Ruminations on Russia

From Kommersant, St. Petersburg's Research Center is the latest way for someone to receive cash for owning a crappy piece of real estate and deprive deserving scientists of R&D funds.

As the article points out less than 15% of all funds earmarked for a project in Dubna actually ended up funding R&D.

Could someone in charge please understand that building business parks for science start-ups is worthless unless they have management talent that is going to find contracts and a pool of venture experience to help those managers go global.

Om Malik (as if you need to know where to find him) posts on hefty sales of chips for wireless chip manufacturers of both memory and DSP chips, everyone bar Intel, effectively. And the $ value per chip is only going to increase as the requirement for chips in converged "handsets" increases. Multiple radios, not only across today's, tomorrow's and the day after that's mobile and fixed wireless networks but increasingly linked to WiFi as well as having Bluetooth (and UWB?) capabilities.

That's a geometric increase in processing power in handsets whose battery life is improving arithmetically. The challenge will be to build integrated software/hardware systems that are highly energy and form factor efficient without sacrificing processing power. The mathematical abilities that are today housed in Russia and Ukraine are already providing the algorithms (linked to a definition just to remind you of what we are talking about - it's not just mathematics) and in some cases the links to hardware systems that will solve some of these problems.

Reconfigurable computing is probably the answer and if you doubt me read this from Steve Pawlowski an Intel Fellow on what it means to have "one radio that defines multiple radio standards".

Somewhere in this space amongst the plethora of work that is being done in Russia and Ukraine right now is a deal that will be done in 4Q 2005.

Yesterday German Gref, Minister for Economy, Development and Trade (MEDT) yesterday announced that the government was dropping its 8.5% inflation target and raising the target to 10% (Not sure how durable this link is.)

Also yesterday we got close to closing our annual negotiations to rent our dacha for 2006 we have agreed with our somewhat batty landlady that her real inflation is closer to 20% than it is 10%. What gives?

Is this just Moscow related inflation with the more backward parts of the country, partially yes, but I feel that it has more to do with a number with games played between a limited number of players with imperfect information.

Whatever, the real cost of living in Moscow in going through the roof and salaries reflect this, not reported salaries which represent between 5-50% of actual salaries, but cash out every month. A common bitch among business owners (principally expat) these days is that salary demands are completely out of sync with experience and ability. This is not a Russia is going "to hell in a hand basket" post but an attempt to provide a micro review of an economy that only has macro players.

This is the third and by far and away the best of the saying no stories from Bill Burnham.

I will admit to being as bad as anyone at saying no early enough. Usually because I like what a company is doing but when it becomes time to think about convincing others that it is a good idea reality strikes. At which point the no becomes an effort in self-justification.

My best no however, was to a guy who is now a good friend. I liked his company, his product, the market and was getting ready to make a proposal when I met the new CEO. We did not invest, the CEO was fired within a year and the Company was sold for its patent portfolio.

Jeff Nolan at SAP Ventures posts on consolidation in the enterprise software industry.

Here we have an expert, or very well-informed writer (depends whether you believe that VC's can be experts!) writing a concise overview of some trends in the enterprise software industry without the requirement to tell an "interesting" story. The likelihood of finding a similarly well-written informative piece in the mainstream media are limited.

Furthermore it does not take more than 5 minutes of skimming through Jeff's blog to understand his general point of view and thus to put his piece in to some perspective.

Good piece.

Slava Johnson from Chadbourne & Parke's Kyiv office has written a great piece on the future of Ukraine under Yushenko.

In particular she highlights just how many established interests he is going to have to bring onside to get his way and the fact that he has just a year to do so. Considering how difficult it has been for Putin to implement his reforms in Russia versus an established bureaucracy and regional fiefdoms with a popularity rating that has stayed over 60% even during the social payments fiasco at the beginning of the year. Yushenko, by contrast is the President of a divided country from which he is struggling to remove the epithet bitterly.

She starts down the road of debunking the US financing of the Orange Revolution albeit does not really nail the point. In short there was US money that helped but it was only there because Putin's thugs gave them the opportunity.

This week; I returned to Ukraine for the first time since Yushenko was formally recognized as President, Kyrgyzstan, a country I have never been to, overthrew its post-Soviet, Soviet leaders and Putin announced a moratorium on (inter alia) the loans-for-shares privatizations. The temperature also crept above 0 on Thursday and the sun shone; unfortunately there is no tool to link the sun to the investment mood. Sitting in the traffic yesterday the two were indelibly linked.

