean everyone, has been judicious with the truth in paying corporate and personal taxes at some point. Many small / medium size businesses are trying to come clean but it is a slow process and the bureacrats are not in favour of it as it has a nasty habit of reducing their monthly take home.
For an alternative take on what is going on read Eric Kraus via
Sovlink's Home Page
For a well written piece that makes it clear that the whole affair is unclear read Gideon Richter's piece in the Economist.
We thought things were getting better, actually they look better on the surface but in reality little has changed.
The judiciary and police are a business, pressure tool and has almost nothing to do with enforcing the law.
Whilst their are skeletons in the closet, someone will seek to extract "rent" so that you can live a quiet life.
The last point is the most worrying - everyone, and I mean everyone, has been judicious with the truth in paying corporate and personal taxes at some point. Many small / medium size businesses are trying to come clean but it is a slow process and the bureacrats are not in favour of it as it has a nasty habit of reducing their monthly take home.
For an alternative take on what is going on read Eric Kraus via
Sovlink's Home Page
For a well written piece that makes it clear that the whole affair is unclear read Gideon Richter's piece in the Economist.
16 July 2003
The text below has been quoted, and edited by me, from an article written by Valerie Thompson in Computer World. I have not found it in English as I understand it was published in the Swiss version. Such gems should not be left unearthed�.
I have made some comments in blue along the way which got lost and are now bracketed.
From Russia with love and bytes
By Valerie Thompson
Russian high-tech, obscured for the longest time by news flow about the Mafiya and its use of selected seedy Swiss bankers, cowboy capitalism, and oil oligarchs, (however the mind-bendingly stupid Chekisti seem to be being doing a good job of tying to change that impression) has substantially evolved in recent years.
Today people talk about the success stories and role models, such as Google co-founder Sergey Brin. They mention Israel (oh what a joy a journalist who understands more than the lunatics trying to promote Russian technology at MinSvyaz and Trade Minsitry) -- it is a little known fact that the basis of the tiny country�s ability to create a huge, new high tech economy, is the influx of highly education Russian Jews - many of whom worked in the former Soviet Republic�s military industrial complex.
And they will talk about a rich supply of talented engineers and scientist with math skills, physics know-how, creativity. They will also mention Russian tenacity and pride. A new dynamic is emerging.
A number of smart, young Swiss-based high tech firms have tapped into one of Russia�s richest resources. They have found success transferring Russian developments to the West to solve tricky software programming issues, introducing new innovative products for a global market.
ACOL Technologies, based in Geneva, acquired an R&D team in Moscow, forming a new company with Russian entrepreneur, Alexander Shishov. (Probably one of the best CTO�s operating in Russia today � actually delete probably.) It already has customers in the US and in Russia and at the time of writing was in discussion with investors to back its bid to make ultra-high brightness light emitting diodes.
Two other firms, A4Vision and Virtoons AG, are tapping Russia�s advanced digital signal processing and software programming skills to develop innovative, new products for niche markets, while Novavox based its entire R&D effort in St Petersburg. It has had success selling its computer telephony products for PBX manufacturers and wireless operators.
The Swiss aren�t the only ones who have discovered this shortcut to advanced technology and innovation. Intel�s Centrino software is developed in Russia. It employs 200 engineers in Nizhny Novgorod in development and 150 contractors in Sarov in central Russia, as well as close to 100 developers in Moscow.
Intel Capital�s Marie Trexler told BusinessWeek that her business unit hopes to profit from the country�s rich supply of technical talent and engineers. Specifically, the Russians� advanced knowledge of materials science and ability to design powerful algorithms. Man-made crystals could lead to new semiconductor materials, she said, adding that the algorithm know-how could lead to faster processors and software. Wireless and radio are also Russian strengths.
The Russians are coming!
High-end animation software companies, such as Pixar, Dreamworks, DNA, could soon be facing competition from a much cheaper and elegant solution from Russia developers.
One year old Virtoons AG is a Zurich based animation studio, founded by Russian-born Alexander Semenov. His idea is to create an animation studio that can produce animation sequences on a PC based on interpreting movements of someone wearing a magnetic sensor suit in real time. If his software team is successful, they will remove the need to hire hundreds of people to �draw� and render animated clips, plus, since the software operates in real time, it could cut development times dramatically. Oh and by the way, he wants to do it in 3D, as well.
The studio is working on a solution based on animation software which it acquired from a Moscow-based high tech incubator called Latypov.
Semenov says his software has to run on standard processors. Being Russian, the developers just did not have access to the capital to acquire high performance computers. But he figures it�s a smart approach because the niche for supercomputer based animation solutions is already occupied by the big US players. �Pixar and Dreamworks have a solution that runs on terabit process and needs gigabytes of storage,� explains Semenov.
Virtoons success started early. It has already won a prestigious contract from SF DRS for a new children�s cartoon series, the first since Pingu ten years ago.
Semenov is currently presenting sample scripts and the concept to television channels around the world.
Normally a studio will deliver a single sample script, a few minutes of demo film and a description of the characters, explains Semenov, but Virtoons has delivered all 13 sample scripts for the series. Semenov felt he had to �over-deliver� in order to overcome any doubts that the startup would be unable to follow through on its promises. �To convince the TV channels over-delivering was the only way,� says Semenov.
The company received financial aid from the Swiss Organization for Facilitating Investments (SOFI), an initiative of the Swiss State Secretariat for Economic Affairs in cooperation with KPMG.
SOFI helped the entrepreneur during the application process and show him how access a SECO fund with some success. Virtoons was able to raise capital in the form of loans that have to be paid back in five years time. In Moscow, 17 jobs have been created and 18 more are planned for this year.
Bright LEDs, Russian ingenuity
When disc drive manufacturer Quantum merged with Maxtor two years, one of the company�s top European managers, Jean Charles Herpeux convinced a couple of colleagues to try their hands at forming their own company.
Herpeux says he wanted to exploit his experience building up sophisticated sales and marketing organization for his own profit. They went to Russia looking for some bright ideas and there found Alexander Shishov who was running a company called Corvette Lights. Shishov had been having difficulties breaking into the European and US markets with some innovative high brightness LEDs and subsystems based on his firm�s R&D breakthrough. So he was happy to do a deal with the Frenchman.
Herpeux is a big fan of the Russian techno-elite. �If you want to talk about reliable technology, just remember that it was the Russian Soyuz that rescued the NASA space station crew,� says Herpeux. (The MIR also long outlived its planned expiration date when it finally burned out in 2001 after 15 years in service.)
He is one of a number of outsiders that are increasingly recognizing the strength of Russia�s system of education in the fields of mathematics and basic sciences, as well as the solid work experience with complex projects and diverse technologies.
The cultural traditions with Western Europe and America, says Herpeux. It is something that cannot be said of the software development outsourcing leader, India.
The Russians have come up with a way to make any color of LEDs shine more brightly. The technique increases the brightness without increasing the power consumption due to a smart packaging technique, precision optics and better thermal management. Typical applications are traffic lights, automobile brake lights, commercial displays, and giant screen computer displays.
First customers for ACOL Technologies, which now employs 22 people, are US based firms that make traffic lights.
Herpeux says he has not run into any problems working with the Russians. �It�s just like managing an operation in any remote place in the world. There is less difference in the culture between the Swiss and the Russian than the Swiss and the Americans or the Japanese,� says Herpeux.
The Swiss, the French and the Russian education systems are normative, he says. Whereas the Anglo Saxon method of educating people, which rewards good presentation and self expression, rather than demonstration of an ability to complete assignments based on certain standards. What makes Russia�s outstanding is that it rewards creativity at the same time, which results in engineers and software developers that can solve problems.
From Russia to the shores of Lac Leman to Silicon Valley
A4Vision has transferred technology from Russian labs to Geneva and now to Silicon Valley. Its facial recognition system relies on inexpensive digital cameras, an infra-red grid projector, and a standard PC running A4Vision�s software.
It is recognized by industry experts as being one of the most �advanced�.
Backed by an Italian venture capital company and Switzerland�s Logitech, A4Vision, has its R&D activities in Moscow but that probably won�t be touted too much in the future as the firm has an American headquarters and is aiming for the US-homeland security market.
The Russians have the inter-disciplinary (this is the key every time � either the Zhiguli approach to technology � they had to work with less so they worked out ways of making less work better) know-how to understand the optics, electronics, math and physics required to make such software work, says Kelly Richdale, a co-founder of A4Vision.
The smart Russian behind the innovative solution is Artiom Yukhin, a former researcher at the Bauman Moscow State Technical University; there he headed the 3D machine vision research team.
His expertise in mathematical modeling, along with his research team�s dedication made it possible for A4Vision to change direction shortly after being founded to become a supplier of �homeland security� solutions after the September 11th attacks on the US.
Richdale says she was able to ramp up quickly, growing from 10 employees to 60 within 18 months. The Moscow engineers are �hard-working�, able to make innovations, but also willing to do the hard work required to commercialize a technology.
St Petersburg R&D
Novavox AG was founded in 1994 and employs 75 people. It is currently restructuring and relying on the adaptability of its Russian R&D team to grow into the future. Employ numbers are down from a peak of 160 during the telecommunications boom where it achieved what few Swiss-based telecommunications applications makers have achieved: it was able convinced big brand name equipment makers, such as Tenovis and Alcatel to incorporate its software into their products. The US Army is one of its customers.
Andre Zgraggen, the company founder now lives in Russia. His lab recently received ISO quality certification. Settling the development in Russia, has given the company an advantage far beyond being able to find good programmers, it has �opened the doors to the Eastern European market�, which has been growing.
Advantages of being in Russia are not only technical; market-wise the products can be made available in six other languages due to the language skills of his St Petersburg crew. The company is branching out into offshore software development.
The Swiss Russian tech exchange
A number of government funded initiatives could very well lead to further partnerships between Russian and Swiss scientists, engineers, and entrepreneurs.
For example, the SNF has funded dozens of joint research projects on a wide range of topics, many are basic research in physics related and biotech topics, but some have direct application in advanced materials and future electronics and quantum computing applications.
In addition, delegates from Russia�s scientific community have been invited to meet and tour centers across the country, including the Paul Scherrer Institut, CSEM, and the two ETHs in Zurich and Lausanne.
