They are scientists, they do not understand us!

Venture market lacks technology

To build a young innovative company, to build a start-up, in order to create a life-long business for yourself, is a perfectly normal dream for today’s society. When faced with real life during implementation, it appears almost immediately — nine out of ten start-ups that survived the initial stages of development and are therefore interesting to the market do not exist afterwards as an independent company with a set of original creators-shareholders-stockholders, but sell part of the capital or the whole company to corporations or some private equity funds. It is unknown what percentage of founders of start-ups consider this unfair, but that is not the point. There is still a shortage of such potential strategic investors on the Russian market. There is already a quite big number of those who dream of becoming a multibillion-dollar technological giant in Russia. Although, the number of those who are ready to invest in the creation of a company that will later become a partner or part of a multibillion-dollar technological giant is significantly smaller. Especially when it comes to the most necessary — about technology projects, new materials, new services, or new products.

Currently, the most part of players’ investment on the venture market in Russia, according to MoneyTree — the annual analytical report of the RVC and PwC — still accounts for projects in the information technology sector. Most venture capital deals are made in IT — around 70%, and the most investments are attracted in this sector — 90% or $ 149.6 million. For comparison, investments in bio- and industrial technologies, whose development is monitored much more closely, amounted to $ 9.5 and $ 6.1 million in 2016, while in biotech the funds with the RVC capital remain the main investors. This is a predictable effect — the IT sector is literally becoming an "ordinary" technological area before our eyes, and we should expect not just miracles from this sector but rather solutions to ordinary problems.

Although since the 90s of the XX century, the Russian government has been thinking about the infrastructure for the emergence of new small-scale innovative companies, authorities traditionally relied more on state-owned companies and industry-specific state-owned holdings. By 2016, after so many experiments in this area, large state players are required both to create external demand for innovations (including through mandatory volume of purchases of innovative products), and develop innovative development programs, and participate in projects of "national technological platforms". All this is happening in reality, but this is still a long-term stake, the tasks of speeding up the innovation processes in the economy are being solved quite slowly at the moment.

According to the director of development of RVC, Gulnara Bikkulova, there is a problem, and it concerns not so much state-owned companies as all corporations that could act as customers and buyers of innovations, shareholders of start-ups at the early stages of development.

"Start-ups do not understand how to reach corporations, corporations do not understand how to work with innovations, how to search for developments. Moreover, we do not have venture funds that would work with industrial projects," she says. Most of the funds operating on this market as the main element of its financial infrastructure are not that large. Industrial projects are costly, and they tend to have a long payback cycle, which, as a rule, becomes an irresolvable problem for start-up developers since they do not have "long" money. Large companies, in turn, face great difficulty with understanding the small business, which by definition are start-ups — there is a difference in scale, in experience, in the nature of ambitions, and in the management models built in companies.

"The only scenario that we have found for ourselves is to act through specific people within corporations that for various reasons go beyond corporate stereotypes and initiate changes in companies," concludes Gulnara Bikkulova. In places where there are difficulties in the interaction between large industrial companies and start-ups in the field of industrial technologies, there must be something else in the role of the third, linking, element.

For an intermediary between start-ups and corporations to appear on the market, RVC launched in 2013 a federal accelerator of technological start-ups GenerationS. Initially, a database of projects was established, which could need contacts with potential customers and investors. There was no big news in this database for investors — many were already familiar with it. However, the complaining such as "they are scientists, they do not understand us!", says Gulnara Bikkulova, was at this stage an ordinary comment of representatives of large companies. Therefore, according to her, the main task of the accelerator was to train the founders of projects and their customers to talk one and the same language. Technically, the accelerator’s goal looks like this: to help the start-up team to get the first order from a corporation-customer. On the basis of this funding which is as a rule very little, a developer can launch a pilot project. Then everything is in his hands: a company will either reach the venture fund and its investments on its own, or will independently enter Russian or international companies with a ready and stable supply of goods or services.