Was Putin's announcement yesterday akin to false hopes of spring as we return to winter today (snow), or have the liberal economists in the convenient guise of Gref and Kudrin started to win the war? And are they winning battles or the war? And just where and on what issues were those battles fought? Does being humiliated in Ukraine (please notice the absence of the definite article) really have a positive economic effect in Moscow? After all in Ukraine the Orange Revolution is seen as the victory of Ukraine's millionaires over its billionaires. Please suspend any conversations about democracy until the pudding is on the table.

Is Putin's charm offensive PR-led, or is it reality? Being burnt by PR-led good news is second nature to investors in Russia's public markets. However, my broker friends tell me that their government relations people have been hearing good news for a while. I have blogged too often recently about failures of the 5th Directorate thugs to be anything but happy about their demise, however temporary.

Boy is this a difficult post.

So in the week that; another "friend of Russia" was toppled by dollar-inspired people power, that the hope of a new future permeated both Kyiv and Kiev and Putin publicly swung back to the liberals which is going to impact making money the most? Putin's announcement should top that list by some way. Ukraine is emerging from the dark ages, Kyrgyzstan is still feudal and there is no obvious link between democracy and wealth creation - ask the Chinese.

For all the carping about progress in Russia over the last 6-9 months it is still a country mile ahead of its nearest neighbors. Retreating rapidly to an area where I have some opinionated knowledge rather than just opinions; technology. IP laws here are mostly well-drafted if yet to be enforced. Academia is increasingly being funded. In none of Russia's neighbors is this the case. If your trade is short-term it may be better to buy Ukraine than Russia, something to do with buying the rumor selling on the event. If however, investment time horizons are slightly longer than tomorrow; Russia seems a better bet.

And all this in the week that "Old Europe" defeated the Services Directive. How long before we read the first comparisons of Russia's liberal economy compared to Germany and France's restrictive model?

This is either the first week of spring or another false dawn in an increasingly long winter. The weather outside is not promising; something tells me that Russia's economy is going to be rosier.

Putin is apparently concerned about the size of businessman in Russia.

Or is that he is concerned about small business in Russia. So lot's of grand statements are made but as Siberian Light points out the bureaucrats (Chinovniki) are just following his lead;

And he is right to say that much of the problem is with regional authorities. Most of obstacles that small businesses face are met at the local level - bureaucracy, demands for bribes, etc. But some of the blame has to go right back up to Putin, who is in the process of setting up a political system based on patronage rather than accountability. If corruption at the highest levels is increasing, how does he expect it to begin decreasing at lower levels?

As a crap presenter, and as the recipient of crap presentations, I am fascinated by the advice given to create more focused presentations. Whilst Roger's comments are specifically tailored to pitching VC's the basic theory still applies. If you have a 1 hour meeting and 30 slides then at best that's 2 minutes a slide. Do a rehearsal and work out what 2 minutes a slide feels like. Imagine yourself to be on the receiving end of a new slide every 2 minutes. Then factor in questions. Now reduce the number of slides by at least 60%.

And just because you have less slides does not mean that you should cram more onto the slide. I hate investment banking slides which have so much info crammed in to them that I spend 3 minutes trying to determine what's important and then I need to understand why it's important and on the third slide I stare at trying to get the information to leap off the page my concentration slips. I know that I should be professional enough to work through that but I am just human. It's not dissimilar to running meetings in Russian. I have to concentrate so hard that the moment I am not giving it 100% I am getting nothing.

I had a boss who had learnt his presentation skills in a consultancy; i.e. very busy with each slide containing 5 slides worth of information. But they were rescued by a strip line which stated the take away from the slide.

If you don't believe me try reading;

Beyond Bullets and this post from Brad Feld the comments to which are a complete link fest.

{}

Winter

The end of this winter is turning out perfectly. Let me paint you a comparative picture;

New England etc; that indescribable late autmn russet color that Robert Lowell never found words for in his madness

Scotland; The first green at the end of a long winter when the sun shines and is warm and hope (and sex) is in the air

and thus the end of a Russian winter can be two things and unfortunately they are not mutually exclusive; crystal clear, cold and beautiful or grey, with clouds a centimeter above your head and large puddles of melt with last winters dog shit and cigarette butts reaching for the surface.



