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Moscow-based venture capitalist Tom Nastas is president of Innovative Ventures Inc.
Editor’s note: The Russian government is investing to renew its leadership position in technology. In this first part in a series of four articles, venture capitalist Thomas Nastas discusses the role of governments in technology creation. This and subsequent opinion pieces published in Vedomosti are from Mr. Nastas’ article "The Go Forward Plan to Scaling Up Innovation" published in The Harvard Business Review, Russian edition, June/July 2007 and Hungarian edition, October 2007.
While companies are responsible for innovation in their enterprises, the creation of knowledge based economies can’t happen without the political will and investment of governments. Knowledge creation touches on so many of their duties like education, R&D, IP (intellectual property), policies in innovation, trade and investment and the enabling environment. Achieving political consensus on the mission and the funding to execute is controversial, so some governments take smaller but achievable steps to knowledge creation.
One strategy is to make more capital available for investment. The ‘Yozma’ fund-of-funds was an investment company with $100 million from the Israeli Government, $80 million for investment into the creation of new VC funds and the remaining $20 million for direct investment into Israeli technology companies. Yozma invested $8 million into a private VC fund with $12 million invested by Israeli and foreign investors. Yozma let fund managers ‘buy-out’ the Government’s equity stake after five years.
Click on the extended post to read more of this article and to view the Russian version.
You can read the original article in Vedomosti here.
Continue reading "The March to a Knowledge-Based Economy
in Russia, Part 1" »
Watch the video of my interview with Russia Today TV here
Last week I was interviewed in Red Square by Russia Today TV about the Russian presidential elections and Russia's economy.
Click on the links below to read my previous articles published on Russia Blog:
Scaling Up the Innovation Ecosystem
(This article was originally published in the Russian and Hungarian editions of
The Harvard Business Review)
A Go-Forward Path for Generating Prosperity
Venture capitalist Thomas D. Nastas is president of Innovative Ventures Inc. of the USA and Russia and serves on the Board of Directors of Sotsgorbank of Moscow. Mr. Nastas is also Professor of Marketing, American Institute of Business & Economic College in Moscow.
Thomas Nastas is an American venture capitalist based in Moscow.
You can read Tom's profile in the Moscow Times here
Hungary, Brazil, Russia, India, China (BRIC), Chile and others are replicating the strategies that made Israel, the US, Korea and others so successful in the creation of knowledge economies. Do alternatives exist with less risk and better chances of success in taking a seat at the global table of tech developers?
This article was originally published in The Harvard Business Review's Russian and Hungarian language editions in 2007. To read this article in Russian, complete with text boxes, click here for a PDF version, here in Hungarian and here for an English translation.
Click on the extended post to read the rest of the article without text boxes. To read an abbreviated version of this article previously published on Russia Blog, click here.
Continue reading "Scaling Up the Innovation Ecosystem" »
Last week, the Heritage Foundation, one of the largest and perhaps most influential think tanks in Washington, D.C., published its annual global rankings of economic freedom. While think tank reports seldom have as much impact as their authors would like to believe, this particular document was published in partnership with The Wall Street Journal.
The report claimed that out of 150 countries surveyed in 2007, Russia is now ranked 134th in the world in terms of economic freedom, allegedly slipping fourteen spots from its lowly 120th ranking at the end of 2006. Russia was supposedly less free than all of the other countries in the former Soviet Union, with the exceptions of Belarus and Turkmenistan. Russia is also said to be lagging far behind such surging economic powerhouses as Pakistan and Cambodia.
Continue reading "Rankings Versus Reality:
It’s Time for Inside-the-Beltway Conservatives
to Get Real on Russia" »
Innovation, small- and medium-sized enterprises, or SMEs, entrepreneurship and venture capital are ingredients in creating knowledge-based economies; witness the successes in California's Silicon Valley. Small economies countries like Israel and Singapore with little domestic demand for technology have developed unique approaches to exporting knowledge creation.