TEXT BOX: Once a giant electronics sector
The Russian educational system, with its emphasis on mathematics and physical sciences, the foundation for the strategic achievements of the former Soviet Union in space, nuclear, and oceanographic exploration technologies, is responsible for the large number of qualified software developers, says RusSoft, (unfortunately they could not recognize an Israeli development model if it leapt out of their kasha in the morning) a trade organization based in Moscow.
Russia had sixty-five science cities centered on advanced research institutes across the country. But today the electronics industry in Russia is one-third the size it was at its Soviet peak. Some experts believe it will take a few more years for that giant to change directions to a market oriented sector (in the meantime the Russian Academy of Sciences is dong $1.6bn in outsourced research contracts.) In Soviet times, R&D was driven by government action plans, rather than the need to solve a customer�s need or a market�s problem.
�Due to its heft and infrastructure, however, it has managed to retain a sizable indigenous base,� says Malcolm Penn, an industry analyst at Future Horizons in Sevenoaks, England.
�Investment in electronics was out of step with the Wild West, fast-buck/low-risk investment style in Russia of the early nineties,� comments Penn. Russian and other former Soviet states suffered from a lack of foreign direct investment, except for the automotive and wired-telecommunications industries, both heavily subsidized by governments.
One of the countries largest electronics exporters is Svetlana that still manufactures vacuum tubes. It has found a global niche. There is a growing demand among audiophiles, for example, for hi-fi equipment where digital technology does not deliver the same quality of sound.
During the Cold War, the former Soviet Union did not have access to the fastest microprocessors or supercomputers but they still put the first rockets into space. They achieved what they did by writing powerful algorithms using their tremendous digital signal processing skills, according to Kelly Richdale, who majored in Russian studies at Cambridge before moving there and eventually co-founding A4Vision in Geneva.
There are quite a few success stories of Russian high tech entrepreneurship already, such as Abbyy Group�s with its offices near Red Square in Moscow and Epsylon Technologies, but this is just the beginning. The research for this article revealed dozens of innovative and creative examples of Russian high-tech entrepreneurialism.
Esther Dyson agrees. In a recent report she writes that Russia's programmers have begun to recognize their capabilities and �being smart and creative� they are now figuring out how to organize their marketplace better, putting in place not just software firms but training centers, education loans and the like.
Success Stories
Abbyy Software, founded by David Yang, who has at least two other tech startups under his belt, makes optical character recognition software. It can be found in more than half of the scanners manufactured worldwide today. Turnover is E12 million a year and the firm employs 250 people in Russia.
Its OCR software is used by Lexmark, Compaq and Samsung. It was recently praised by PCWorld as the best OCR engine in a recent analysis of printer performance.
Five year old Archivista, based in Zurich, licensed Abbyy�s OCR software for use it in its flagship archiving software. The tiny startup firm sells its software in Germany, Austria, Netherlands, and Switzerland.
Abbyy has picked up �relatively quickly� the basics of entrepreneurialism, says Urs Pfister, founder and CEO Archivista who has worked with a number of Russian software vendors. That is his diplomatic way of saying that the once bargain basement priced software licenses from Abbyy are now much more expensive than they were a number of years ago when the Swiss upstart made its deal with the Russians. They have increased �dramatically� and reached a much fairer (for the Russian) price level.
Yang also invented Cybiko, a wireless peer to peer handheld device that is meant to launch in the US this year. It claims to have already sold 250,000 units at $129 each. A European launch compatible with mobile phone and WiFi networks is expected at a later date.
Since more than 60 percent of its employees are working in R&D in Moscow, we can expect more innovations soon. (And thus if you are still with me is the real story of Russian technology.)
I have made some comments in blue along the way which got lost and are now bracketed.
From Russia with love and bytes
By Valerie Thompson
Russian high-tech, obscured for the longest time by news flow about the Mafiya and its use of selected seedy Swiss bankers, cowboy capitalism, and oil oligarchs, (however the mind-bendingly stupid Chekisti seem to be being doing a good job of tying to change that impression) has substantially evolved in recent years.
Today people talk about the success stories and role models, such as Google co-founder Sergey Brin. They mention Israel (oh what a joy a journalist who understands more than the lunatics trying to promote Russian technology at MinSvyaz and Trade Minsitry) -- it is a little known fact that the basis of the tiny country�s ability to create a huge, new high tech economy, is the influx of highly education Russian Jews - many of whom worked in the former Soviet Republic�s military industrial complex.
And they will talk about a rich supply of talented engineers and scientist with math skills, physics know-how, creativity. They will also mention Russian tenacity and pride. A new dynamic is emerging.
A number of smart, young Swiss-based high tech firms have tapped into one of Russia�s richest resources. They have found success transferring Russian developments to the West to solve tricky software programming issues, introducing new innovative products for a global market.
ACOL Technologies, based in Geneva, acquired an R&D team in Moscow, forming a new company with Russian entrepreneur, Alexander Shishov. (Probably one of the best CTO�s operating in Russia today � actually delete probably.) It already has customers in the US and in Russia and at the time of writing was in discussion with investors to back its bid to make ultra-high brightness light emitting diodes.
Two other firms, A4Vision and Virtoons AG, are tapping Russia�s advanced digital signal processing and software programming skills to develop innovative, new products for niche markets, while Novavox based its entire R&D effort in St Petersburg. It has had success selling its computer telephony products for PBX manufacturers and wireless operators.
The Swiss aren�t the only ones who have discovered this shortcut to advanced technology and innovation. Intel�s Centrino software is developed in Russia. It employs 200 engineers in Nizhny Novgorod in development and 150 contractors in Sarov in central Russia, as well as close to 100 developers in Moscow.
Intel Capital�s Marie Trexler told BusinessWeek that her business unit hopes to profit from the country�s rich supply of technical talent and engineers. Specifically, the Russians� advanced knowledge of materials science and ability to design powerful algorithms. Man-made crystals could lead to new semiconductor materials, she said, adding that the algorithm know-how could lead to faster processors and software. Wireless and radio are also Russian strengths.
The Russians are coming!
High-end animation software companies, such as Pixar, Dreamworks, DNA, could soon be facing competition from a much cheaper and elegant solution from Russia developers.
One year old Virtoons AG is a Zurich based animation studio, founded by Russian-born Alexander Semenov. His idea is to create an animation studio that can produce animation sequences on a PC based on interpreting movements of someone wearing a magnetic sensor suit in real time. If his software team is successful, they will remove the need to hire hundreds of people to �draw� and render animated clips, plus, since the software operates in real time, it could cut development times dramatically. Oh and by the way, he wants to do it in 3D, as well.
The studio is working on a solution based on animation software which it acquired from a Moscow-based high tech incubator called Latypov.
Semenov says his software has to run on standard processors. Being Russian, the developers just did not have access to the capital to acquire high performance computers. But he figures it�s a smart approach because the niche for supercomputer based animation solutions is already occupied by the big US players. �Pixar and Dreamworks have a solution that runs on terabit process and needs gigabytes of storage,� explains Semenov.
Virtoons success started early. It has already won a prestigious contract from SF DRS for a new children�s cartoon series, the first since Pingu ten years ago.
Semenov is currently presenting sample scripts and the concept to television channels around the world.
Normally a studio will deliver a single sample script, a few minutes of demo film and a description of the characters, explains Semenov, but Virtoons has delivered all 13 sample scripts for the series. Semenov felt he had to �over-deliver� in order to overcome any doubts that the startup would be unable to follow through on its promises. �To convince the TV channels over-delivering was the only way,� says Semenov.
The company received financial aid from the Swiss Organization for Facilitating Investments (SOFI), an initiative of the Swiss State Secretariat for Economic Affairs in cooperation with KPMG.
SOFI helped the entrepreneur during the application process and show him how access a SECO fund with some success. Virtoons was able to raise capital in the form of loans that have to be paid back in five years time. In Moscow, 17 jobs have been created and 18 more are planned for this year.
Bright LEDs, Russian ingenuity
When disc drive manufacturer Quantum merged with Maxtor two years, one of the company�s top European managers, Jean Charles Herpeux convinced a couple of colleagues to try their hands at forming their own company.
Herpeux says he wanted to exploit his experience building up sophisticated sales and marketing organization for his own profit. They went to Russia looking for some bright ideas and there found Alexander Shishov who was running a company called Corvette Lights. Shishov had been having difficulties breaking into the European and US markets with some innovative high brightness LEDs and subsystems based on his firm�s R&D breakthrough. So he was happy to do a deal with the Frenchman.
Herpeux is a big fan of the Russian techno-elite. �If you want to talk about reliable technology, just remember that it was the Russian Soyuz that rescued the NASA space station crew,� says Herpeux. (The MIR also long outlived its planned expiration date when it finally burned out in 2001 after 15 years in service.)
He is one of a number of outsiders that are increasingly recognizing the strength of Russia�s system of education in the fields of mathematics and basic sciences, as well as the solid work experience with complex projects and diverse technologies.
The cultural traditions with Western Europe and America, says Herpeux. It is something that cannot be said of the software development outsourcing leader, India.
The Russians have come up with a way to make any color of LEDs shine more brightly. The technique increases the brightness without increasing the power consumption due to a smart packaging technique, precision optics and better thermal management. Typical applications are traffic lights, automobile brake lights, commercial displays, and giant screen computer displays.
First customers for ACOL Technologies, which now employs 22 people, are US based firms that make traffic lights.
Herpeux says he has not run into any problems working with the Russians. �It�s just like managing an operation in any remote place in the world. There is less difference in the culture between the Swiss and the Russian than the Swiss and the Americans or the Japanese,� says Herpeux.
The Swiss, the French and the Russian education systems are normative, he says. Whereas the Anglo Saxon method of educating people, which rewards good presentation and self expression, rather than demonstration of an ability to complete assignments based on certain standards. What makes Russia�s outstanding is that it rewards creativity at the same time, which results in engineers and software developers that can solve problems.
From Russia to the shores of Lac Leman to Silicon Valley
A4Vision has transferred technology from Russian labs to Geneva and now to Silicon Valley. Its facial recognition system relies on inexpensive digital cameras, an infra-red grid projector, and a standard PC running A4Vision�s software.
It is recognized by industry experts as being one of the most �advanced�.