The glass is half full at the moment. My study window faces on to the back of the Ministry of Foreign Affairs ("MID") one of Stalin's 7 Wedding Cakes or more commonly Visotkas.

The camera on my Treo 650 does it no justice. The view is crystal clear and utterly beautiful.

It's always fun to watch a family coming apart at the seams, particularly when that family used to sup together as 5th Directorate KGB thugs (pace Medvedev). The back and forth, up and down (viz whore's draws) of the Gazprom (GAZ.P), Rosneft (traded nightly in expensive restaurants in Moscow) and Yuganskneftegas has actually reached a level of slapstick humor that Benny Hill would do well to emulate. A brief recap in case you have spent the last 10 years buried in a polar ice cap:

1. The Soviet Union spends huge amounts of money discovering oil in Siberia
2. The Soviet Union falls apart
3. Well connected members of the young Komsomol do off with large chunks of cash and create a quasi-banking type institution
4. The Russian government parks some of its meagre cash flows with the aforementioned quasi-banking type institution
5. Vladimir Potanin takes a sabbatical from his own FIG (financial-industrial group) to parcel out some/all of the states juiciest assets in a deal called "loans-for-shares"
6. Yuganskneftegas becomes the jewel in the crown of Yukos, a loose affiliation of warring clans which also included; Samaraneftegas, Tomsneft and a couple of other bits and pieces. Price paid; whatever government monies we had in our bank at the time the bid came up.
7. Lots of unpleasantness some quasi-legal some involving rapid and fatal injections of lead before Yukos finds religion and becomes transparent; i.e. it works out that the market value is greater than the cash flow it can appropriate.
8. 31 December 1999 President Yeltsin resigns. VV Putin steps in to the breach.
9. Four-ish years VVP later replaces deeply compromised competence with 5th Directorate thugs (his friends). The Prime Minister was commonly known as Misha 2%.
10. First Lebedev and then Khordokhovsky go to jail.
11. Yuganskneftegas is stripped from Yukos because it could not pay its tax bill, except it could.... to be bought by...
12. Baikal Finance, a company whose registered address is a hairdressing salon in buttfuck nowhere...
13. Which was then acquired by Rosneft, a state-owned oil company run by a certain Bogdannichov. A CEO who would go down well with Enron, WorldCom etc shareholders
14. Lots the "cheque is in the post" follows when it becomes clear that Rosneft can't afford to buy YuganskNG but the Ponzi scheme comes through in the end

14. A Houston court (don't ask) decides it does not have jurisdiction (clearly, and I did not spend any time at law school)
15. Alexei Miller, Gazprom's CEO and Sergey Bogdannichov announce in a recorded statement on two tame state channels (there aren't any wild ones) that they have come to a long-awaited agreement as to merger
16. Then Rosneft says in a press release that the pre-agreed statement was wrong
17. Then the Press Release was possibly rescinded because Bogdannichov was "on holiday" - presumably the pressure of making his first TV program
18. Then it was denied that it was rescinded
19. Then it was announced that the Kremlin was going to make a statement.........but it hasn't

In today's Venture Wire Alert is a neat little piece of PR by a JVP company going by the name of Native Networks, who apparently make Ethernet Switches. Not that it matters.

The article states that they were sold for $55mn in cash to Alcatel, the Company's sole source of business, in a move that "paid off handsomely." You sort of believe it because a JVP Partner, Laurel Bowden, is quoted as saying that it did.

And then in that last para which usually you don't read because it reiterates something that has been written previously it states that the Company raised $45mn from "a host of venture capital firms."

A range of possible conclusions;

• The last round was a recap at such a low valuation done solely by JVP that they made off like Kings
• The decimal place went missing in the sale price
• Venture Wire pays its journalists peanuts and they end up with monkey's.
• The very persistent sales person at VentureWire / Dow Jones should read this to understand why I refuse to pay for shit.

Not exactly a title to get the blood racing. Notwithstanding if German Gref, Minister for Economic Development and Trade, has his way it could help end the dislocation between Russian business and Russian R&D.

The economic genius otherwise referred to as Prime Minister Fradkov wants to see VAT (better known as NDS) reduced from 18% to 14%. Gref, one of the liberals in the government, has instead suggested that VAT remain at 18% but with certain exemptions. Not least of which would be tax exemption on all R&D.