Russia is now investing to try to replicate the strategies that have been so successful for SMEs in Israel, Korea, Singapore and Taiwan -- the development of technologies for global markets. Do these strategies offer the best chances for success? Are there alternatives and, if so, how can Russia tap them to generate new wealth and prosperity?
Continue reading "A Go-Forward Path for Generating Prosperity" »
From a press release posted recently on CNN Money.com:
Golden Telecom, Inc. ("Golden Telecom" or the "Company") (NASDAQ: GLDN), a leading facilities-based provider of integrated telecommunications and Internet services in major population centers throughout Russia and other countries of the Commonwealth of Independent States ("CIS"), announces today the closing of the acquisition of a 100% stake in LLC "New Telecom Technologies" ("NTT") in Krasnodar -- an alternative carrier providing communication services to business customers and carriers in the region...
The acquisition of NTT is part of Golden Telecom's successful regional expansion strategy. Golden Telecom already owns and operates sizeable local and intercity networks in Novorossiysk, Gelendzhik, Sochi and other cities in the Krasnodar region. In Sochi, Golden Telecom offers long-distance services, corporate networks and Internet access through Sochi Telecom, a telecom operator established in 1999 and acquired by Golden Telecom in October 2005.
Golden Telecom joins Rostelecom (NYSE: ROS) and Vimpelcom (NYSE: VIP) among the fastest growing publicly-traded companies in the Russian telecommunications sector.
Click on the extended post to read more Krasnodar business news.
Continue reading "Krasnodar Business Round-Up:
Golden Telecom Buys NTT
Marchmont Capital Looks to the Regions" »
Moscow skyscrapers along the Moskva River at night
In case you missed it due to all of the recent political news from Russia, here are several articles about the Russian economy and foreign investments in the country from December 2007:
Ignoring Global Credit Crisis, Economy Grows 7.6% in Q3
BLOOMBERG
Monday, December 10, 2007
The economy expanded an annual 7.6 percent in the third quarter, better than expected, suggesting that problems on global credit markets have not had a major impact on the country.
Gross domestic product growth followed expansion of 7.8 percent in the second quarter and 6.8 percent in the third quarter last year, the Federal Statistics Service said on its web site Friday.
The data are not seasonally adjusted.
"The effect of the global credit crunch was less significant than some feared," said Yaroslav Lissovolik, chief economist at Deutsche Bank in Moscow. Capital investment and consumption were "strong and remained the main drivers of growth."
You can read the rest of this Bloomberg news story at the Moscow Times website. Click on the extended post to read more Russian business news.
Continue reading "Russian Economy Grows 7.6%
In 3rd Quarter of 2007" »
An executive on the roof of a warehouse at the Pushkino Industrial Park near Moscow
Source: Lone Star Ventures (www.lonestar.ru)
The biggest story in Russian business this week is the UK-based Belgravia Investment Group's announcement of a $2 billion dollar joint venture to develop Russian business parks. The deal involves the Immo Industrial Group, a Belgium-based manager of industrial properties in Europe, and the Russian restaurant holding company Rosinter, which is best known for bringing Kentucky Fried Chicken to Russia.
The total size of the development will be two million square meters (21,527,820 sq. ft.) At least 44 industrial tenants have already leased space, and the Hilton Hotel chain has agreed to build hotels near all fifteen sites, including in Moscow, St. Petersburg, Novosibirsk, Rostov-on-Don, and several other cities. Rosinter will build Sushi Planeta, TGI Friday's and 1-2-3 Cafe restaurants to serve employees at the sites.
Click on the extended post to read more.
Continue reading "$2 Billion for New Business Parks in Russia" »
A postcard from Tverskaya in downtown Moscow
This week the Moscow Times newspaper hosted a conference, "IPO: New Opportunities for Russian Companies" sponsored by PriceWaterhouseCoopers, the Russian Investment Club, Finance magazine, the Finam Investment Company, and several other corporate sponsors. The September 18, 2007 conference featured high level speakers from the PIK Group, DLA Piper, the Federal Financial Markets Service, and Deutsche Bank. The event was hosted at the Marriott Grand Hotel in Moscow, located one block away from the Kremlin on Tverskaya.
