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Russia’s Silicon Valley Initiative - A First Hand Look

Venture Capital may not have been born in Silicon Valley, but it has definitely blossomed there. Silicon Valley is recognized everywhere as the tech and venture capital of the world. It is a huge driver of innovation and economic growth.

A 2009 study showed that “venture-backed companies companies accounted for 12.1 million jobs and $2.9 trillion in revenue in the U.S. in 2008.” And nearly a third all US venture capital is invested in Silicon Valley companies.

Tech companies from Silicon Valley like Hewlett Packard, Intel, Cisco, Apple, Google, and Facebook have transformed the world. There are at least 50 publicly traded tech companies in Silicon Valley with sales of more than $1 billion annually. (http://www.docstoc.com/docs/document-preview.aspx?doc_id=76830259)

There are efforts in various parts of the world to replicate Silicon Valley. New York has Silicon Alley, Chicago has Silicon Prarie, Utah has Silicon Slopes. There is a Wikipedia article that lists all of the aspiring places: http://en.wikipedia.org/wiki/List_of_places_with_%22Silicon%22_names

And now Russia has Skolkovo. In 2010 President Dmitry Medvedev announced a multi-year multi-billion dollar commitment to build the Skolkovo IT Cluster and to provide funding to startups there. He wants to shift the Russian economy away from such complete dependence on the gas and oil industry to a more diverse high tech economy.

Russia is well known for its achievements in physics, mathematics, engineering and science. Now it seeks to tap into the entrepreneurial spirit, create an early stage venture capital ecosystem there, and provide the management training and advice necessary for them to to build competitive enterprises. Ed Crawley, an MIT professor, will be president of the Skolkovo Institute of Science and Technology beginning in 2014. MIT is highly involved in Skolkovo, and Russia will be able to offer “the country’s first full-time MBA program based on project-based education, a signature of Sloan’s approach [used at MIT].”

A First Look at the Skolkovo Companies
This week I attended a Roadshow event in Menlo Park. A dozen Russian CEOs whose startups are part of the Skolkovo innovation center presented their businesses to Silicon Valley investors.

I was pretty amazed. I saw some very, very cool things. I think it is quite likely that this first batch of Skolkovo companies has some real winners among them, assuming that the legal and financial framework and the equity markets in Russia will allow them a Silicon Valley-like outcome.

Russia seems intent on doing just this. I saw a TV interview recently with Artyom Avetisyan, a management consultant who was hired on July 27 by Vladimir Putin to help clear away “administrative barriers” that might hinder the success of these Skolkovo companies, and make sure they are fundable. This will definitely be interesting to watch.

Here are the companies that presented:

(My Personal Favorite)
Bazelevs Innovations LLC: text-to-3D-animation technology. I’m not joking.
As a consumer internet guy, I saw the most potential here. This company’s text to animation translation technology is one of the coolest concepts I have heard (and seen) in years. The demo was amazing. Imagine just typing a few words like “John got in his sports car, drove through the city, and crashed into a white van” and then seconds later seeing a simple animation that shows what you just typed!

If the animation libraries and natural language libraries are robust enough, I can see this text-to-animation idea spreading virally through social networks. Besides raw entertainment, there are many serious commercial applications for this technology as well. They mentioned education, family entertainment, pre-visualization for the movie industry, news dramatizations, and forensic applications. (Imagine how this could bring any book to life. Maybe it should be bundled with the Kindle!)

The technology was initially developed over many years (I think they said 6 years) by Russia’s most successful film studio and was recently spun out to a separate company that could look for other market opportunities. They filed for patent protection in August. Their main IP is how they convert object oriented code to animation. They already have $5 million from Skolkovo.

(My Runner-Up)
STC Innovations: biometric identification based on voice and face.
Using the camera and mic on your computing device, STC allows you to securely login to any site through both voice and facial recognition technologies. Very cool. My reaction to this demo was that it’s kind of hard to believe that this isn’t already shipping with virtually all the computers, tablets and smartphones that are sold today -- I’ve seen things like this in movies for years, but apparently it takes a lot of smarts to actually pull off this biometric login thing. STC has 30 PhDs working on the technology behind this.

There are other types of biometric login technologies and other ways to make sites more secure (sending codes to cell phones, for example), but the HCI experience with face and voice seems so friendly, and so where the world is heading. I’ll be very surprised if I’m not using this type of technology to access financial web sites and other personal data that will increasingly be in the cloud in the coming years.

Speaktoit
The CEO of Speaktoit was excited. Their Android app is similar to Apple’s SIRI “voice assistant” that is shipping today on the new iPhone 4S. He said they are having 50 times more downloads since Apple announced Siri. On Monday they had 8,000 users. A few days later they had 27,000. They use a friendly avatar along with voice activation to perform actions for you such as checking your calendar, checking the weather, calling someone for you, and answering other questions.

IBuildApp
iBuildApp lets you build a basic iPhone or Android application for your business in just a few minutes. You simply register on the company’s web site, pick a template, do some customization of the 6 icons on the app home page, and then tell it what content you want to draw from whenever someone selects a particular icon. If your company has a Facebook fanpage, a blog, an RSS newsfeed, a Google calendar, a Twitter stream, or any number of other things, it is simple (just typing in a URL usually) to bring that content into your app. You can choose to build an HTML5 app as well, but by using their libary of plug-ins through their app builder, you actually get a native compiled app for either iPhone or Android. No wonder more than 10,000 people have already used their tool to build apps.