Backed by an Italian venture capital company and Switzerland�s Logitech, A4Vision, has its R&D activities in Moscow but that probably won�t be touted too much in the future as the firm has an American headquarters and is aiming for the US-homeland security market.
The Russians have the inter-disciplinary (this is the key every time � either the Zhiguli approach to technology � they had to work with less so they worked out ways of making less work better) know-how to understand the optics, electronics, math and physics required to make such software work, says Kelly Richdale, a co-founder of A4Vision.
The smart Russian behind the innovative solution is Artiom Yukhin, a former researcher at the Bauman Moscow State Technical University; there he headed the 3D machine vision research team.
His expertise in mathematical modeling, along with his research team�s dedication made it possible for A4Vision to change direction shortly after being founded to become a supplier of �homeland security� solutions after the September 11th attacks on the US.
Richdale says she was able to ramp up quickly, growing from 10 employees to 60 within 18 months. The Moscow engineers are �hard-working�, able to make innovations, but also willing to do the hard work required to commercialize a technology.
St Petersburg R&D
Novavox AG was founded in 1994 and employs 75 people. It is currently restructuring and relying on the adaptability of its Russian R&D team to grow into the future. Employ numbers are down from a peak of 160 during the telecommunications boom where it achieved what few Swiss-based telecommunications applications makers have achieved: it was able convinced big brand name equipment makers, such as Tenovis and Alcatel to incorporate its software into their products. The US Army is one of its customers.
Andre Zgraggen, the company founder now lives in Russia. His lab recently received ISO quality certification. Settling the development in Russia, has given the company an advantage far beyond being able to find good programmers, it has �opened the doors to the Eastern European market�, which has been growing.
Advantages of being in Russia are not only technical; market-wise the products can be made available in six other languages due to the language skills of his St Petersburg crew. The company is branching out into offshore software development.
The Swiss Russian tech exchange
A number of government funded initiatives could very well lead to further partnerships between Russian and Swiss scientists, engineers, and entrepreneurs.
For example, the SNF has funded dozens of joint research projects on a wide range of topics, many are basic research in physics related and biotech topics, but some have direct application in advanced materials and future electronics and quantum computing applications.
In addition, delegates from Russia�s scientific community have been invited to meet and tour centers across the country, including the Paul Scherrer Institut, CSEM, and the two ETHs in Zurich and Lausanne.
TEXT BOX: Once a giant electronics sector
The Russian educational system, with its emphasis on mathematics and physical sciences, the foundation for the strategic achievements of the former Soviet Union in space, nuclear, and oceanographic exploration technologies, is responsible for the large number of qualified software developers, says RusSoft, (unfortunately they could not recognize an Israeli development model if it leapt out of their kasha in the morning) a trade organization based in Moscow.
Russia had sixty-five science cities centered on advanced research institutes across the country. But today the electronics industry in Russia is one-third the size it was at its Soviet peak. Some experts believe it will take a few more years for that giant to change directions to a market oriented sector (in the meantime the Russian Academy of Sciences is dong $1.6bn in outsourced research contracts.) In Soviet times, R&D was driven by government action plans, rather than the need to solve a customer�s need or a market�s problem.
�Due to its heft and infrastructure, however, it has managed to retain a sizable indigenous base,� says Malcolm Penn, an industry analyst at Future Horizons in Sevenoaks, England.
�Investment in electronics was out of step with the Wild West, fast-buck/low-risk investment style in Russia of the early nineties,� comments Penn. Russian and other former Soviet states suffered from a lack of foreign direct investment, except for the automotive and wired-telecommunications industries, both heavily subsidized by governments.
One of the countries largest electronics exporters is Svetlana that still manufactures vacuum tubes. It has found a global niche. There is a growing demand among audiophiles, for example, for hi-fi equipment where digital technology does not deliver the same quality of sound.
During the Cold War, the former Soviet Union did not have access to the fastest microprocessors or supercomputers but they still put the first rockets into space. They achieved what they did by writing powerful algorithms using their tremendous digital signal processing skills, according to Kelly Richdale, who majored in Russian studies at Cambridge before moving there and eventually co-founding A4Vision in Geneva.
There are quite a few success stories of Russian high tech entrepreneurship already, such as Abbyy Group�s with its offices near Red Square in Moscow and Epsylon Technologies, but this is just the beginning. The research for this article revealed dozens of innovative and creative examples of Russian high-tech entrepreneurialism.
Esther Dyson agrees. In a recent report she writes that Russia's programmers have begun to recognize their capabilities and �being smart and creative� they are now figuring out how to organize their marketplace better, putting in place not just software firms but training centers, education loans and the like.
Success Stories
Abbyy Software, founded by David Yang, who has at least two other tech startups under his belt, makes optical character recognition software. It can be found in more than half of the scanners manufactured worldwide today. Turnover is E12 million a year and the firm employs 250 people in Russia.
Its OCR software is used by Lexmark, Compaq and Samsung. It was recently praised by PCWorld as the best OCR engine in a recent analysis of printer performance.
Five year old Archivista, based in Zurich, licensed Abbyy�s OCR software for use it in its flagship archiving software. The tiny startup firm sells its software in Germany, Austria, Netherlands, and Switzerland.
Abbyy has picked up �relatively quickly� the basics of entrepreneurialism, says Urs Pfister, founder and CEO Archivista who has worked with a number of Russian software vendors. That is his diplomatic way of saying that the once bargain basement priced software licenses from Abbyy are now much more expensive than they were a number of years ago when the Swiss upstart made its deal with the Russians. They have increased �dramatically� and reached a much fairer (for the Russian) price level.
Yang also invented Cybiko, a wireless peer to peer handheld device that is meant to launch in the US this year. It claims to have already sold 250,000 units at $129 each. A European launch compatible with mobile phone and WiFi networks is expected at a later date.
Since more than 60 percent of its employees are working in R&D in Moscow, we can expect more innovations soon. (And thus if you are still with me is the real story of Russian technology.)
25 June 2003
Tony Nash on Always On talking about export of jobs. Somewhere down the comments it morphed in to a discussion on Russian outsourcing. I reread my comments and am pretty proud of them - its not often that you make short comments and feel in retrospect that you hit the nail on the head;
I have joined this discussion a little late - the joys of traveling through low-bandwith / high charge countries, otherwise known as Europe and only now catching up on my reading. The comments on Russia as an offshore programming / products center somewhere to the top of this page are pretty much spot on. Russia enjoys an enormous wealth of programming talent; its more expensive than India or China on a per hour basis but a number of companies have concluded that on a per line basis it competes well. Where it competes badly is in management, both strategic and line, and productization and sales of ideas. Almost none of the companies that I am involved with in Russia maintain Russian senior management or product managers. Its not a cultural failing but one born of isolation. Whilst the USSR collapsed over a decade ago it is only in the last few years (the start date is after the 1998 crisis) that people have started to take Russia and Russians seriously. It will take a decade for the cross-culutral osmosis to occur that will result in Russia regularly churning out world class products - be they IT or tech general.
A string of Russian tech companies will start to make headway in the next few years - however most people won't know them to have originated in Russia as they will have an almost entirely western front end.
Lex: Mobile handsets
Published: June 24 2003 20:31 | Last Updated: June 24 2003 20:31
Vodafone may crow that some customers now ask for the "David Beckham phone" - inspired by an advert for its Vodafone live! service featuring the England football captain. But most still ask for a Nokia. The branding of handsets in Europe remains a more powerful draw for users than the networks they are signing up to.
The continent's big operators are doing their best to make sure that changes. Orange, which already stamps its brand on handsets, on Tuesday signed a deal with Motorola which will produce a unique set of handsets. Orange also talked of putting more intelligence on to its network rather than into handsets. The network operators are increasingly aware that they need to differentiate themselves as data becomes a bigger chunk of revenues. Handset branding is one element. Another is having more say in design, so users find it easier to use new services, and therefore spend more money with the operator.
Vodafone live! is a good example. The Sharp handset, which is heavily Vodafone-branded, has easily outsold the equivalent Nokia. Its configuration for Vodafone services has also driven higher usage than from other handsets. Networks have long attempted to wrest more control over handsets. Market leader Nokia has so far resisted and continued to go from strength to strength. That will not change overnight. But as operators become more aggressive in working with individual manufacturers and stamping their identity on handsets, the risks for Nokia increase"
Oh boy, even the FT Lex Column is starting to talk about intelligence in the network and quits wittering about mobile networks always being about handsets. Maybe the world really is changing. Whatever, the truth is that the future of all communication networks will be driven by intelligence. Intelligence used to be hard, soon everything will be software running on standard NEBs boxes. The traditional TEM's will lose this battle to the IT giants - who in turn will buy their components from....
Published: June 24 2003 20:31 | Last Updated: June 24 2003 20:31
Vodafone may crow that some customers now ask for the "David Beckham phone" - inspired by an advert for its Vodafone live! service featuring the England football captain. But most still ask for a Nokia. The branding of handsets in Europe remains a more powerful draw for users than the networks they are signing up to.
The continent's big operators are doing their best to make sure that changes. Orange, which already stamps its brand on handsets, on Tuesday signed a deal with Motorola which will produce a unique set of handsets. Orange also talked of putting more intelligence on to its network rather than into handsets. The network operators are increasingly aware that they need to differentiate themselves as data becomes a bigger chunk of revenues. Handset branding is one element. Another is having more say in design, so users find it easier to use new services, and therefore spend more money with the operator.
Vodafone live! is a good example. The Sharp handset, which is heavily Vodafone-branded, has easily outsold the equivalent Nokia. Its configuration for Vodafone services has also driven higher usage than from other handsets. Networks have long attempted to wrest more control over handsets. Market leader Nokia has so far resisted and continued to go from strength to strength. That will not change overnight. But as operators become more aggressive in working with individual manufacturers and stamping their identity on handsets, the risks for Nokia increase"
Oh boy, even the FT Lex Column is starting to talk about intelligence in the network and quits wittering about mobile networks always being about handsets. Maybe the world really is changing. Whatever, the truth is that the future of all communication networks will be driven by intelligence. Intelligence used to be hard, soon everything will be software running on standard NEBs boxes. The traditional TEM's will lose this battle to the IT giants - who in turn will buy their components from....