RVC and its partners in the accelerator, as it turned out, identified the problem quite precisely: the project has already become the largest of its kind in the entire region of Eastern Europe. Over the last four years, more than 10,000 applications have been submitted; more than 580 projects have passed acceleration, more than twenty corporations act as customers every year. Among the GenerationS alumni, there are such companies as Promobot and WayRay which reached the accelerator at early development stages. Last year, Promobot rolled out its development — a robot for communication with customers — on the British market. WayRay working with augmented reality attracted investments AFK Sistema at the end of 2015, and recently from Alibaba Group as well. On average, after the program, according to RVC, companies increase sales by 30-40% per year, among the previous acceleration run, 27% of participants were able to raise investments, 67 start-ups launched pilot projects with corporations.

The infrastructure of accelerator is not only the organization of a "communication protocol", but also the creation of an environment for communication: a community of 1,500 experts and mentors who conduct appraisal of applications and help to overcome the problematic stages in the life of start-ups, in essence, constitute the main asset.

"An entrepreneur, not necessarily technological, but with common sense could become a business mentor, and who can give valuable recommendations on how to build a project," says Gulnara Bikkulova. "We also involve corporate mentors, that is, people who help to navigate inside the corporation, and consultants on narrow topics (e. g. lawyers, financial professionals, industry experts)."

Start-ups and their pilot projects

Both the teams that already have a finished product or technology, and those who have a prototype product, but do not understand how to sell it, or need technological refinement for scaling can become members of GenerationS. In accordance with the development stages of the project in 2016, the work of the accelerator was divided into two parts: corporate accelerators for mature projects and preaccelerator — for early stage projects (pre-seed and seed stages).

The main criteria for the evaluation of projects by experts are innovation, the ability to implement technology in practice, the competence of the team, the prospects for bringing a product or technology to the market, as well as investment attractiveness. When submitting applications, a participant should not only describe the project, but also indicate the target audience, competitors (and advantages over them), as well as the distribution of shares between founders, investments already received, the stake that the investor is ready to offer to the investor and options for the company’s future as seen by its founders.

As for the "cultivation" of projects at early stages, young developers within the framework of the GenerationS preaccelerator pass through a set of online and offline events aimed at improving the quality of their projects and their stage of development. Online training is a theoretical course on the main topics of technological entrepreneurship which lasts for one month. After passing the online program, about one hundred teams come to Moscow in search for their mentors for their project and get advice on its development. Then, team work with mentors individually for another three months. In addition, participants receive an opportunity to refine the prototypes of their products within six months on the basis of regional technology parks and incubators. As many as 50-70 projects-participants of the GenerationS become challengers for further participation in the GenerationS corporate accelerators, and can also receive support within the framework of the National Technology Initiative (NTI).

Projects of late stages (e. g. Start-up, Early growth and Expansion), whose developments are most interesting to industrial partners qualify for participation in corporate accelerators. Therefore, in the selection process, the project is reviewed and approved by the industrial partners of each track: they decide whether the project will reach the corporate accelerator or not. After the initial selection, participants come to Moscow and enter the "recruitment camp" — Bootcamp. It lasts for four days, the first three days — the developers listen to the speeches of investors, experts, finalize their business models and prepare presentations to deliver them to the track partners. On the fourth day, the experts and representatives of corporations select projects that will become participants of corporate accelerators. Afterwards, the participants pass the training with an emphasis on industry specificity, and also get an opportunity to work on partner sites to adapt their product or solution to the needs of the customer company.

In the final of each accelerator, a Demo Day is held — it is a kind of exam for start-ups, at which representatives of partner corporations evaluate projects and decide on further work with each project — accelerator graduate. In addition to working with a large corporation, the participants also receive access to investments, grants and subsidies for the development of their project.