Kuznech: High-speed, low cost image tagging engine
They want to process billions of images and reduce the cost of tagging photos (with keywords) by 100 times, using algorithms they have developed. In particular, they want to access the billions of photos they are currently on photo hosting sites and social networks, and by adding keywords to them, make them more accessible. They mentioned a couple of interest business applications in the manufacturing and medical (cancer detection from images) space that may provide revenue. The company was founded in 2010 and has 12 engineers. They have raised $1.2 million so far. With more capital they will be able to scale.

Choister: Data mining and analysis from web, search engines, social networks
The concept here is solid, but the product seemed to be very early stage. Choister helps you format raw unformatted data from search engines into nicely formatted tables, maps, and graphs. Their initial focus will be real estate and electronics. The most interesting thing to me about Choister is that they won a television business plan competition in Russia sponsored by Skolkovo and won $100,000.

Rock Flow Dynamics: Software for dynamic modeling of oil and gas deposits
This team of 40 engineers has built modern simulation technology that can be used in the energy industry. They can use all available computing power (including from clusters) to solve differential equations to do these simulations. Their competition is a multi-billion dollar company with a product that was originally written 35 years ago in Fortran. No one has attempted a startup in this space in 20 years. Total market size is $2-4 billion. They have 300 active users already. They claim their product is 15 times faster and 10 times cheaper, which customers find hard to believe at first, until the engineers put it to a test. The trials turn into sales.

Pirate Pay: manages digital rights to distribute and protect popular entertainment
Pirate Pay received a $100,000 grant from Microsoft, the first ever from their seed fund. Since in Russia almost 50% of web traffic uses bittorrent, there is a real need for companies to monitor their content on torrents and then to try to protect their IP. They offer both services. First they plan to expand in the Russian market and then come to the U.S. market.

The other presenters whom I didn’t take cohesive notes about were:

CyberCop – global forensic systems to identify and prevent malicious cyber attacks

ePythia – location-based planner for smartphones and cloud web services

Evanti – optimal utilization of communication channels in satellites, wireless systems

Agent Plus – solutions for automation and control of mobile employees

The Roadshow attendees were given very nice 62-page booklets with a few pages about each company, its team, product, and market, and the amount of capital they were seeking.

I’ll be following with keen interest the progress of these 12 Russian companies as well as the development of the Skolkovo IT Cluster and Institute. I majored in Russian in college 21 years ago, and while I haven't used it yet in business, this is the closest I've come so far. Actually, one of the presenters doesn't speak English, but he memorized his presentation in English and only spoke in Russian in answer to audience questions. And yes, I understood his answers! (Mostly) :)

Image source: Wikipedia: http://en.wikipedia.org/wiki/Skolkovo_Moscow_School_of_Management
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11 comments
 
+Paul Allen what's your opinion on the various reports that Skolkovo is nothing but a money making opportunity for some government officials and their friends?
 
+Alexander Ufimtsev I haven't read any reports like that. Have you seen some from credible sources? Given that the Russian government has been able to persuade companies like Microsoft, Google, and Intel, and universities like MIT to participate in this initiative, I think they must be making fairly strong assurances about the opportunity it presents for entrepreneurs, investors and business partners. Please let me know what you think and what you know.
 
+Paul Allen Everything I've heard from people who've done business there indicates that the Russian Mafia is so deeply embedded that it's impossible to do anything without them. I have no first-hand knowledge if that's the case or anything empirical. Just anecdotal. But the anecdotes seem to be pretty consistent... :\
 
+Paul Allen I would exclude "nothing but..." from Alexander's comment, to separate statement of fact from empty speculation.

Any project that happens in Russia with the state's participation is a money making opportunity for public servants. And there is no probable reason, why Skolkovo should be any different. This is the way it goes here, for a millennium at least.

One the other hand, Skolkovo can indeed use its funds to support viable and smart projects, like the ones you've described above. As someone, who happened to review some of these projects as a member of the expert panel, I can assure that I didn't notice anything fishy about them.
 
+Peter DeMarco But with Tech, it would be hard for the Mafia to dictate many aspects of the business compared to traditional businesses.

I mean how would they collect "insurance" money for a industry that doesn't have an open store front like a grocery store. If they burn down your office, you still retain the knowledge of your invention in your head or at the very least have it on a server not in your country.

You don't even need their money to start your business. From what I've learned from our tech industry, some of the best stuff comes from guys with a few home computers and a lot of passion.

I guess they could threaten your life but then they wouldn't get any money that way either because you wouldn't produce a labor of love (which would sell). Instead you'd get sweat shop tech that won't sell because someone in another country would beat you.
 
+Paul Allen: I can confirm that +Anton Nossik is a well-known Russian internet entrepreneur, who knows a lot more about Skolkovo than I do. My opinion of it, on other hand, is based on several private conversations with Russian IT professionals, who call it 'another Potemkin village for kickbacks'.

While searching for credible sources about Skolkovo in English, I came across this article in Time (http://www.time.com/time/world/article/0,8599,2080414-2,00.html ), which highlights some of the country's fundamental difficulties creating such projects these days. I'm glad Skolkovo has some interesting stuff alive & kicking, but IMHO the overall project success can't be judged by it, nor by the presence of a few big names that were lured there by various incentives, including tax breaks.
 
Just in time - Medvedev is going to swap with Putin then run the centre
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