28 May 2003
Better or just different; Russian technology when it is better really is better - but that does not make it better in every sphere, or even in the spheres where it is deemed to be better. Solutions to physical technology problems that are interesting here tend to have approached long existing problems in an entirely different way from the West. Locally this is known as the Zhiguli-school of technology development. A little harsh maybe but pretty much close to the truth. (A Zhiguli is a Russian car based on a Fiat 125 that has an even worse reliability record than the original. Russian's have an initimate knwoledge of their cars in order to keep them running. Thus they have a habit of coming up with solutions born of habit that we in the West have forgotten as our lives get more comfortable.)
Russian technolgy solutions, orthe ones that work anyway, tend to approach issues in a more holistic way than their competitors in the West. They tend to understand what is required to make a complete solution and work on the many facets that could improve the end solution - rather than focusing on the one area where the most substantial gains could be found.
Russian technolgy solutions, orthe ones that work anyway, tend to approach issues in a more holistic way than their competitors in the West. They tend to understand what is required to make a complete solution and work on the many facets that could improve the end solution - rather than focusing on the one area where the most substantial gains could be found.
26 May 2003
I have been pushing the thought that cheap resources is a competitive advantage for Russia that I started to miss the point. Its been written below from time-to-time as I worry that Russian technology companies will not make it out in to the big wide world. Cheap is good, but more important is a technology that really addresses significant problem and a management team that will make it happen.
The arguments in this article succiently encapsulates the problem for the super-large IT companies; they are too large to innovate but have yet to work out (fully) how to make the most money from their brands. The Economist IT Review (week May 10-16) explains it out more eruditely than I can. This has to be an opportunity to small innovative companies with products - let HP, IBM et al sell the services and products from innovative companies through partnership, OEM and acquisition.
Their other option was to get smaller, more focused and more innovative however, that does not exactly fit the fee earners aspirations.
13 May 2003
12 May 2003
Most Tech Sectors are Joining the Service Evolution :: AO
I have been meaning to write for a while on the product / component model versus a service driven model. The blog above made me think some more about this so maybe it�s a good thing that I had not attacked the issue previously. In common with most early stage VC�s much time in evaluating a businesses prospects are spent looking at its �to market strategy� or how will it sell this great product.
My thinking evolved as we reviewed a follow-on investment in a NGIN product / component company and tried to attract other investors. To a man (strange thing about VC investing) they all wanted the Company to invest in building out its service business. The Company stood firm � said no and is bootstrapping itself to profitability. The Company�s view � correct in my view � is that in large telecom solutions the system integrators / service providers will be the big companies: IBM GS, Ericsson, Nokia etc. They are not alone in addressing services as the panacea to the capex drought. It is in the services business where the market is truly crowded � if you are in any doubt ask LogicaCMG or CGEY. Providing the components that build the systems that these service providers are going to install makes a lot more sense than competing in the service business.
I should have hit the Blog This button on an earlier announcement of funding for AePona, another in the OSA / Parlay space. It has a huge service infrastructure � 100�s of people supporting, installing and building apps for a substandard product. Its service guys are going to become disillusioned that they are competing with better technical products that are available across multiple platforms, and they will be tied to competing in tenders where there product fits � AePona neither becomes a best-of-breed integrator, nor a best-of-breed product provider. It�s pretty damn good at marketing though.
Then as I pondered whether this was a telco specific problem, a company in an entirely different space says that it will be a preferred provider because its competitors sell both sub-systems and full solutions.
In conclusion � technology companies can compete by providing better technologies. Service providers will compete by packaging those solutions and making them (very) relevant to the end user. I will stay clear of service strategies; it is too frightening to compete with IBM and HP�s service delivery arms. That leaves the investing question � is there enough left to make good returns on product / component businesses. The logical answer is yes if the entry price is right.
I have been meaning to write for a while on the product / component model versus a service driven model. The blog above made me think some more about this so maybe it�s a good thing that I had not attacked the issue previously. In common with most early stage VC�s much time in evaluating a businesses prospects are spent looking at its �to market strategy� or how will it sell this great product.
My thinking evolved as we reviewed a follow-on investment in a NGIN product / component company and tried to attract other investors. To a man (strange thing about VC investing) they all wanted the Company to invest in building out its service business. The Company stood firm � said no and is bootstrapping itself to profitability. The Company�s view � correct in my view � is that in large telecom solutions the system integrators / service providers will be the big companies: IBM GS, Ericsson, Nokia etc. They are not alone in addressing services as the panacea to the capex drought. It is in the services business where the market is truly crowded � if you are in any doubt ask LogicaCMG or CGEY. Providing the components that build the systems that these service providers are going to install makes a lot more sense than competing in the service business.
I should have hit the Blog This button on an earlier announcement of funding for AePona, another in the OSA / Parlay space. It has a huge service infrastructure � 100�s of people supporting, installing and building apps for a substandard product. Its service guys are going to become disillusioned that they are competing with better technical products that are available across multiple platforms, and they will be tied to competing in tenders where there product fits � AePona neither becomes a best-of-breed integrator, nor a best-of-breed product provider. It�s pretty damn good at marketing though.
Then as I pondered whether this was a telco specific problem, a company in an entirely different space says that it will be a preferred provider because its competitors sell both sub-systems and full solutions.
In conclusion � technology companies can compete by providing better technologies. Service providers will compete by packaging those solutions and making them (very) relevant to the end user. I will stay clear of service strategies; it is too frightening to compete with IBM and HP�s service delivery arms. That leaves the investing question � is there enough left to make good returns on product / component businesses. The logical answer is yes if the entry price is right.
25 April 2003
In Search of Russia�s Great White Hope
An interesting week; whether it is spring in the air or just the natural course of things but since I last put fingers to the keyboard the world seems to be picking up (whilst at the same time the opportunities for raising funds seem to be further and further away.) It always a good week when the number of investment opportunities in the inbox that get you excited is greater than 2 � and 3 is 50% more than 2.
Also added to the pile this week is the latest contender for Great White Hope in Russia�s tech world. Russia�s tech world, whilst undoubtedly intriguing, is lacking the one or two home runs that will bring the cash to the market that will allow the market to further develop. A virtuous circle; or which came first�.
One of the principal reasons for this is the lack of management expertise in Russia. Indeed it could be said that even those tech entrepreneurs who acknowledged that what they don�t know would be a good start. Thus we are all looking for the poster child that can be shown off to the investing public. There have not been many pretenders to the crown and most have proven to be flawed. Flaws can be forgiven if it returns are stellar. In these more straightened days a manager who builds a good tech company that offers real value will do.
The latest poster child will have to remain nameless for the time being � I want to invest in his company. As many England football managers have found being built up by the press, in this case the cognoscenti, is a forerunner of being torn apart by them (or sleeping with Ulrika Johnson.)
An interesting week; whether it is spring in the air or just the natural course of things but since I last put fingers to the keyboard the world seems to be picking up (whilst at the same time the opportunities for raising funds seem to be further and further away.) It always a good week when the number of investment opportunities in the inbox that get you excited is greater than 2 � and 3 is 50% more than 2.
Also added to the pile this week is the latest contender for Great White Hope in Russia�s tech world. Russia�s tech world, whilst undoubtedly intriguing, is lacking the one or two home runs that will bring the cash to the market that will allow the market to further develop. A virtuous circle; or which came first�.
One of the principal reasons for this is the lack of management expertise in Russia. Indeed it could be said that even those tech entrepreneurs who acknowledged that what they don�t know would be a good start. Thus we are all looking for the poster child that can be shown off to the investing public. There have not been many pretenders to the crown and most have proven to be flawed. Flaws can be forgiven if it returns are stellar. In these more straightened days a manager who builds a good tech company that offers real value will do.
The latest poster child will have to remain nameless for the time being � I want to invest in his company. As many England football managers have found being built up by the press, in this case the cognoscenti, is a forerunner of being torn apart by them (or sleeping with Ulrika Johnson.)
19 April 2003
FT.com Home Global - Yushenkov Murdered
I spend my life telling people its safe to invest in Russia, and then this. Odds on that its linked to FSB are deeply involved and even more likely that neither the killers or, more importantly the people who ordered the killing will ever be brought to justice.
I spend my life telling people its safe to invest in Russia, and then this. Odds on that its linked to FSB are deeply involved and even more likely that neither the killers or, more importantly the people who ordered the killing will ever be brought to justice.
18 April 2003
So much for not having too many days between blogs - one month later:
The snow has finally melted and the outside temperature has finally risen above zero for a week on the trot. Maybe that is the driving reason behind what feels like a wave of investment tourism � at least for Russia. The ubiquitous Esther Dyson is in town meeting morning, noon and night. The daughter-in-law of one of the founding fathers of US VC investing is looking to see if her Russian roots and Californian location can drag something out of Russian tech that has evaded the rest of us so far. Meanwhile, the founder of Flintstone Technology (a real tech transfer incubator) is back in Moscow working out how not to invest in tech but take advantage of the booming retail sector. Those in the know believe that it is down to boredom with a very dull rest of the world.
My conviction that excellent and cheap Russian technical assets (scientists and programmers) really do make a difference to returns is starting to be borne out. I am looking at a deal that requires $8mn to get to break even � that�s a lot of expensive European management � if the R&D centre was moved out of Russia you could add a another $4mn (minimum) to the bill. The minimum post-money (fully-diluted) is going to be $12mn, more realistically $20mn (options are expensive in return dilution.) Assume that a VC expects a minimum of 5x cash-on-cash � that�s a minimum exit valuation of $100mn. The VC world remains fixated by finding the next $1bn company, the reality however is that investors returns come from a range of reasonably successful companies and not too many failures � there aren�t that many VC-backed companies being sold for in excess of $100mn today.
Still the question remains are there enough Russian tech companies to build a portfolio of $100mn companies?
The snow has finally melted and the outside temperature has finally risen above zero for a week on the trot. Maybe that is the driving reason behind what feels like a wave of investment tourism � at least for Russia. The ubiquitous Esther Dyson is in town meeting morning, noon and night. The daughter-in-law of one of the founding fathers of US VC investing is looking to see if her Russian roots and Californian location can drag something out of Russian tech that has evaded the rest of us so far. Meanwhile, the founder of Flintstone Technology (a real tech transfer incubator) is back in Moscow working out how not to invest in tech but take advantage of the booming retail sector. Those in the know believe that it is down to boredom with a very dull rest of the world.