The GenerationS Final will be held on 25 April in Moscow, at Stadium Live. The organizers say that the technological show will bring together several hundred entrepreneurs, Russian and foreign investors, business angels and representatives of corporations. The finalists will present their projects to the jury, and at the end of the event, the winners of GenerationS will share a prize fund of 15 million rubles. The total value of prizes from partners will exceed 100 million rubles. These are, in general, symbolic sums that can be considered only a pleasant addition to what the start-up really needs — that is, investments. In the exhibition zone, video presentations of the best participants of the GenerationS of this year will be demonstrated, and each visitor will have the opportunity to communicate with the founders of projects personally.

"Accelerator as a simulator for corporations"

Last year GenerationS-2016 was divided into eight tracks, and its main customers were two dozen large companies. These are so-called industrial partners — that is, companies that are ready to provide financial support (50 to 50 together with RVC) and non-monetary (in particular, including contributing of personnel to work with start-ups) support for the corporate accelerator. In turn, the main motivation for corporations to become partners of the accelerator is getting access to the pool of new projects and promising "breakthrough" technologies, as well as searching for teams that can solve specialized problems better than internal R & D divisions of companies.

Such a partner works with the participating companies at all stages, including examination of received applications and selection of interesting projects, training, work of start-ups on the company’s site.

"No less important is the ability to formulate your technological requirements — few companies are able to do this, it often takes several weeks to identify the technology priorities from the strategic documents of the corporation and, on their basis, to compile a register of innovative solutions. The accelerator with small investments is actually becoming a simulator for launching innovation for companies which allow to assess to what extent the company is ready for a more open business model," adds Gulnara Bikkulova.

A number of corporate accelerator tracks has one industrial partner, for example, TechNet (the creation of "smart" production and additive technologies) has only one partner, this is the scientific and production association Saturn, the LifeScience track (new pharmaceutical drugs, diagnostic systems, digital medicine) — biopharmaceutical Cluster Severniy, the SmartCity track (solutions for "Smart City", management of utilities and networks) — Russian Technical Society (RTS). In the AgroBioTech & Food track (increasing efficiency of agriculture, creation of "new food", bioconversion), the EFKO Group of companies acts as the main partner.

However, in several tracks, there are two or three companies and even more working with start-ups — in the Power & Energy track (modern power generation, development of personal sources and storage devices), it is the largest private energy company of the Russian Federation EuroSibEnergo, and the Irkutsk Electric Grid Company, which is part of it. In Mining & Metals (metal processing, field development technologies), the company engaged in the processing of non-ferrous and precious metals OJSC Krastsvetmet has become the main partner, considering the fact that ALROSA also cooperates with the accelerator. One more track brings together start-ups in creative industries — Creative Industries (new media, urban solutions, fashion, design, entertainment), its partners are the Sher Oston producer centre, as well as AMEDIA and Publicis Communications Russia.

The Finance & Banking Technologies track (high technologies in the area of banking and financial services and products) organized with the support of the Bank of Russia features the highest number of all industrial partners. This is the Moscow stock exchange, QIWI payment service and Visa payment system. In addition, VTB 24 and BCS Broker cooperate with the accelerator.

"FinTech stands out very strongly in the sectors — during the crisis, there were many professional managers in the market who started their own start-ups," explains Gulnara Bikkulova.

Most of the partners make updates every year — someone starts the accelerators already on their sites, someone continues to explore the market in search of suitable solutions. There are also such corporations that return from year to year since they understand that the project base is being updated. This is Russian Technical Company, Saturn, says Gulnara Bikkulova. And there are companies that are interested in gaining access to the project pool, but have already built up the process of working with start-ups — such a partner, for example, is Raiffeisenbank. Out of 215, they selected fifteen; eventually they selected two, with which the pilot projects will be implemented."

The experience of interaction of industrial partners of the accelerator with start-ups demonstrates: you need to change yourself to get something from the world of the future, and changes will affect things which large companies consider to be unshakable — the management system and the way of determining development priorities. Read the next report of the project if you wish to know how it looks like in the largest machine-building group, NPO Saturn.

By Tatiana Edovina

Source: Kommersant