When I was a kid, my grandfather told me a story about the potato riots during the time of Peter the Great. Basically, the reformer Tsar had been abroad and tried to provide a solution to the frequent famines throughout the country by the compulsory cultivation of the potato as an alternative to other low yield crops. The popular response to the Tsar’s innovative handling of the food crisis was to stage armed uprising. Talk about bite the hand that feeds you.
The story made a deep impression on me. The people were protesting a great windfall when the alternative was pretty obvious. Today, of course, the phrase ‘potato riots’ are synonymous resistance to change and, in my mind, a stubborn lack of will to think clearly and without prejudice.
We can see the potato riot mentality today in the populist lack of trust that many Russian innovators have towards the initiatives the Russian Federal government has set in motion to stimulate modernization. Distrust of investor proposals, state run innovation projects and mass media is very high. Although the roots of this particular vein in the Russian mentality run deep in our layered history, it is ironic that we find this obstinate attitude in the minds of some of the better educated individuals in Russian society. And the seriousness of the implications of this attitude, especially among this particular segment of the Russian population, cannot be understated.
Don’t say anything to anybody
Nizhny Novgorod, the city where I live, is home to one of the largest educational and scientific centers in Russia. Not long ago I asked several of the more prestigious local universities to provide me with a list of innovative projects realized on through their programs and faculties in order to post information about these projects on my website, VentureVolga.com, absolutely free of charge. Imagine my surprise when the heads of the various science departments at these universities told me that they didn’t have any such information, and what’s more, when my letter to entrepreneurs at these universities with a proposal to publish information about their projects on my site for free went unanswered.
Administrative representatives of one university even reacted aggressively to my proposal, stating that they didn’t like the format in which I was going to publish the information. My attempts to discuss this problem and find a compromise were categorically rejected.
The reason for this strange behavior is clear – economic modernization in Russia began only a short time ago and many leaders, especially in public institutions (and a large number of universities in Russia are state run) have no experience in handling the issues involved in commercializing innovative projects developed within the walls of the institutions and agencies they run. It is difficult for them to even understand that any investment project starts with access to information, to openness and exposure. A potential investor needs information to connect with opportunities, to identify what is essential or significant about a new idea or solution, and contact information to find out more about it.
Trust nobody
Not long ago I had a conversation with a few young programmers, founders of an innovative startup in a provincial Russian town. Their production was clearly market oriented and, should it have gained a foothold with investors, would have been easy to market. The team was in a pretty good position – they had created prototypes for several projects on their own at their own expense. I stumbled upon them at a point in their development when they were trying to launch their products by themselves, sending out clumsy letters to nobody in particular and awkwardly trying to hold business negotiations with potential consumers.
I asked them why they didn’t bring a marketing person on board, someone who knew how to do things professionally, with developed connections and resources. They looked doubtful and said that they were afraid of such people and didn’t want to share their idea with someone who might take advantage of them. The guys soon ran out of their own capital and, having failed to get things up and running, went bankrupt.
This scenario is not unique. There are many stories like this. In David Fincher’s movie The Social Network, there is a scene where Sean Parker advises Mark Zuckerberg not to give everything away to the ‘Big C’s’ because then he will have a chance to order business cards with the inscription ‘I’m the CEO, bitch’ in the future. At the end of the movie, of course, Zukerberg, harried by lawsuits, dissatisfied and friendless, is holding business cards in his hands with just this inscription. It’s a different message than the typical ‘evil corporations will get you,’ speaking not only about greed but the fallout from the inability to trust others.
The Facebook story and others simialr stories about young billionaire entrepreneurs clearly demonstrate how the age of entry into the ‘big leagues’ is getting lower and lower with each passing decade and how entrepreneurial icons like Gates, Jobs, Page, Brin and others like them have besotted young Russian geniuses with the possibility that their idea might just be the next big thing. This goes hand in hand, of course, with the paranoia that that they shouldn’t sell out lest they get left behind as others make millions with their ideas and products. Multiply this Hollywood story arc by the already incorrigible Russian distrust of authority and power and its not hard to understand why many young entrepreneurs see any investors or venture capitalists as ‘rogues’ who want to ‘take over’ and ‘grab everything for themselves.’ Despite the well documented role that venture capital has played in many success stories, including Google, and the fact that Bill Gates owns less than a 10% share in Microsoft, the majority of young Russian innovators are reluctant to concede that cooperation with investors and industry experts with experience might make all the difference between success and failure. What’s more, the atmosphere of fear and mistrust is such that many would rather fail than even consider cooperation.
In The Social Network, there is another scene when Mark refuses to advertise on the web site in return for $500,000 from Facebook’s first potential venture investor, but for many Russian viewers the scene is less dramatic than the episode with business cards.
Playing by the rules
Legal nihilism, a term that created buzz several years ago when President Medvedev took office as the president of Russia, is no mere figure of speech. The contempt for rule of law remains a serious problem in Russia and is reflected not only in the double standards of law enforcement bodies, but perhaps even more earnestly in the widespread lack of legal culture. Individuals (and perhaps more importantly, the entrepreneurial segment of society) lack confidence in the efficacy of rules and best practice, even when intended to promote and safeguard their interests. They tend to ignore the common rules of venture business. They are reduced to coming up with rules of their own in a bizarre effort to build a better future in a legal and financial vacuum. The results of this ‘strategy’ are painfully obvious.
In the 1990’s, Russia passed through a ‘wild west’ phase of development with a near total absence of rules in business, with rampant criminality and the inability of the government to protect the interests of ordinary entrepreneurs. This time has past, however, and potential foreign partners of Russian entrepreneurs and innovators are people who respect the rules of the game and understand that there are a wide range of scenarios for cooperation and development, depending on the sophistication and goals of the parties involved. Not all founders, especially in large cities, fall into the trap of information hoarding and exclusivity. “Innovators are smart people,” says Konstantin Pigalov, Director of Marchmont Capital Partners, a consulting company based in Nizhny Novgorod. “But there is always something for beginners to learn, while others understand the whole process.”
Nevertheless, investors looking for projects in Russia, and especially the Russian regions, should be prepared for strange reactions to their proposals. Of course, not all Russian innovators are country bumpkins with Zukerberg pipe dreams. The good news is that, despite the majority still fighting against the current in the sphere of innovation and enterprise in Russia, the number of talented young people who understand that chasing cool business cards can be very expensive is growing. They get the point that they need venture investors, with capital and know how, more than venture investors need them. And it is not unreasonable to expect that a plethora of technological breakthroughs could yet come from the latent potential of Russian innovators when the number people who have overcome their fears and are willing to take the plunge reaches a critical mass.
• Alexander Blagov is a journalist and publisher living in Nizhny Novgorod. For the past 15 years he has written about the problem of information support for the investment process in the Russian economy. He is the publisher and main journalist of the first English language magazine in his city devoted to this subject. He has been the initiator and head of numerous publishing projects dedicated to the topic of attracting investments for Russian technology. Mr. Blagov is currently the editor for VentureVolga.com, an online business news resource covering the Volga region.