My conviction that excellent and cheap Russian technical assets (scientists and programmers) really do make a difference to returns is starting to be borne out. I am looking at a deal that requires $8mn to get to break even � that�s a lot of expensive European management � if the R&D centre was moved out of Russia you could add a another $4mn (minimum) to the bill. The minimum post-money (fully-diluted) is going to be $12mn, more realistically $20mn (options are expensive in return dilution.) Assume that a VC expects a minimum of 5x cash-on-cash � that�s a minimum exit valuation of $100mn. The VC world remains fixated by finding the next $1bn company, the reality however is that investors returns come from a range of reasonably successful companies and not too many failures � there aren�t that many VC-backed companies being sold for in excess of $100mn today.
Still the question remains are there enough Russian tech companies to build a portfolio of $100mn companies?
12 March 2003
Don�t want to have too many days between blogs � it backs up the ideas. Today�s is the big one; is it possible to build a business investing in Russian tech? It is after all what I do for a living and gets me out of bed with more or less a spring in my step every day.
The facts (or as many as you can get in the Irish bar at Moscow Airport waiting for a delayed flight); there are today no successful examples of Russian built technologies that have become $1bn companies. There are a number of (mostly) ex-Russian-entrepreneurs who have built great companies � Sergei Brin (Google,) the guys at Parametric Technologies, Paragraph (Stepan Pachikov,) despite the fact that Transcriber drives me insane daily. Then a number of more or less successful companies of which the latest is Optiva, founded by Pavel Lazarev. Should the fact that it took him 10 years to get to Series D be really frightening?
The facts continued; the number of Russian tech companies that cause the hairs on the back of your neck to really stand up is, well, one every blue moon. Not a great hit rate. Maybe the tech is great, but investable tech cannot exist in isolation from its market. It would be fair to say that it�s pretty difficult to build a tech business if you don�t really comprehend the market you are addressing.
One of my favourite bizarre investment opportunities is a holographic storage company in Akademgorodok in Novosibirsk � go east from Moscow and keep going. Two strange Professors doing some of the coolest research but with little if any contact to Moscow, let alone to the rest of the world. How are we going to get them to build products? Other, that is, from paying them a living wage and taking the IP and running to the Valley.
So maybe we could do 3 deals a year � can we make long term money on that? It is clear that there is some very cool technology however, getting it to be accepted is unbelievably difficult � to describe the tech world as parochial would be as correct as describing the UK as a class ridden society.
With only a few investors actively targeting Russian tech the opportunities for spreading the word are few and far between.
Are we doing the wrong thing?
The facts (or as many as you can get in the Irish bar at Moscow Airport waiting for a delayed flight); there are today no successful examples of Russian built technologies that have become $1bn companies. There are a number of (mostly) ex-Russian-entrepreneurs who have built great companies � Sergei Brin (Google,) the guys at Parametric Technologies, Paragraph (Stepan Pachikov,) despite the fact that Transcriber drives me insane daily. Then a number of more or less successful companies of which the latest is Optiva, founded by Pavel Lazarev. Should the fact that it took him 10 years to get to Series D be really frightening?
The facts continued; the number of Russian tech companies that cause the hairs on the back of your neck to really stand up is, well, one every blue moon. Not a great hit rate. Maybe the tech is great, but investable tech cannot exist in isolation from its market. It would be fair to say that it�s pretty difficult to build a tech business if you don�t really comprehend the market you are addressing.
One of my favourite bizarre investment opportunities is a holographic storage company in Akademgorodok in Novosibirsk � go east from Moscow and keep going. Two strange Professors doing some of the coolest research but with little if any contact to Moscow, let alone to the rest of the world. How are we going to get them to build products? Other, that is, from paying them a living wage and taking the IP and running to the Valley.
So maybe we could do 3 deals a year � can we make long term money on that? It is clear that there is some very cool technology however, getting it to be accepted is unbelievably difficult � to describe the tech world as parochial would be as correct as describing the UK as a class ridden society.
With only a few investors actively targeting Russian tech the opportunities for spreading the word are few and far between.
Are we doing the wrong thing?
04 March 2003
I suspect that it is the way with the rest of the world but it does not make it any more right; demand for reasonably priced voice and, particularly, data communications is growing rapidly. However, the market is being held back by the incumbents who are more interested in providing communications to high end corporate customers than tracking down the dispersed SME market, but still insist on making it difficult for others to enter the market. Note that in Moscow / Russia incumbent has a slightly different connotation to the rest of the world - incumbents may be CLEC's but if they have the right level of political support they very definitley display the same qualities of boneheaded denial of market opportunities that their bretheren in the rest of the world have.
Its not as though the basic infrastructure does not exist. In Moscow, which is not like the rest of Russia, the city level backbone exists; its the copper over the last mile (500m?) that is lacking. Thus a potentially lucrative market for broadband wireless serving SME's, consumer outlets and high end retail (believe me there is enough of it.) An example; the Sistema Telecom controlled MGTS (Moscow City Telecom Network - THE ILEC) recently raised carriage prices 9x for Golden Telecom, Moscow's leading business CLEC - economic rape - especially as MGTS would never be able to offer even the paltry service levels of Golden Telecom.
There is no shortage of mom & pops playing local games; not big enough to draw the attention of the big boys, but also not big enough to generate inetrest from the financial community. Strikes me that one of the easiest investment cases to make in Moscow today is aggregating all these mom & pop's to create a really viable ISP / WISP.
Whilst Russia may have one of the most theoretically liberal telecom markets in Europe, the reality is that the incumbents are determined to repeat the mistakes of the west, only without the debt.
Its not as though the basic infrastructure does not exist. In Moscow, which is not like the rest of Russia, the city level backbone exists; its the copper over the last mile (500m?) that is lacking. Thus a potentially lucrative market for broadband wireless serving SME's, consumer outlets and high end retail (believe me there is enough of it.) An example; the Sistema Telecom controlled MGTS (Moscow City Telecom Network - THE ILEC) recently raised carriage prices 9x for Golden Telecom, Moscow's leading business CLEC - economic rape - especially as MGTS would never be able to offer even the paltry service levels of Golden Telecom.
There is no shortage of mom & pops playing local games; not big enough to draw the attention of the big boys, but also not big enough to generate inetrest from the financial community. Strikes me that one of the easiest investment cases to make in Moscow today is aggregating all these mom & pop's to create a really viable ISP / WISP.
Whilst Russia may have one of the most theoretically liberal telecom markets in Europe, the reality is that the incumbents are determined to repeat the mistakes of the west, only without the debt.
03 March 2003
First blog on Ruminations on Russian Tech. Not that it is limited to Russian tech, more the thoughts that strike me as we wade our way through the myriad of investment opportunities available. We, Mint Capital, are investing in tech and media opportunities either in Russia or made available and fundable because the quality of Russian programming provides vastly superior price / performance or finally, but unfortunately, less frequently due to brilliant Russian inventions that are available to the rest of the world.
Just to prove that this is really more of tech thoughts with a Russian flavour first thought relates to the closure of Red Herring. Can't remember when I first signed up, and I am not sure how relevant that is, however the last 2 editions sit only partially read in my briefcase along with a pile of other partially interesting material. That is relevant. It was expressed well by Glenn Fleischmann on his 802.11b Yahoo Group - I shamelessly quote "The author now provides an example of why listening to the company you're interviewing too closely causes you to drink the blue zombie soup and repeat their tropes.". Some of the thoughts were insightful, the editorial frequently was. The principal pieces were too often, especially recently the usual repeats of the main line views being espoused.
As an example; surely there could have been few magazines closer to the VC community than RH. Why then mindlessly repeat the quarter-by-quarter performance type analysis of the VC industry repeated in the mainstream press? Surely it was incumbent on RH to point out the crap investments that have been made by all of us and then go on to point out that in mainstream VC investing, early stage can take and usually take 5+ years to come to fruition. Portfolios valuations will generally look lousy during the first couple of years and then, assuming you did not invest in 1999, pick up.
The same basic lack of analysis plagued the recent piece on Cometa; suggesting that Boingo builds out infrastruture as opposed to aggregrating what is there. Its rubbish and we were expected to pay for it. The same is true for far too much that poses as tech journalism - it just reports without insight, or far too frequently, knowledge. Celebrity bloggers may be nice but they generally don't say anything.
The last shot at journalists is fired at Dan Gillmour; petty cheap shots may be amusing but as you are an employee not an at risk owner serve to make you look small not clever.
Just to prove that this is really more of tech thoughts with a Russian flavour first thought relates to the closure of Red Herring. Can't remember when I first signed up, and I am not sure how relevant that is, however the last 2 editions sit only partially read in my briefcase along with a pile of other partially interesting material. That is relevant. It was expressed well by Glenn Fleischmann on his 802.11b Yahoo Group - I shamelessly quote "The author now provides an example of why listening to the company you're interviewing too closely causes you to drink the blue zombie soup and repeat their tropes.". Some of the thoughts were insightful, the editorial frequently was. The principal pieces were too often, especially recently the usual repeats of the main line views being espoused.
As an example; surely there could have been few magazines closer to the VC community than RH. Why then mindlessly repeat the quarter-by-quarter performance type analysis of the VC industry repeated in the mainstream press? Surely it was incumbent on RH to point out the crap investments that have been made by all of us and then go on to point out that in mainstream VC investing, early stage can take and usually take 5+ years to come to fruition. Portfolios valuations will generally look lousy during the first couple of years and then, assuming you did not invest in 1999, pick up.
The same basic lack of analysis plagued the recent piece on Cometa; suggesting that Boingo builds out infrastruture as opposed to aggregrating what is there. Its rubbish and we were expected to pay for it. The same is true for far too much that poses as tech journalism - it just reports without insight, or far too frequently, knowledge. Celebrity bloggers may be nice but they generally don't say anything.
The last shot at journalists is fired at Dan Gillmour; petty cheap shots may be amusing but as you are an employee not an at risk owner serve to make you look small not clever.
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31 July 2003
The Impact of Equity Ownership on Returns -Knowledge @ Wharton: "Larcker, Guay and their colleague John E. Core did a broad survey of academic research and could not find compelling evidence that employee ownership, through options or shares, boosts shareholder returns. �Whether it translates to the bottom line is totally unclear,� Larcker said."