These are small steps, but vital ones, in building a sustainable future for Russian R&D.

Apologies for a brief moment of aspiration, but the sun is shining and the end of winter is in the air.

From today's FT, subscription required, and I am not even going to post a link;

"We like selling movies better than renting them or pay-per-view; it's better margins. We're not interested in cutting prices, we want our fair share."

The geek in me gets excited by Demo, Comdex and CeBit but the businessman, given that we are in Russia that would be Biznizman, would rather focus where I might get some value. And this Light Reading Conference is where I would want to be. But what is the sodding point; I am sure that Graham Finnie from Heavy Reading will do a great job getting us all started but to follow with 4, yes four, presentations from sponsors means that I should just read their websites. They should be paying me to go. I mean it's not even as though I want to go to Atlanta.

Really what is the point for the sponsors or attendees?

Actually I couldn't give a damn about democracy. I care about humans treating each other with respect. My wife's business partner is married to a Tibetan who grew up in exile in India and Nepal, as if that was not hard enough. He can barely get from a. to b. without being shaken down by the Militsia (to translate that as Police would be an insult to thugs everywhere). He refuses to travel on the metro after 5P.M. as its prejudicial to his health.

Anyway here is an exert from a report from a Government with a less than stellar track record in the race department, no not my own the US, on the situation. Just because someone else is bad does not make your worse acceptable;

In contrast to developments in a number of countries that increased direct citizen control over government authorities, in Russia changes in parliamentary election laws and a shift to the appointment, instead of election, of regional governors further strengthened the power of the executive branch. Greater restrictions on the media, a compliant Duma (Parliament), shortcomings in recent national elections, law enforcement corruption, and political pressure on the judiciary also raised concerns about the erosion of government accountability. Racially motivated violence and discrimination increased, despite considerable legislative prohibitions. Authorities failed to investigate actions against minorities while subjecting them to more frequent document checks, targeting them for deportation from urban centers, and fining them in excess of permissible penalties or detaining them more frequently. Government institutions intended to protect human rights were relatively weak.

Actually I couldn't give a damn about democracy. I care about humans treating each other with respect. My wife's business partner is married to a Tibetan who grew up in exile in India and Nepal, as if that was not hard enough. He can barely get from a. to b. without being shaken down by the Militsia (to translate that as Police would be an insult to thugs everywhere). He refuses to travel on the metro after 5P.M. as its prejudicial to his health.

Anyway here is an exert from a report from a Government with a less than stellar track record in the race department, no not my own the US, on the situation. Just because someone else is bad does not make your worse acceptable;

In contrast to developments in a number of countries that increased direct citizen control over government authorities, in Russia changes in parliamentary election laws and a shift to the appointment, instead of election, of regional governors further strengthened the power of the executive branch. Greater restrictions on the media, a compliant Duma (Parliament), shortcomings in recent national elections, law enforcement corruption, and political pressure on the judiciary also raised concerns about the erosion of government accountability. Racially motivated violence and discrimination increased, despite considerable legislative prohibitions. Authorities failed to investigate actions against minorities while subjecting them to more frequent document checks, targeting them for deportation from urban centers, and fining them in excess of permissible penalties or detaining them more frequently. Government institutions intended to protect human rights were relatively weak.

Railway Traffic Lights

Not usually a train spotter but here are some pictures of the traffic light of the future....as if you were interested. Strange thing about this business is that you get excited about the strangest things.

And now I am going to try and post so that you can actually see the pictures.

Jonathan Shwartz on 3GSM and why it's so much more important than Comdex proves that Intelligence is not in Sun's vocabulary. Proving that large companies insist on not only not learning from history but actually insist on repeating previous mistakes.

I am delighted that Solaris is doing well in telecom networks; here's hoping that telco hardened Linux doesn't commodotize a non-commodity product. Also really happy that lots of guys are writing stuff in a Java variant for cell phones. For which Sun of course earns.......ah yes nothing.

Sort of reminds one of J2EE. J2EE's network equivalent is JAIN, and there's a reasonable chance that I have mentioned that before. When the likes of Vodafone decide that JAIN is ready for the edge of network then its probably time to take notice. Except of course its not Sun who is paying attention.

It's all very well writing the spec, but why waste the time doing so if it only empowers your competitors to eat your lunch from your own lunch box.

Fred commenting on Fixing Venture Capital from Change This.

