“Russian startups won’t do without state support”

Infrastructure for startups is not just a building full of residents. Water dispensers, ping-pong tables and cafeterias are all important elements of the office culture. However, something else is the core of innovative infrastructure. What is it?


Communication as backbone

If asked what is most essential in such widely recognized centers of power as Silicon Valley, I would answer that it is the opportunity for a startup owner to be in constant contact with their peers, other startup owners. They succeed through continuous immersion into the environment of professional discussions that generate ideas and keep entrepreneurs sharp.

How can this be achieved? By creating an environment out of architecture and planning solutions. Here is a good example: when the Moscow State University Valley was coined, creators opted for separating buildings by areas of focus. Drone and driverless car designers were in one building, AI researchers worked in another, geneticists in another, and so on.

This creates a professional networking environment and this concept is good in terms of shared access to equipment (i.e. supercomputers or simulators). The same is easier for investors who know that, if they want to invest in new space, they should go to building 15 and if they want to invest in meatless meat, building 5 is the way to go.  

Instruments and equipment

I have actually mentioned supercomputers and other complex and expensive equipment for a reason. A startup creator can have a lot going on in their head, but the initial idea will have to be put to test, eventually. The time when new businesses operated from the owner’s garage is over; a startup will get nowhere without high-tech equipment.

Russia has built an array of unique research equipment, but as a rule, it is available at corporations or universities that have had financing for these projects. Young no-name entrepreneurs have no access to these capacities.

The same holds true for testing hypotheses at large facilities and accessing data that can be used to test ideas for viability and subsequently design the processes; and access to computing capabilities and cloud services. The existing infrastructure available at large companies and major universities should be more open to young innovation-minded entrepreneurs. In other words, along with putting an innovator in a beautiful office, we must also tell them they are entitled to ask a certain research institute for a platform or services.

The Moscow Innovation Cluster website already offers 26 free services including a search for companies that provide platforms for pilot launches, a contract-based manufacturing exchange, and a services marketplace. Are we breaking barriers? Actually, we are.

State support: evil or good

The emergence of innovative businesses in Russia sparked public debate about the extent of state support they’d need, or whether this market should self-regulate. However, it has become obvious that startups in Russia cannot do without state support.

They could, if investors were lining up to purposefully and meaningfully invest in startups. But we do not have that many investors yet, which means we have to rely on the government.

In the United States, the early-stage investment infrastructure has been developing since the 1950s; the country now has a fair share of investors who once launched a startup and became billionaires. Companies like Apple or Google can use the proceeds from a former startup for their next investment. This actually works in cycles.

We have no such experience. We lack many necessary components for this process or a clear procedure. A big step was taken last year when the “converted loan” bill was adopted, which is great because it makes it easier for investors to engage with startups. But it will take time for the new legislation to be translated into practice.

Development institutions also provide state support to startups. There is the platform where they can apply online for financial assistance such as subsidies or grants. It includes a variety of tools: a search navigator by objectives your startup is trying to accomplish – enter a market, reduce the tax burden, conduct training, raise additional funding, etc. There is a calculator to estimate the possible amount of your subsidy or grant. The platform can provide 194 federal and regional support measures; 21 of them can be requested online. For example, the government can compensate the company’s costs of purchasing or leasing of equipment or the development of a complex innovative project.

One way or another, government support in Russia gives startups some fuel to take off. They wouldn’t have been able to survive without it. Beautiful walls are good, access to equipment is good, but access to state support tools if also of the essence.

Legal issues

One of the big problems for startups is to decide which legal entity type would be more attractive to investors. Raising the first round of funding is always a big challenge, and it can be difficult to choose the legal structure investors would want to join.

A limited liability company you co-own 50-50 with a friend might not be the best choice; potential investor interests need to be taken into account. For example, you might want to give a thought to an entity that will own your intellectual property rights – maybe it would be a good idea to create a separate legal entity for this. Which of the several legal entities will you be promoting for investors? How will you be doing your taxes?

I believe that an appropriate innovation infrastructure should offer startups at least two paths, two tools of legal expertise.

The first one is to help startups within the existing structure of legal relations as much as possible. That is, to explain them how to promote the existing company so that that it would live long and prosper.

The second way is to create sanctuaries with tax concessions and comprehensive support. Overall, Russian development institutes pursue this second path. But sooner or later, a company will have to go out into the big cruel world. Therefore, if you don’t have plans to sell your startup to a large corporation within the next two years, you should follow the first path, that is, develop like a normal adult company while using the benefits provided for support of innovative companies.

As of benefits, I have always liked the compensation mechanism. If you are an innovative company and invested in modernization or education, the state will compensate you some of these expenses.

To sum up

Today I touched upon only a few aspects of building an innovation-friendly environment, but I believe that it was a good example of the fact that one needs to take into account numerous nuances and look at the business not through the eyes of a civil servant, but a startup creator.

The Moscow Innovation Cluster, which I head, was created as a technological innovative social network of sorts, designed to bring all participants in the process together. That is, on the one hand, to provide access for potential customers and investors to the solutions offered by startups. On the other hand, to create a pool of platforms for pilot projects and testing, as well as a database of potential contractors. In addition, we aim to provide an expertise by the research community and offer access to the intellectual property databases to see if there have already been developments in a certain field.

By Anatoly Valetov, Director of the Moscow Innovation Cluster Foundation

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