You have to sort of agree; especially in companies that are not performing that well. How often the refrain from managers; reset my options to incentivise me to work - nothing is more likely to turn me in to a miserable approximation to every managers worst type of VC.
Not that Options are a bad thing; how else do you pay people in companies that are short of cash?
28 July 2003
Mercury News | 07/27/2003 | Dan Gillmor on the Bad news of the Recent Uptick: "I have no faith whatever in big technology companies' ability to bring sustainable growth back to the valley. Even when the economy picks up again, many of them will simply continue to export skilled technical and back-shop jobs to places like India and China. We have no choice but to participate in a global economy, but are we really ready for what we're setting into motion?"
Though this is probably a good thing - innovation is not created by things standing still but by upheaval. The last few years have seen an upheaval of sorts; now the innovation has to come.
25 July 2003
I have been here before many times but some late night reading of blogs from the Always On Conference meant that sleep was interrupted by random thoughts on how to invest in Russian technology. My sleeplessness can be attributed to Tim Oren's Thoughts on Venture Capital Investing etc..... so he should at least be attributed.
So back to basics;
There is some exceedingly interesting Russian technology out there in a more or less comercial or commercialisable form.
Where computational power matters (telecom's for instance) Russia's huge mathematical skills make a real difference.
Because Russia, and its predecessor, had to work with sub-standard equipment (you name it, it was sub-standard) scientists, programmers and the like had to find ways to make inferior products work, as well as, or better than the most modern equipment in the west. Most commonly this was achieved through a multi-disciplinary approach that is broadly lacking in the West. These generalisations are so easily challenged but they are broadly right.
The cost of building a product to Beta and beyond is a fator of 4-10x cheaper than a similar product in western Europe or US. This makes no comment about quality.
Russia's continuing isolation from the hotbeds of technology limit its ability to build products and applications that solve today's problems.
Russian management teams have not yet had exposure to the long term exposure to western management and customer interfacing that provides a pool of highly qualified management teams - even at the CTO level. Somewhere I read that 25% of Valley start-ups have Indian and Chinese CEO's.
There is almost no qualified capital looking at Russian technology.
So where is the value to be found? Somewhere in Tim's blogging he mentioned he questioned the stage of investing differentiation between venture funds that was caused by the bubble in the late 90's. Hopefully for the right reasons he decided it was a good thing, hopefully for the right reasons I agree with him. Inherently I believe in early stage investing, something about being a frustrated entrepreneur; but is that the right model for investing in Russian technology. Assuming the assumptions above are correct; the massive weakness of Russian technology is management and its applicability to global markets. Surely then it makes sense to invest at the point that these two problems are solved? Or is it not overly arrogant to believe that through appropriate mentoring of the right people applications and additional management can be added to overcome these shortcomings.
Assuming that we invest in companies that have the ability to see where their weaknesses lie - understanding what they don't understand - then early stage investing makes sense........I think.
Anyway back to the day job.
The news from the Yukos affair seems to get worse and worse - there are no angels in this game and it is extremely hard to determine which version of the spin is closer to the truth. Whatever the end game turns out to be three major facts are rammed home by these events;
We thought things were getting better, actually they look better on the surface but in reality little has changed.
The judiciary and police are a business, pressure tool and has almost nothing to do with enforcing the law.
Whilst their are skeletons in the closet, someone will seek to extract "rent" so that you can live a quiet life.
The last point is the most worrying - everyone, and I mean everyone, has been judicious with the truth in paying corporate and personal taxes at some point. Many small / medium size businesses are trying to come clean but it is a slow process and the bureacrats are not in favour of it as it has a nasty habit of reducing their monthly take home.
For an alternative take on what is going on read Eric Kraus via
Sovlink's Home Page
For a well written piece that makes it clear that the whole affair is unclear read Gideon Richter's piece in the Economist.
16 July 2003
The text below has been quoted, and edited by me, from an article written by Valerie Thompson in Computer World. I have not found it in English as I understand it was published in the Swiss version. Such gems should not be left unearthed�.
I have made some comments in blue along the way which got lost and are now bracketed.
From Russia with love and bytes
By Valerie Thompson
Russian high-tech, obscured for the longest time by news flow about the Mafiya and its use of selected seedy Swiss bankers, cowboy capitalism, and oil oligarchs, (however the mind-bendingly stupid Chekisti seem to be being doing a good job of tying to change that impression) has substantially evolved in recent years.
Today people talk about the success stories and role models, such as Google co-founder Sergey Brin. They mention Israel (oh what a joy a journalist who understands more than the lunatics trying to promote Russian technology at MinSvyaz and Trade Minsitry) -- it is a little known fact that the basis of the tiny country�s ability to create a huge, new high tech economy, is the influx of highly education Russian Jews - many of whom worked in the former Soviet Republic�s military industrial complex.
And they will talk about a rich supply of talented engineers and scientist with math skills, physics know-how, creativity. They will also mention Russian tenacity and pride. A new dynamic is emerging.
A number of smart, young Swiss-based high tech firms have tapped into one of Russia�s richest resources. They have found success transferring Russian developments to the West to solve tricky software programming issues, introducing new innovative products for a global market.
ACOL Technologies, based in Geneva, acquired an R&D team in Moscow, forming a new company with Russian entrepreneur, Alexander Shishov. (Probably one of the best CTO�s operating in Russia today � actually delete probably.) It already has customers in the US and in Russia and at the time of writing was in discussion with investors to back its bid to make ultra-high brightness light emitting diodes.
Two other firms, A4Vision and Virtoons AG, are tapping Russia�s advanced digital signal processing and software programming skills to develop innovative, new products for niche markets, while Novavox based its entire R&D effort in St Petersburg. It has had success selling its computer telephony products for PBX manufacturers and wireless operators.
The Swiss aren�t the only ones who have discovered this shortcut to advanced technology and innovation. Intel�s Centrino software is developed in Russia. It employs 200 engineers in Nizhny Novgorod in development and 150 contractors in Sarov in central Russia, as well as close to 100 developers in Moscow.
Intel Capital�s Marie Trexler told BusinessWeek that her business unit hopes to profit from the country�s rich supply of technical talent and engineers. Specifically, the Russians� advanced knowledge of materials science and ability to design powerful algorithms. Man-made crystals could lead to new semiconductor materials, she said, adding that the algorithm know-how could lead to faster processors and software. Wireless and radio are also Russian strengths.
The Russians are coming!
High-end animation software companies, such as Pixar, Dreamworks, DNA, could soon be facing competition from a much cheaper and elegant solution from Russia developers.
One year old Virtoons AG is a Zurich based animation studio, founded by Russian-born Alexander Semenov. His idea is to create an animation studio that can produce animation sequences on a PC based on interpreting movements of someone wearing a magnetic sensor suit in real time. If his software team is successful, they will remove the need to hire hundreds of people to �draw� and render animated clips, plus, since the software operates in real time, it could cut development times dramatically. Oh and by the way, he wants to do it in 3D, as well.
The studio is working on a solution based on animation software which it acquired from a Moscow-based high tech incubator called Latypov.
Semenov says his software has to run on standard processors. Being Russian, the developers just did not have access to the capital to acquire high performance computers. But he figures it�s a smart approach because the niche for supercomputer based animation solutions is already occupied by the big US players. �Pixar and Dreamworks have a solution that runs on terabit process and needs gigabytes of storage,� explains Semenov.
Virtoons success started early. It has already won a prestigious contract from SF DRS for a new children�s cartoon series, the first since Pingu ten years ago.
Semenov is currently presenting sample scripts and the concept to television channels around the world.
Normally a studio will deliver a single sample script, a few minutes of demo film and a description of the characters, explains Semenov, but Virtoons has delivered all 13 sample scripts for the series. Semenov felt he had to �over-deliver� in order to overcome any doubts that the startup would be unable to follow through on its promises. �To convince the TV channels over-delivering was the only way,� says Semenov.
The company received financial aid from the Swiss Organization for Facilitating Investments (SOFI), an initiative of the Swiss State Secretariat for Economic Affairs in cooperation with KPMG.
SOFI helped the entrepreneur during the application process and show him how access a SECO fund with some success. Virtoons was able to raise capital in the form of loans that have to be paid back in five years time. In Moscow, 17 jobs have been created and 18 more are planned for this year.
Bright LEDs, Russian ingenuity
When disc drive manufacturer Quantum merged with Maxtor two years, one of the company�s top European managers, Jean Charles Herpeux convinced a couple of colleagues to try their hands at forming their own company.
Herpeux says he wanted to exploit his experience building up sophisticated sales and marketing organization for his own profit. They went to Russia looking for some bright ideas and there found Alexander Shishov who was running a company called Corvette Lights. Shishov had been having difficulties breaking into the European and US markets with some innovative high brightness LEDs and subsystems based on his firm�s R&D breakthrough. So he was happy to do a deal with the Frenchman.
Herpeux is a big fan of the Russian techno-elite. �If you want to talk about reliable technology, just remember that it was the Russian Soyuz that rescued the NASA space station crew,� says Herpeux. (The MIR also long outlived its planned expiration date when it finally burned out in 2001 after 15 years in service.)
He is one of a number of outsiders that are increasingly recognizing the strength of Russia�s system of education in the fields of mathematics and basic sciences, as well as the solid work experience with complex projects and diverse technologies.
The cultural traditions with Western Europe and America, says Herpeux. It is something that cannot be said of the software development outsourcing leader, India.
The Russians have come up with a way to make any color of LEDs shine more brightly. The technique increases the brightness without increasing the power consumption due to a smart packaging technique, precision optics and better thermal management. Typical applications are traffic lights, automobile brake lights, commercial displays, and giant screen computer displays.
First customers for ACOL Technologies, which now employs 22 people, are US based firms that make traffic lights.
Herpeux says he has not run into any problems working with the Russians. �It�s just like managing an operation in any remote place in the world. There is less difference in the culture between the Swiss and the Russian than the Swiss and the Americans or the Japanese,� says Herpeux.
The Swiss, the French and the Russian education systems are normative, he says. Whereas the Anglo Saxon method of educating people, which rewards good presentation and self expression, rather than demonstration of an ability to complete assignments based on certain standards. What makes Russia�s outstanding is that it rewards creativity at the same time, which results in engineers and software developers that can solve problems.