First congratulations to Fred on his constant ability to provide reasoned points-of-view to polemics. Which is what Fixing VC is.

In an attempt to follow Fred's example and provide reasoned answers, rather than my more natural; your wrong - idiot.

My greatest criticism is that the thesis is based on a false premise; namely that VC's are only interested in investing in the the 10% of the deals that make huge returns, whereas entrepreneurs have lower acceptance of risk and therefore would rather take more median returns. Just typing the explanation makes the whole premise seem unreasonable. Yes we would like each deal to be a Google, as would the entrepreneur and we all take outsized risks to achieve that goal. I think a statistical review of exits and returns would disprove the central thesis pretty quickly.

At the US-Russian Technology Symposium yesterday Pierre Lamond, Heidi Rozen, Robert Grady and Vladimir Bernstein discussed, inter alia, expected returns in the VC industry. Pierre in particular returned to a favorite theme; too much money in the venture industry. His premise being that companies are going to be sold at or around $50mn in sales. If the C Round was $30-$50mn not many people are going to be seeing great returns. So in answer to VC's are only interested in the top performers we have one of the the VC industries major voices saying the opposite. Specifically, he was saying expect mid-range M&A sales and when Google comes along be very happy.

From a Russian technology point of view I am happy to hear that exits are expected to be mid-range M&A. We will build our companies more cheaply and expect to sell in M&A deals from the outset. Our fund's economics will be built on achieving exactly that.

On my way to Stanford to take part in the annual US-Russian Technology Symposium. Quite why I have to fly 11 time zones around the world to meet a bunch of people I could have lunch with in Moscow defeats me. Well it doesn't actually, and that's really the point of this post.

At some point on Thursday or Friday, and quite possibly both, someone (at least) will bemoan the lack of venture capital available for start-up Russian technology companies. No one will actually have the balls to point out that the money will be available when the companies, not the technologies, are ready to be funded. And there is the crux of a great paper by Gil Avinmelech, Martin Kenney and Morris Teubal; A Life Cycle Model for the Creation of National Venture Capital Industries; Comparing the US and Israeli Experiences. No one will ever accuse academics of using marketing techniques to get us to read their papers.

They argue that many government attempts to sponsor a venture industry are failures (no news there) but that they are doomed to fail because they address just one aspect of the technology ecosystem - the venture industry. The assumption is that cash makes companies. Most VC's and all entrepreneurs will argue that there are a number of more important factors. They could equally argue that any attempt to address one area of the ecosystem (technology, entrepreneurs, customers, capital, banks, service providers, markets) will fail unless the other areas are equally addressed.

It would be fairer to say that expectations for early government intervention should be appropriate to the stage of the ecosystem. Somewhere in today's FT is a piece on the growth of Silicon Fen in Cambridge, UK. Echoing the sentiments of the three academics the writer notes that government funds aimed at Cambridge will probably be "pork-barreled" to other parts of the UK where their impact will be zero. In short, they prescribe a focused long-term i.e. beyond the end of the conference, strategy that helps with all elements of the spectrum. It will take a while - but that is what strategy is about. Tactics are for tomorrow.

So what's in store for the FSU tech industry, and by extension its venture industry? A home grown Google is not on the cards for a while. But that does not mean that their will not be some great FSU-tech successes along the way. It is likely that the first successes will be Russian-inspired but managed by US-Russians or non-Russians and only in later iterations will they be Russian-inspired and led. Certainly that is the philosophy that we are taking with DFJ Nexus. As Russia's business environment improves and it sorts out its corporate law, and enforcement, more of these companies will be Russian as opposed to Cayman, Cypriot, US or anything else. In the meantime the rise of Russia's technology industry will be a global affair.

There are a huge number of areas that the Government can help with; broadband infrastructure, taxes, corruption, corruption, corruption, IP law, WTO, targeted funding of academia, changing the Prime Minister in favor of someone who knows what an economy is, removing the ex-KGB from positions of economic power....... Handing out cash to VC's will achieve little (see corruption/pork-barrels above.) Take all the cash that would otherwise go to people with no experience or understanding and give it to the academics. At least there should be something to fund.

As I have said ad nauseum the Israeli experience offers a better pointer to the future of Russia's technology industry than India. Albeit that they both invested heavily in their industries with a vision. Talking 11 time zones around the world is not going to improve the lot of Russian scientists, software engineers, entrepreneurs and venture capitalists (don't feel sorry for the rest. They are gourging themselves on $40 oil.)

