— This is a question that I am always afraid to answer; it assumes responsibility for what has been said. After all, the future will inevitably come, and the venture projects we are talking about are the future for the subsequent 5-10 years. Venture by definition involves risk, but investors certainly form their portfolio not only relying on intuition, but also based on trends in consumer behaviour and development strategy of large corporations that invest huge resources in the development of their markets and thus shape their future.
If we talk about global statistics, that is, spheres that are always of interest to investors, these are the so-called "technologies for life": education, health and energy. A person will always strive to be healthy, educated and live in comfort, and technologies help to do this more efficiently, more conveniently and cheaper.
And there are "trendy" directions that dilute these three leaders and determine the investment focus of venture investors for several years to come. These include social networks, advisory services, aggregators, VR / AR, FinTech, etc., those areas in which it becomes fashionable and profitable to invest if you are able to find the most interesting projects. In Russia, most venture capital transactions, approximately 90%, are done in such "trendy" directions, most often in "copycats" — models copied from successfully launched projects on foreign markets.
Nevertheless, the situation is changing. According to the MoneyTree report, which we are making with PwC, cloud services came first last year. Start-ups in this segment are beginning to work actively with Russian corporate customers, who start using domestic technologies in their activities. The second place was occupied by the deals related to FinTech. And here the order for innovations comes also from the major players in the financial and banking market. Being in a very competitive market, they are beginning to actively search for technologies and teams capable to solve their business issues faster and more efficiently than internal divisions. Here a we see a unique situation where former employees of banks and financial organizations create most start-ups. These are adults who are well-oriented in the industry and know how to build relationships with large corporations. This generally reflects the overall trend, now more and more people with corporate experience are joining start-ups.
— Diversification of the venture market is one of our priorities. From the point of view of investment activity, RVC has always created funds in the areas which private investors are reluctant to join.
These are basically complex resource-intensive projects based on the Russian and Soviet scientific developments in the field of energy, smart systems, construction, enterprise management, and so forth. We have e. g. many projects in the field of biotechnology and medicine, including pharmaceuticals. The portfolio of RVC includes five funds investing in these areas.
As a development institute, we actively help large Russian corporations to build innovative activities. Together with them, we are looking for developments that companies could integrate into their businesses. Thus, we are trying to change the structure of transactions in the market by involving large businesses in the investment process.
— Large-scale industry makes 70% of our economy. Talking about the significant role of start-ups in this segment is quite premature. Large corporations have their own research institutes, engineering departments, and they traditionally create new developments, patents within their system. Suppliers of large corporations are the same big vendors and it is very difficult for a small innovative company to break into the corporation.
Over the past few decades, the "open innovation" model has been developing globally. Companies which are in competitive markets understand that development only within themselves is now inefficient. Because there are a lot of interesting developments which arise outside corporations, and even a large company is not able to hire all talented people at once.
It is also obvious that the entrepreneurial culture and principles by which start-ups are guided during operation allow them to launch products on the market at a rate which is unachievable in conservative corporations due to longer technological cycles, regulation of all processes, etc. The most advanced corporations are experimenting with different tools that allow them to develop entrepreneurial spirit in companies and establish cooperation between "external" and "internal" developers.
This is done in different ways. Someone creates corporate venture funds and invests in these companies, someone holds contests for start-ups, meanwhile someone creates internal incubators or accelerators.
— In order to build such a partner model, you need to seriously change approach to management in the company. Many corporations are beginning to develop innovative activities within the experimental units. This happens both in Russia and around the world. Such departments are usually called labs or laboratories. Pilot projects are tested in such labs. In case of success, companies decide to implement a start-up in the production process or the product chain, and a new development appears in the final product.
In Russia, industrial innovations have great prospects, but the main obstacle is that corporations are not ready to introduce technologies from the "external world"
It is understandable that there is always a choice between urgent issues that need to be addressed immediately, and investments in the future. Moreover, the majority of industrial enterprises prefer to live for today in this situation missing potential opportunities.
It is necessary to change the mentality of the company and show opportunities they miss by refusing to cooperate with start-ups. We solve this task in the framework of GenerationS, and other development institutions are also actively engaged in this work. We still cannot solve this issue systematically; it should not be an initiative from above. In corporations, there must be people who can organize this process, there must be a technological strategy which start-ups can become a part of.