Elena Khisamova, Deutsche Bank Russia's acting Head of Equity Capital Markets, provided the headline of the day with her estimate that 200 Russian companies, representing an estimated $500 million in combined market capitalization, have the potential to launch IPOs in the near future. In addition to her remarks about Russia's rising smallcaps, Mrs. Khisamova added that in the first nine months of 2007, Russian companies have recorded over $22 billion in initial and secondary placements.
Click here to read an article about the conference from Russia's Interfax News Agency.
Bill Robinson J.D. speaking at the Real Russia Project event, "Russia: Friend, Foe, or What?" held April 18, 2007 at the University Club in Washington D.C.
Last week The Journal of the Business Law Society at the University of Illinois College of Law published an article citing the Real Russia Project, "The Forecast for Foreign Investment in Russia: Should Investors Expect a Warm Climate or Cloudy Skies?" .
In her article, Illinois law student Eugenia Izmaylova frequently cites Bill Robinson, a Bellevue, Washington based attorney who has been practicing law in Russia and the former USSR since 1990. In particular, Ms. Izmaylova quotes Bill Robinson's thoughts on the development of intellectual property law in Russia since the collapse of the Soviet Union (a transcript of Mr. Robinson's remarks - along with commentary from his co-panelists at the Real Russia Project forum - is available for downloading in PDF format here)
Click on the extended post to read excerpts from the Illinois Business Law Journal article.
Continue reading "Illinois Law Journal Cites the Real Russia Project" »
A banner ad for Russian cellular provider MTS near the Kremlin
For months, the transition to a new President next year has been a hot topic for speculation in both the Russian and Western media. While President Putin's surprise appointment of Viktor Zubkov as Prime Minister has dominated the news from Russia this week, business marches on. Today Mr. Zubkov's statement that he would consider a run for the presidency has drawn a lot of attention to the previously obscure technocrat. But what do Russia's top executives expect in the upcoming election year?
On September 10 and 11, 2007, Reuters hosted the Russian Investment Forum in Moscow. The list of speakers was a who's who of corporate Russia (click on the extended post to read more)
Continue reading "Reuters Hosts Russian CEOs, Private Equity Firms" »
Director of Equity Financing, FINAM Investment Company, Moscow
Starbucks has finally come to Moscow, but what's next?
The phenominal growth we are now witnessing in Russia can and should be compared to the much more hyped boom in China. Although Russia's stock markets did react to the subprime volatility emanating from American credit markets, the Russian economy is not nearly as vulnerable to shocks originating from abroad as it was just ten years ago, when the devaluation of Asian currencies and the near-bankruptcy of the Yeltsin government devastated the ruble. Clearly that was then, this is now. The New Russia has shrugged off the recent corrections in both the U.S. and Chinese stock markets to continue what has been a record-shattering year for IPOs and foreign investment.
A few weeks ago the Russian Federal State Statistics Service produced a report indicating that Great Britain was the largest investor in Russia, investing $15.0 billion in the first half of 2007. Ironically enough, the vast majority of this new investment – approximately 80% - came in the second quarter of the year, when a diplomatic row erupted between London and Moscow over the Alexander Litvinenko case. In spite of Moscow's refusal to turn over its citizen Andrei Lugovoy, or London's refusal to extradite the exiled oligarch Boris Berezovsky, politics did not seem to affect business at all. Most of the major UK investments for H1-2007 went into the wholesale and retail sectors.
Continue reading "Taking Stock of Russia's Growth" »
Director of Equity Financing, FINAM Investment Company, Moscow
Construction of the Moscow City complex in 2005...compared to today
Photo by: Moscow Government International and External Economic Relations
In my Russia Blog posts I have written repeatedly about how the Russian construction sector is proving to be extremely attractive to global investors. Recent news reports confirm this view. In fact the U.K. Independent recently produced a short overview “A Global Property Boom: Russian Style” that describes what is going on in Russia.