Om Malik here comments on Light Reading's piece on Cisco and what happens next.

When we first invested in jNETx during the depth of the telecom fall out from the Internet bubble it was clear that IT and telecommunications were rapidly encroaching in to each others space. At the end user level Skype demonstrates that perfectly. The question we tried to understand in 2002 was what happened when IBM and Ericsson started competing directly in the same space. Whilst computing and telecoms remained in separate spheres co-operation was far more rampant than most of us understood. From different ends of the spectrum both Cisco and Sun were commonly selling hardware which reappeared with someone else's logo attached. How long can this go on for?

I am led to believe that IBM sees the telecom (sic) network as a huge value proposition. Not just for its blade servers but through leveraging IBMGS with their enterprise, always on understanding. There is a bit of a learning curve as SS7 bumps in to SIP but they should have the resources to see it through.

Our concern was what happens when the NEBS guys started to take on the TEM's. We just sort of assumed that Cisco would be OK and never really researched/thought that much about what happened when they went head-to-head. Our analysis was somewhat complicated by the fundamental changes that were being forced through the TEM industry at the time. Ericsson looked like a major competitor at the time. Indeed a consultant told one of our advisory board that Ericsson would kick sand in jNETx face. Ericsson subsequently sold the relevant R&D divisions and sharply moved in to network services. Which only goes to prove that consultants know only what there last job taught them and aren't worth the money they get paid. So what gives with Cisco.

As the Light Reading piece points out it is the convergence (collision) of telco networks and IT networks that is causing the shake up. There are big numbers involved but increasingly few very large companies that have the ability to understand it all. Cisco sits at one node of that understanding, the pure NEB guys at another and the pure TEM guys at another. Very few get to cover all the nodes.

I tried tapping the Russian diaspora in San Jose. Seems as if two opposing camps are fighting for supremacy; the for and against IBM camps. If there is closer integration then that will mitigate against Cisco moving in to middleware. If the go it alone crew wins out then expect another Cisco buying spree.

I'll throw it out because it should be said, albeit that I cannot see it happening. If IBM really wants to dominate NGNs why not just acquire Cisco? As I said it won't happen but it should not be dismissed.

Jeff via Winds of Change links to a piece from the newspaper we all love to hate on bribery.

It, bribery, is a little overly pervasive and yet is going away, albeit slowly. After 4 years of visa free hassle I am suffering 4 years of visa hassle in 1 year. 2 years ago I could have bribed my way to satisfaction. I can't now. Whilst that is a good thing (at the end of the day, when it gets dark) the failure of the bureaucracy to even begin to think of reforming itself makes bribery a necessary condition to doing things - like driving a car.

As most of the developed world now seems to know we renovated our apartment in 2003. In communalkas the wet areas (bathroom, kitchen etc.,) have to be in a certain place in the apartment so that when the inevitable leak occurs only other 'wet areas' below get wet. We wanted to move our kitchen, and have. The permission cost Rbl50 and the facilitation fee marginally over $2,000. What got me most was that there was a price card. Moving of wet areas cost $2k, pretty much non-negotiable.

At the same time a fellow UK-based VC was himself seeking to undertake some renovation to his London house. Without the possibility of making the bureaucracy move faster and the scarcity of local builders, his work is just finished. We have been in our place for a year.

The China; A Centre of Innovation discussion is beginning to annoy me. This piece in Always On is no worse than others, it's just the piece that is at hand to be annoyed about.

I challenge the writers and commentators of these pieces to provide some hard evidence that Chinese science, R&D and business methods are going to produce disruptive technologies based on any form of past historical data. Lets start with Nobel Prize winners in any form of science - sorry could not hear you. OK; Chinese scientists who have made substantial breakthroughs in epitaxial growthing - not more silence. Show me one Chinese hi-tech company that is competing on the basis of its own disruptive technologies; Huawei? No those were Cisco inventions.

OK point over-labored. China and Taiwan has some fantastically bright researchers in US and European Universities. Their entrepreneurial spirit is not to be doubted but is has been factored on low cost high output industries. Competition is so fierce in China that most of these are operating at 2-3% gross margins. And that is not sustainable.

So lets not confuse fantastic market opportunity (as yet mostly unrealized) and cheap manufacturing with disruptive technology.