Start-ups may be of interest to corporations for several reasons. First, start-ups are very mobile and more flexible in meeting the needs of the market, so communication with start-ups is an excellent tool for market research, and sometimes for competitive intelligence. Interaction with start-ups is a good opportunity to "refresh" the corporate culture within the company. It is no coincidence that the "social unit" (department for the development of personnel, education, social responsibility, etc.) is responsible for the interaction with start-ups at some companies. And these so-called social effects, as international studies show, have a big impact on corporate culture, attractiveness of companies as employers.
Looking at the economic results of interaction with start-ups, a distinction is made between the following types of corporate innovations in which developments of small innovative companies are applicable.
Breakthrough innovations when through the purchase of start-ups the company enters new markets. This approach is used by large IT companies like Amazon, Google, Cisco, Microsoft, Intel — leaders in the field of open innovation buying dozens of start-ups every year and capturing new niches thanks to start-ups.
Product or service innovations when a company can launch its products faster by cooperating with start-ups or scientific teams. A company can buy a ready-made development or a small product and integrate it into its line.
For example, in the field of pharmaceuticals, almost all corporations have an open innovation department and its entire activity boils down to finding talented teams and building cooperation with them since no internal R&D unit is able to generate ideas for new drugs as effectively as a partner network does. Instead of spending hundreds of millions or billions of dollars to develop new molecules, as well as years of work, the "big pharma" companies prefer to buy existing start-ups for several tens of millions of dollars. Thus, you can reduce costs and development time.
Process innovations or upgrades. The company can optimize its business processes, modernize production lines, and communicate more effectively with its customers.
In Russia, most companies deal directly with process innovations. They buy CRM-systems in order to better work with their clientele, replace conventional electricity meters with more "smart" analogues, upgrade equipment, etc.
Even in the most active segments in terms of innovations to date — the banking sector and telecom — the focus is mainly on the latter type of innovation. Moreover, it should be noted that over the past year significant success has been reached in terms of setting the process of working with external innovation sources.
GenerationS maintains an extensive line of tracks. In fact, our accelerator is a simulator for large corporations so that they try to work with start-ups in a comfortable format without investing significant funds and without breaking the established processes in the company. We and our entire ecosystem: partners, investors, mentors, etc. help companies to develop an innovative strategy and take the first steps.
The corporations themselves are also required to perform serious work. At the time of joining, they must formulate what projects they are interested in, how it is planned to integrate these projects into the business processes of a large company, in other words — what result of cooperation is interesting for them.
Companies should contribute their specialists who will work with start-up teams within 6-9 months participating in the examination and together implementing the pilot projects. Some organizations provide up to several dozen people. Success for GenerationS is a further joint work of companies together with technological entrepreneurs, and participation of large corporations in the innovative market.
Among our partners, there are non-traditional companies for the venture market, for example, Krastsvetmet. In March 2016, they created R & D Park. Its residents receive funding, working space and the ability to test pilot projects in real production environment. We helped them build an ecosystem and establish relationships with institutions and universities that can be suppliers of interesting technologies for them, and work out a strategy for further work with the companies that passed the accelerator. We believe that Krastsvetmet will continue to be engaged in this activity.
In the energy sector this year, our partner was Eurosibenergo whose employees became real "conductors" for the accelerator participants in a very conservatively regulated industry. Our partner, EFCO, has been cooperating with us for the second year and is widely looking at all the potential growth points that appear in the company through cooperation with start-ups. This is the modernization of production equipment, and joint products, for some start-ups the company becomes their first customer.
An opportunity to reduce the number of barriers and implement joint projects for start-ups is priceless.
We, on our part, within the framework of GenerationS, encourage large companies to experiment and share the risks arising.
Last year, for the first time we monitored what was happening to our project teams. It is important that this partnership of start-ups and corporations does not end after GenerationS.
As many as 27% of projects are able to attract investments within two years after the accelerator.
Every year, corporations enter into partnership agreements with several dozen technology entrepreneurs. According to the results of the last two years, this figure has reached 100+. In addition, our statistical figures show that 27% of projects are able to attract investments within two years after the accelerator.
After the end of the acceleration program, close work with graduates of GenerationS will continue. We do not only follow the further development of start-up teams, but also try to provide them with useful contacts, introduce them to our partners on the Russian and foreign markets, ensure their participation in the largest international exhibitions. We are pleased that many GenerationS graduates have already achieved impressive success in Russia and abroad.