“The place to be for booming commercial property development right now is Moscow. According to international property analyst Knight Frank, new developments of high-grade office space in the Russian capital have doubled since 2003, with a further 1.5 million square feet of space becoming available before 2011.” As a Muscovite who has observed these tremendous changes firsthand, I can confirm this.
Continue reading "The Russian Construction Boom Continues" »
Director of Equity Financing, FINAM Investment Company, Moscow
The Dow Chemical Company (NYSE:DOW) is expanding its presence in Russia. The company has maintained operations in Russia since 1974 and according to some reports, it currently employs about 90 people supporting its activities in this country. While starting a new construction materials business in Russia is somewhat risky, Dow Chemical’s average annual growth rate (about 30%) makes it worth a go.
In January, Dow Chemical started building its first production facility in Russia. The plant, located at Kryukovo, outside Moscow, will produce polystyrene insulation boards for Dow Building Solutions, one of Dow’s market-facing business units (this was nicely described in the Around Dow corporate newsletter).
Continue reading "Russia Part of Dow Chemical's Global Growth" »
Director of Equity Financing, FINAM Investment Company, Moscow
There is a lot of material on the Internet about Russia’s gold mining industry and different ways to invest in it. Here at Russia Blog, I would like to present one example of a Russian company that is mulling an IPO later this year on the London Stock Exchange (LON:LSE) Alternative Investment Market or Canada’s Toronto Stock Exchange (TSE:X). This mining operation is not large, but it shows the potential for greater investment in Russian gold mining. Renaissance Capital’s Pre-IPO Fund has already bought equity in the company. (RosBusinessConsulting recently wrote an article about RenCap’s pre-IPO fund which you can read here).
Continue reading "Investing in Russian Gold Mining" »
Director of Equity Financing, FINAM Investment Company, Moscow
In a post last month I mentioned that there are definite indications of interest from foreign banks looking for additional mergers and acquisitions here in Russia. It seems that July 2007 was a very active month for the Russian banking industry. On July 31, 2007, Vedomosti Daily published commentary regarding the acquisition of Russian and Ukrainian banks by foreign entities. The article was based on a study conducted by Dresdner Kleinwort showing that in Ukraine foreign entities own about 47% of national assets, while in Russia this number is just 10%. Here is a link to the table from the publication that represents the Russian side.
Click on the extended post to read more.
Continue reading "More Bank Mergers and Acquisitions in Russia" »
Director of Equity Financing, FINAM Investment Company, Moscow
Cover of the July 2007 issue of Russia's Standard business magazine
The July issue of the Russian magazine Standard included a very interesting supplement – the latest (as of July 10, 2007) arbor civilis of ownership in Russian telecommunications.
I happened to know a senior manager in this field, Leonid Konik, way back in the 1990s, when he started his project, ComNews. It is rather comforting to find out that he now runs a well-established and popular news project involved in telecommunications.
Anyway, the insert from Standard magazine shows who is who and what companies form the Russian telecommunications sector. I think that my readers may find useful the links to the websites that I am providing in the extended post.
Continue reading "Russian Telecoms: Who's Who" »
Director of Equity Financing, FINAM Investment Company, Moscow
Photo by: Vladimir Kuznetsov
Last weekend I took a nice stroll around rainy Moscow and noticed a new addition to the local landscape (see the photo above taken on Saturday, August 4, 2007). The ad says: “Every company has the right to IPO”. Now, definitely something has changed in the minds of our financial consulting firms!
This ad was placed by the Otkritie Financial Corporation, which is nowhere near the top-ranked IPO underwriters and managers in Russia. However, the corporation has an extremely qualified Board of Directors that includes several prominent Russian businessmen.