From Russia to the shores of Lac Leman to Silicon Valley
A4Vision has transferred technology from Russian labs to Geneva and now to Silicon Valley. Its facial recognition system relies on inexpensive digital cameras, an infra-red grid projector, and a standard PC running A4Vision�s software.
It is recognized by industry experts as being one of the most �advanced�.
Backed by an Italian venture capital company and Switzerland�s Logitech, A4Vision, has its R&D activities in Moscow but that probably won�t be touted too much in the future as the firm has an American headquarters and is aiming for the US-homeland security market.
The Russians have the inter-disciplinary (this is the key every time � either the Zhiguli approach to technology � they had to work with less so they worked out ways of making less work better) know-how to understand the optics, electronics, math and physics required to make such software work, says Kelly Richdale, a co-founder of A4Vision.
The smart Russian behind the innovative solution is Artiom Yukhin, a former researcher at the Bauman Moscow State Technical University; there he headed the 3D machine vision research team.
His expertise in mathematical modeling, along with his research team�s dedication made it possible for A4Vision to change direction shortly after being founded to become a supplier of �homeland security� solutions after the September 11th attacks on the US.
Richdale says she was able to ramp up quickly, growing from 10 employees to 60 within 18 months. The Moscow engineers are �hard-working�, able to make innovations, but also willing to do the hard work required to commercialize a technology.
St Petersburg R&D
Novavox AG was founded in 1994 and employs 75 people. It is currently restructuring and relying on the adaptability of its Russian R&D team to grow into the future. Employ numbers are down from a peak of 160 during the telecommunications boom where it achieved what few Swiss-based telecommunications applications makers have achieved: it was able convinced big brand name equipment makers, such as Tenovis and Alcatel to incorporate its software into their products. The US Army is one of its customers.
Andre Zgraggen, the company founder now lives in Russia. His lab recently received ISO quality certification. Settling the development in Russia, has given the company an advantage far beyond being able to find good programmers, it has �opened the doors to the Eastern European market�, which has been growing.
Advantages of being in Russia are not only technical; market-wise the products can be made available in six other languages due to the language skills of his St Petersburg crew. The company is branching out into offshore software development.
The Swiss Russian tech exchange
A number of government funded initiatives could very well lead to further partnerships between Russian and Swiss scientists, engineers, and entrepreneurs.
For example, the SNF has funded dozens of joint research projects on a wide range of topics, many are basic research in physics related and biotech topics, but some have direct application in advanced materials and future electronics and quantum computing applications.
In addition, delegates from Russia�s scientific community have been invited to meet and tour centers across the country, including the Paul Scherrer Institut, CSEM, and the two ETHs in Zurich and Lausanne.
TEXT BOX: Once a giant electronics sector
The Russian educational system, with its emphasis on mathematics and physical sciences, the foundation for the strategic achievements of the former Soviet Union in space, nuclear, and oceanographic exploration technologies, is responsible for the large number of qualified software developers, says RusSoft, (unfortunately they could not recognize an Israeli development model if it leapt out of their kasha in the morning) a trade organization based in Moscow.
Russia had sixty-five science cities centered on advanced research institutes across the country. But today the electronics industry in Russia is one-third the size it was at its Soviet peak. Some experts believe it will take a few more years for that giant to change directions to a market oriented sector (in the meantime the Russian Academy of Sciences is dong $1.6bn in outsourced research contracts.) In Soviet times, R&D was driven by government action plans, rather than the need to solve a customer�s need or a market�s problem.
�Due to its heft and infrastructure, however, it has managed to retain a sizable indigenous base,� says Malcolm Penn, an industry analyst at Future Horizons in Sevenoaks, England.
�Investment in electronics was out of step with the Wild West, fast-buck/low-risk investment style in Russia of the early nineties,� comments Penn. Russian and other former Soviet states suffered from a lack of foreign direct investment, except for the automotive and wired-telecommunications industries, both heavily subsidized by governments.
One of the countries largest electronics exporters is Svetlana that still manufactures vacuum tubes. It has found a global niche. There is a growing demand among audiophiles, for example, for hi-fi equipment where digital technology does not deliver the same quality of sound.
During the Cold War, the former Soviet Union did not have access to the fastest microprocessors or supercomputers but they still put the first rockets into space. They achieved what they did by writing powerful algorithms using their tremendous digital signal processing skills, according to Kelly Richdale, who majored in Russian studies at Cambridge before moving there and eventually co-founding A4Vision in Geneva.
There are quite a few success stories of Russian high tech entrepreneurship already, such as Abbyy Group�s with its offices near Red Square in Moscow and Epsylon Technologies, but this is just the beginning. The research for this article revealed dozens of innovative and creative examples of Russian high-tech entrepreneurialism.
Esther Dyson agrees. In a recent report she writes that Russia's programmers have begun to recognize their capabilities and �being smart and creative� they are now figuring out how to organize their marketplace better, putting in place not just software firms but training centers, education loans and the like.
Success Stories
Abbyy Software, founded by David Yang, who has at least two other tech startups under his belt, makes optical character recognition software. It can be found in more than half of the scanners manufactured worldwide today. Turnover is E12 million a year and the firm employs 250 people in Russia.
Its OCR software is used by Lexmark, Compaq and Samsung. It was recently praised by PCWorld as the best OCR engine in a recent analysis of printer performance.
Five year old Archivista, based in Zurich, licensed Abbyy�s OCR software for use it in its flagship archiving software. The tiny startup firm sells its software in Germany, Austria, Netherlands, and Switzerland.
Abbyy has picked up �relatively quickly� the basics of entrepreneurialism, says Urs Pfister, founder and CEO Archivista who has worked with a number of Russian software vendors. That is his diplomatic way of saying that the once bargain basement priced software licenses from Abbyy are now much more expensive than they were a number of years ago when the Swiss upstart made its deal with the Russians. They have increased �dramatically� and reached a much fairer (for the Russian) price level.
Yang also invented Cybiko, a wireless peer to peer handheld device that is meant to launch in the US this year. It claims to have already sold 250,000 units at $129 each. A European launch compatible with mobile phone and WiFi networks is expected at a later date.
Since more than 60 percent of its employees are working in R&D in Moscow, we can expect more innovations soon. (And thus if you are still with me is the real story of Russian technology.)
25 June 2003
Tony Nash on Always On talking about export of jobs. Somewhere down the comments it morphed in to a discussion on Russian outsourcing. I reread my comments and am pretty proud of them - its not often that you make short comments and feel in retrospect that you hit the nail on the head;
I have joined this discussion a little late - the joys of traveling through low-bandwith / high charge countries, otherwise known as Europe and only now catching up on my reading. The comments on Russia as an offshore programming / products center somewhere to the top of this page are pretty much spot on. Russia enjoys an enormous wealth of programming talent; its more expensive than India or China on a per hour basis but a number of companies have concluded that on a per line basis it competes well. Where it competes badly is in management, both strategic and line, and productization and sales of ideas. Almost none of the companies that I am involved with in Russia maintain Russian senior management or product managers. Its not a cultural failing but one born of isolation. Whilst the USSR collapsed over a decade ago it is only in the last few years (the start date is after the 1998 crisis) that people have started to take Russia and Russians seriously. It will take a decade for the cross-culutral osmosis to occur that will result in Russia regularly churning out world class products - be they IT or tech general.
A string of Russian tech companies will start to make headway in the next few years - however most people won't know them to have originated in Russia as they will have an almost entirely western front end.
Lex: Mobile handsets
Published: June 24 2003 20:31 | Last Updated: June 24 2003 20:31
Vodafone may crow that some customers now ask for the "David Beckham phone" - inspired by an advert for its Vodafone live! service featuring the England football captain. But most still ask for a Nokia. The branding of handsets in Europe remains a more powerful draw for users than the networks they are signing up to.
The continent's big operators are doing their best to make sure that changes. Orange, which already stamps its brand on handsets, on Tuesday signed a deal with Motorola which will produce a unique set of handsets. Orange also talked of putting more intelligence on to its network rather than into handsets. The network operators are increasingly aware that they need to differentiate themselves as data becomes a bigger chunk of revenues. Handset branding is one element. Another is having more say in design, so users find it easier to use new services, and therefore spend more money with the operator.
Vodafone live! is a good example. The Sharp handset, which is heavily Vodafone-branded, has easily outsold the equivalent Nokia. Its configuration for Vodafone services has also driven higher usage than from other handsets. Networks have long attempted to wrest more control over handsets. Market leader Nokia has so far resisted and continued to go from strength to strength. That will not change overnight. But as operators become more aggressive in working with individual manufacturers and stamping their identity on handsets, the risks for Nokia increase"
Oh boy, even the FT Lex Column is starting to talk about intelligence in the network and quits wittering about mobile networks always being about handsets. Maybe the world really is changing. Whatever, the truth is that the future of all communication networks will be driven by intelligence. Intelligence used to be hard, soon everything will be software running on standard NEBs boxes. The traditional TEM's will lose this battle to the IT giants - who in turn will buy their components from....
28 May 2003
Better or just different; Russian technology when it is better really is better - but that does not make it better in every sphere, or even in the spheres where it is deemed to be better. Solutions to physical technology problems that are interesting here tend to have approached long existing problems in an entirely different way from the West. Locally this is known as the Zhiguli-school of technology development. A little harsh maybe but pretty much close to the truth. (A Zhiguli is a Russian car based on a Fiat 125 that has an even worse reliability record than the original. Russian's have an initimate knwoledge of their cars in order to keep them running. Thus they have a habit of coming up with solutions born of habit that we in the West have forgotten as our lives get more comfortable.)
Russian technolgy solutions, orthe ones that work anyway, tend to approach issues in a more holistic way than their competitors in the West. They tend to understand what is required to make a complete solution and work on the many facets that could improve the end solution - rather than focusing on the one area where the most substantial gains could be found.
26 May 2003
I have been pushing the thought that cheap resources is a competitive advantage for Russia that I started to miss the point. Its been written below from time-to-time as I worry that Russian technology companies will not make it out in to the big wide world. Cheap is good, but more important is a technology that really addresses significant problem and a management team that will make it happen.