I was recently interviewed by a Japanese MIT MBA student who had spent a month working for one of the most professional money managers in Russia. He had come to Russia to see for himself where Russia fitted in to the BRIC (Brazil, Russia, India, China - A Goldman Sachs Report) scheme of things. The essence of his conclusions was that China was a huge opportunity that was incredibly difficult to access and that more people would fail than succeed. His criticisms of China read like a litany of my criticisms of Russia. Except that his conclusion that working with the Government in China is more difficult than in Russia. On a scale of really annoying that would be off the top of the scale. He saw multiple opportunities in Russia because he felt that the economy was more open to foreign intervention (viz BP/TNK). We had to agree that this is a relative and not an absolute benefit.

Interestingly he saw great opportunities in India as (nearly all?) the economy is controlled by a few firms/families which are beginning their third Harvard-educated generations.

He was an Investment Banker, and thought like one, however he had been to all three countries. Had done business in all three and was talking about in an office in Moscow not a conference room in California.

In line with my desire for greater honesty in public life I would like to see more use of facts in discussion of trends. Repeating the same crap as everyone else does not make you an expert it makes you a voice for hire.

It's taken a while to clear the decks and move on to the first blog of the year, which by the time I get to post it is no longer the first........

All in all this should be an interesting year:

On a personal front I expect to finally close our new fund for investing in Russian technologies along with our newly democratic Ukrainian colleagues. There are a couple of other things also going on but they aren't really for this blog.

Two of my personal investments face (another) company changing year. My all time favorite, jNETx, will either close the year with a route to IPO, or acquisition, and a ground breaking, money spinning product. Or it will do well and that will be it. Acol is at an earlier stage of breakthrough. As the CEO said last night at dinner; "We've laid the foundations, now we have to deliver.." Amen. The success of my companies has a direct, and measurable, impact on my mood. A review of 2005 will have to feature their successes (or failures) as a leading highlight.

Russia is at a crossroads and by the end of this year we should have a clearer view of which route Putin's Russia intends to take. Roland Nash, Renaissance Capital's super smart head of strategy tried in this piece on the Tass website to look for the positive. He is paid to do so. My glass is emptier than his. Where we differ ultimately is that I don't believe that Putin is in control of his own people.

One month after the year starts I have started, with the thoughts for the year. Lets see where they take us.

I am not one of the world's greatest builders of presentations but I have learnt from being on the other side of the table that a presentation that does not get to the point will lose my attention and have me looking out of the window thinking of something else. This post says it better than I do.

Fred has some of the usual problems that those of us who oppose the aftermath to the war in Iraq face. His most recent post "Silence means.. is aptly titled. What he says implicitly is as important as the explicit. As always he is open to debate and willing to listen to other points of view. There is reference to an email discussion with "his friend Steve" who replied;

I said all of this to Steve, who replied that, "it was specious to speculate what one life, 100 lives, or 1400 lives was worth", and that "The attempt to create an alternative to radical Islam - even at the expense of significant blood and treasure - is not only worth it, but is necessary and unavoidable." He went on to say that "it's either thousands of lives now or hundreds of thousands, or even millions, of our kids lives later".

Which is more properly called - What I Don't Trust You To Do in My Favor All The Time.

Anyway good post from Brad Feld

I believe very strongly that different people have different strengths at different times in a company's life. It's easy to characterize it as pre-revenue to $5mn in revenues; $5-20mn and $20+. As with all generalizations it avoids the subtleties but hits the key points. I have learnt, painfully at times, that my strength is in the "pre-money to $5mn revenue" area. I am genuinely interested in all the bits that come with being a larger company but have very little to add to a CEO who has been there before. For those fighting through to the first year of product sales (as opposed to NRE or grants) I can offer a ton of tough love.

However, like any affair there is a good, better, worse moment to admit that your value on the board could be improved by a someone with skills in the next category up (or the workout category!!)

It does not make it any easier to step down, refocus on the company's where you add more value and move on.

Still feels like shit though when they are doing well.

I just passed the Apple Store on Lonon's Regent Street at 13.00 - ish. It's FULL. The queue at the checkout was about 20-25 minutes. Nearly everyone was buying i-Pod's and i-Pod accessories (a lot of sound options) but it was clear that people were looking at the Powerbooks and G5's as well.

Happy Christmas Apple.