The Government isnâ€™t Ready to Take Risks
Interview with Nikolay Badulin for Delovoy Kvartal, No. 18 (145), September 13, 2010
Nikolay Badulin is a venture businessman who has been investing in seed projects since 2006. The Tomsk-based business angel hopes that Interra will be instrumental in increasing his pipeline of projects.
NIKOLAY BADULIN made his first capital in 1992 on difference between the purchase and selling price of Germes-Soyuz shares. He also benefited from Gazprom shares: a patient shareholder, in ten years he increased his capital 103 times. Having sold most of his Gazprom shares in 2006, he bought a private house in the Moscow Region (just two km away from Skolkovo) and registered his Innovation Management Company FiBr. In four years the businessman has invested $2.5 million in his seed projects.
For one of his projects (development of a prototype microchip for digital video content processing) Nikolay Badulin has been trying to engage Rusnano as a partner. The partnership hasn’t yet gone beyond preliminary arrangement. Badulin is disappointed with the corporation’s heaviness and reluctance to accept risks.
It is now a general trend that officials frequently talk about innovations. What measures are actually taken? What should be done to modernize the economy and develop regional innovations?
— The concept of innovations in Russia is a mixture of the magical “it has to happen sometime!” and the Russian national “top that!” attitude. The most relevant innovations would be those in the system of state and business management.
As for innovations in technology, there should be a system for stimulation of innovative activates. Such system cannot develop unless the government enforces progressive post-feudal taxation of rental income, i.e. resource rent, insider information, administrative rent, rental capital in building construction and renting of office and residential facilities. In short, unless it stimulates the effective demand for innovations in the real sector of economy.
All we have today is small talk: “which is more important – the Seliger forum or Skolkovo?” And since the main decision criterion in management is the efficiency of investment of public funds, a number of factors would indicate that saving AutoVAZ from bankruptcy and producing Lada Priora is more profitable that investing in production of NT-MDT microprobes (which is one of the most successful innovation-based businesses in Russia).
In the meantime, according Yevgeny Primakov, President of the Russian Chamber of Commerce and Industry, Russia invests in innovative development 2.8 times more public funds than the US. The efficiency of investment is a matter of dispute. In the US innovations are the domain of private companies. The A-bomb, for example, was initially being developed with financial support from the Rockefeller fund, Sikorsky helicopters were financed by Sergei Rakhmaninov.
When will private investors based in Russia be attracted to innovation-driven projects on a larger scale?
— The moment when investors as massive as Mr. Prokhorov or Mr. Vekselberg make more profit per one ruble invested in innovations than per one ruble invested in resources and rental business – tat will be the moment when innovations blossom.
Can such projects be of any interest to foreign investment?
— I personally believe in foreign investments. At the same time one has to understand that in 2009 the US venture business had 206 M&As and only 12 IPOs. I.e. 95.4% of successful innovative businesses have found strategic partners and not investment. All of this decreases the potential interest of business-angels in these companies – he would become engaged for a long period of time since capital recovery in case of business-angels has the time lag of 7—10 years. And look what we have. Neither Rusnano, nor the Russian Venture Company is willing to finance primary investors, who will rather be offered to wait for success for a while, i.e. they dramatically de-cash business-angels. With all this in mind, I don’t really have any illusions.
As an owner of a residence in Nemchinovka in the Moscow Region, Nikolay Badulin is undoubtedly interested in development of the Innograd Skolkovo-2: under favorable conditions, the real property price there could multiply a few times. However, he is quite skeptical about the project. “Very little has been done in these three years. The only active entity there is MIET”, he says.
Do you think it’s possible to develop a global class innovations center in Russia?
— Imagine pine trees that grow on cliffs. Wind fills cracks in the rock with particles of soil, in ten years there forms a kind of organic fertilizer, where one day a seed may fall. If its roots manage to grasp at rocks, a pine tree will grow. It will be a lone pine, because pine forests cannot grow on cliffs. Our innovative clusters are very similar to each other – they are those pine trees. Innovations-based business needs adequate soil to grow – it needs demand. The demand is generated by the industry. And does our industry develop? It does in Tatarstan, Leningrad region, Krasnoyarsk krai. These regions introduce innovations and, though awkwardly, facilitate their development.
At the same time the innovation that caught my attention in the Novosibirsk airport were separate parking ticket stands for left-hand and right-hand cars. Or this common belief: “Construction business in Russia is the backbone for development”. And now look closer, what technologies have been implemented to build your office. I’d be rather surprised if any of those were Russian aside from doors, sand and gravel. Even concrete would probably be imported from China.
In other words, Russia will have to modernize its economy by implementing Western technologies, as recommended by Viktor Polterovich.
— I agree with Mr. Polterovich, I too believe that the emphasis should be put on modernization of production facilities particularly by implementing Western technologies. At the same time a fifth of all resources should be focused on “innovations proper” for which demand is expected to develop in future.
In order to develop a community of like-minded professionals, last year Nikolay Badulin has founded the Non-commercial partnership “Business Angels of Siberia” (NP BAS, based in Koltsovo, Tomsk and Krasnoyarsk). He expects that in the long run it will be instrumental in protecting business angels’ interests and in attracting public financing.
— In Portugal, for example, they have the following system: any BA association that is state certified has the right to raise public funds for its projects. Control of business development will remain the responsibility of business angels who are perceived as experienced and interested entrepreneurs.
Could you compare the amounts of BA investment in Russia and abroad?
— We are quite similar to venture capitalists, the only difference is the scale. Statistics for the US is $6.7 million per one project. Our BA colleagues in the US and Europe invest $300 thousand in average. At the same time, the number of VC funds is no more than 800, while the number of BAs active in the US is about 260 thousand. The BAs also adopt nearly 20 times more projects. In Russia the average amount of BA investment is $50—100 thousand, the number of BA networks that I know of is five.
While formally adopting the modernization policy, regional authorities hold more and more innovation forums. What is the point of this abundance of similar events?
— The regions de facto compete for public finances. I see the situation as similar to children arguing in a playground. That is the “infantile” problem of development and competition between regions in this effectively feudal country where the sovereign has all the resources, and the regions do all they can to upstage one another to get a bigger share of those resources while exploiting their forums to the full. As an employee of one of the pro-innovation agencies said: “We have now decided to only participate in four forums a month. We used to visit up to 15 forums monthly before”. When do they actually work, one would wonder.
Are you personally interested in Interra? Will you participate?
— We are planning to launch BIT Siberia 2011 during Interra. Our lecturers, business partners and sponsors have the privilege to be the first to access our project database (the 2009 project database included 113 ideas, 76 of which were developed into actual projects). The theoretical course lasts till January, and after it’s over the experts (35 professionals from Moscow, Nizhny Novgorod, Tomsk, Krasnoyarsk, Novosibirsk in 2009) select 15 projects for further development. Those select projects will undergo three private month-long training programs in 2011 in order to develop their business strategies. And then in May 2011 there will be the Final Show where the 15-17 projects will come together to compete for the grand prix.