The arguments in this article succiently encapsulates the problem for the super-large IT companies; they are too large to innovate but have yet to work out (fully) how to make the most money from their brands. The Economist IT Review (week May 10-16) explains it out more eruditely than I can. This has to be an opportunity to small innovative companies with products - let HP, IBM et al sell the services and products from innovative companies through partnership, OEM and acquisition.
Their other option was to get smaller, more focused and more innovative however, that does not exactly fit the fee earners aspirations.
13 May 2003
12 May 2003
Most Tech Sectors are Joining the Service Evolution :: AO
I have been meaning to write for a while on the product / component model versus a service driven model. The blog above made me think some more about this so maybe it�s a good thing that I had not attacked the issue previously. In common with most early stage VC�s much time in evaluating a businesses prospects are spent looking at its �to market strategy� or how will it sell this great product.
My thinking evolved as we reviewed a follow-on investment in a NGIN product / component company and tried to attract other investors. To a man (strange thing about VC investing) they all wanted the Company to invest in building out its service business. The Company stood firm � said no and is bootstrapping itself to profitability. The Company�s view � correct in my view � is that in large telecom solutions the system integrators / service providers will be the big companies: IBM GS, Ericsson, Nokia etc. They are not alone in addressing services as the panacea to the capex drought. It is in the services business where the market is truly crowded � if you are in any doubt ask LogicaCMG or CGEY. Providing the components that build the systems that these service providers are going to install makes a lot more sense than competing in the service business.
I should have hit the Blog This button on an earlier announcement of funding for AePona, another in the OSA / Parlay space. It has a huge service infrastructure � 100�s of people supporting, installing and building apps for a substandard product. Its service guys are going to become disillusioned that they are competing with better technical products that are available across multiple platforms, and they will be tied to competing in tenders where there product fits � AePona neither becomes a best-of-breed integrator, nor a best-of-breed product provider. It�s pretty damn good at marketing though.
Then as I pondered whether this was a telco specific problem, a company in an entirely different space says that it will be a preferred provider because its competitors sell both sub-systems and full solutions.
In conclusion � technology companies can compete by providing better technologies. Service providers will compete by packaging those solutions and making them (very) relevant to the end user. I will stay clear of service strategies; it is too frightening to compete with IBM and HP�s service delivery arms. That leaves the investing question � is there enough left to make good returns on product / component businesses. The logical answer is yes if the entry price is right.
25 April 2003
In Search of Russia�s Great White Hope
An interesting week; whether it is spring in the air or just the natural course of things but since I last put fingers to the keyboard the world seems to be picking up (whilst at the same time the opportunities for raising funds seem to be further and further away.) It always a good week when the number of investment opportunities in the inbox that get you excited is greater than 2 � and 3 is 50% more than 2.
Also added to the pile this week is the latest contender for Great White Hope in Russia�s tech world. Russia�s tech world, whilst undoubtedly intriguing, is lacking the one or two home runs that will bring the cash to the market that will allow the market to further develop. A virtuous circle; or which came first�.
One of the principal reasons for this is the lack of management expertise in Russia. Indeed it could be said that even those tech entrepreneurs who acknowledged that what they don�t know would be a good start. Thus we are all looking for the poster child that can be shown off to the investing public. There have not been many pretenders to the crown and most have proven to be flawed. Flaws can be forgiven if it returns are stellar. In these more straightened days a manager who builds a good tech company that offers real value will do.
The latest poster child will have to remain nameless for the time being � I want to invest in his company. As many England football managers have found being built up by the press, in this case the cognoscenti, is a forerunner of being torn apart by them (or sleeping with Ulrika Johnson.)
19 April 2003
FT.com Home Global - Yushenkov Murdered
I spend my life telling people its safe to invest in Russia, and then this. Odds on that its linked to FSB are deeply involved and even more likely that neither the killers or, more importantly the people who ordered the killing will ever be brought to justice.
18 April 2003
So much for not having too many days between blogs - one month later:
The snow has finally melted and the outside temperature has finally risen above zero for a week on the trot. Maybe that is the driving reason behind what feels like a wave of investment tourism � at least for Russia. The ubiquitous Esther Dyson is in town meeting morning, noon and night. The daughter-in-law of one of the founding fathers of US VC investing is looking to see if her Russian roots and Californian location can drag something out of Russian tech that has evaded the rest of us so far. Meanwhile, the founder of Flintstone Technology (a real tech transfer incubator) is back in Moscow working out how not to invest in tech but take advantage of the booming retail sector. Those in the know believe that it is down to boredom with a very dull rest of the world.
My conviction that excellent and cheap Russian technical assets (scientists and programmers) really do make a difference to returns is starting to be borne out. I am looking at a deal that requires $8mn to get to break even � that�s a lot of expensive European management � if the R&D centre was moved out of Russia you could add a another $4mn (minimum) to the bill. The minimum post-money (fully-diluted) is going to be $12mn, more realistically $20mn (options are expensive in return dilution.) Assume that a VC expects a minimum of 5x cash-on-cash � that�s a minimum exit valuation of $100mn. The VC world remains fixated by finding the next $1bn company, the reality however is that investors returns come from a range of reasonably successful companies and not too many failures � there aren�t that many VC-backed companies being sold for in excess of $100mn today.
Still the question remains are there enough Russian tech companies to build a portfolio of $100mn companies?
12 March 2003
Don�t want to have too many days between blogs � it backs up the ideas. Today�s is the big one; is it possible to build a business investing in Russian tech? It is after all what I do for a living and gets me out of bed with more or less a spring in my step every day.
The facts (or as many as you can get in the Irish bar at Moscow Airport waiting for a delayed flight); there are today no successful examples of Russian built technologies that have become $1bn companies. There are a number of (mostly) ex-Russian-entrepreneurs who have built great companies � Sergei Brin (Google,) the guys at Parametric Technologies, Paragraph (Stepan Pachikov,) despite the fact that Transcriber drives me insane daily. Then a number of more or less successful companies of which the latest is Optiva, founded by Pavel Lazarev. Should the fact that it took him 10 years to get to Series D be really frightening?
The facts continued; the number of Russian tech companies that cause the hairs on the back of your neck to really stand up is, well, one every blue moon. Not a great hit rate. Maybe the tech is great, but investable tech cannot exist in isolation from its market. It would be fair to say that it�s pretty difficult to build a tech business if you don�t really comprehend the market you are addressing.
One of my favourite bizarre investment opportunities is a holographic storage company in Akademgorodok in Novosibirsk � go east from Moscow and keep going. Two strange Professors doing some of the coolest research but with little if any contact to Moscow, let alone to the rest of the world. How are we going to get them to build products? Other, that is, from paying them a living wage and taking the IP and running to the Valley.
So maybe we could do 3 deals a year � can we make long term money on that? It is clear that there is some very cool technology however, getting it to be accepted is unbelievably difficult � to describe the tech world as parochial would be as correct as describing the UK as a class ridden society.
With only a few investors actively targeting Russian tech the opportunities for spreading the word are few and far between.
Are we doing the wrong thing?
04 March 2003
I suspect that it is the way with the rest of the world but it does not make it any more right; demand for reasonably priced voice and, particularly, data communications is growing rapidly. However, the market is being held back by the incumbents who are more interested in providing communications to high end corporate customers than tracking down the dispersed SME market, but still insist on making it difficult for others to enter the market. Note that in Moscow / Russia incumbent has a slightly different connotation to the rest of the world - incumbents may be CLEC's but if they have the right level of political support they very definitley display the same qualities of boneheaded denial of market opportunities that their bretheren in the rest of the world have.
Its not as though the basic infrastructure does not exist. In Moscow, which is not like the rest of Russia, the city level backbone exists; its the copper over the last mile (500m?) that is lacking. Thus a potentially lucrative market for broadband wireless serving SME's, consumer outlets and high end retail (believe me there is enough of it.) An example; the Sistema Telecom controlled MGTS (Moscow City Telecom Network - THE ILEC) recently raised carriage prices 9x for Golden Telecom, Moscow's leading business CLEC - economic rape - especially as MGTS would never be able to offer even the paltry service levels of Golden Telecom.
There is no shortage of mom & pops playing local games; not big enough to draw the attention of the big boys, but also not big enough to generate inetrest from the financial community. Strikes me that one of the easiest investment cases to make in Moscow today is aggregating all these mom & pop's to create a really viable ISP / WISP.
Whilst Russia may have one of the most theoretically liberal telecom markets in Europe, the reality is that the incumbents are determined to repeat the mistakes of the west, only without the debt.
03 March 2003
First blog on Ruminations on Russian Tech. Not that it is limited to Russian tech, more the thoughts that strike me as we wade our way through the myriad of investment opportunities available. We, Mint Capital, are investing in tech and media opportunities either in Russia or made available and fundable because the quality of Russian programming provides vastly superior price / performance or finally, but unfortunately, less frequently due to brilliant Russian inventions that are available to the rest of the world.
Just to prove that this is really more of tech thoughts with a Russian flavour first thought relates to the closure of Red Herring. Can't remember when I first signed up, and I am not sure how relevant that is, however the last 2 editions sit only partially read in my briefcase along with a pile of other partially interesting material. That is relevant. It was expressed well by Glenn Fleischmann on his 802.11b Yahoo Group - I shamelessly quote "The author now provides an example of why listening to the company you're interviewing too closely causes you to drink the blue zombie soup and repeat their tropes.". Some of the thoughts were insightful, the editorial frequently was. The principal pieces were too often, especially recently the usual repeats of the main line views being espoused.
As an example; surely there could have been few magazines closer to the VC community than RH. Why then mindlessly repeat the quarter-by-quarter performance type analysis of the VC industry repeated in the mainstream press? Surely it was incumbent on RH to point out the crap investments that have been made by all of us and then go on to point out that in mainstream VC investing, early stage can take and usually take 5+ years to come to fruition. Portfolios valuations will generally look lousy during the first couple of years and then, assuming you did not invest in 1999, pick up.
The same basic lack of analysis plagued the recent piece on Cometa; suggesting that Boingo builds out infrastruture as opposed to aggregrating what is there. Its rubbish and we were expected to pay for it. The same is true for far too much that poses as tech journalism - it just reports without insight, or far too frequently, knowledge. Celebrity bloggers may be nice but they generally don't say anything.
The last shot at journalists is fired at Dan Gillmour; petty cheap shots may be amusing but as you are an employee not an at risk owner serve to make you look small not clever.
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