Continue reading "IPOs Changing the Landscape of Moscow" »
Director of Equity Financing, FINAM Investment Company, Moscow
Last week marked the first listing by a Russian IT company on the MICEX Innovative and Growth Companies sector index. The company is OAO Armada (RTS, MICEX: ARMD) - a Russian provider of information technology services.
Armada grew from the IT Department of RosBusinessConsulting (RTC:RBCI) group of companies in 2007. Between 2000 and 2007 the company operated under the RBC Soft brand. Armada’s solutions portfolio covers all IT market sectors, including software development, IT services and hardware. In 2003, while still part of RBC Information Systems, RBC SOFT was rated 15th among Russia's top 45 companies in the Standard & Poor’s Transparency Survey in 2003. Armada’s client base counts over 700 companies operating in various economic sectors and governmental organizations.
On May 23, 2007, OAO Armada’s shares were listed on the RTS and MICEX exchanges, and now the company has issued an IPO listing another 20% of its equity. According to some analysts the company will likely raise anywhere from $ 30 to $40 million.
Continue reading "Armada's IPO on the MICEX IGC Index" »
By Eric Kraus, Managing Director, Anyatta Capital, Moscow
View the PDF version of the Nikitsky Fund report
Eleven Reasons to Buy Russia (Though Not Necessarily Today)
1. Russia has not had a single debt-funded leveraged buyout (LBO). Zero. None.
2. Russia does not have a single sub-prime mortgage bond. Russian banks continue their old-fashioned practices such as investigating borrower’s declared earnings and requiring down payments of at least 20%. Though there has been some risky consumer lending, it is covered by the outrageous spreads they charge (above 50%!)
3. Russia has an insignificant trade relationship with the US, and is not exposed to the US consumer in any meaningful way. It is substantially exposed to the Asian economies which (so far) have shown no signs of slowing on US economic concerns.
Continue reading "Truth and Beauty (…and Russian Finance)" »
Director of Equity Financing, FINAM Investment Company, Moscow
Moscow traffic at night
A few weeks ago I read a piece published in Money and Markets titled, "Steer Clear of the U.S.: Look to Asia!" which I found interesting. Although the author is extremely bearish about American markets, I think that his basic advice to investors to diversify their portfolios internationally and to have strong exposure to commodities and hard assets as a hedge against global inflation is sound. And I would add Russia to his list of good places to invest for rapid growth.
Click on the extended post to read more.
Continue reading "Update on Investing in Russia's Growth Sectors" »
Director of Equity Financing, FINAM Investment Company, Moscow
Old Russia Meets Modern Russian Capitalism - An exhibit at the MICEX Stock Exchange Museum showing ads and the Moscow exchange building's numberplate ("Stock Exchange Sq # 1") at the beginning of the 20th century
Here are a few facts excerpted from a press release issued on Friday, July 27, 2007 by the Moscow Interbank Exchange:
As a result of daily trading at the MICEX on Thursday, July 26, 2007, the volume of transactions in securities amounted to 226.59 billion rubles ($8.92 billion dollars). This is a new record high for the MICEX, which was launched in March 1997. The previous record of 223.83 billion rubles ($8.74 billion USD) was registered on June 15, 2007. The MICEX logged over 232,000 transactions last Thursday.
Continue reading "MICEX Sets a New Trading Record" »
Director of Equity Financing, FINAM Investment Company, Moscow
The new IXSP stock exchange is coming to St. Petersburg - but when will it start trading?
In April 2007 (“NASDAQ Entering Russian Stock Market?”) I wrote about the OMX Group's (STO:OMX) plans to establish IXSP – a new Russian stock exchange that is targeted towards small to medium sized enterprises (SMEs). It seems that this process is accelerating. Now the IXSP has its own web-site – a very nice but simple one, listing major ideas that the promoters are planning to execute.
Continue reading "Russia's New IXSP Stock Exchange" »
Director of Equity Financing, FINAM Investment Company, Moscow
A view of the Kremlin with cathedrals in the foreground
Want to invest in Russia? Here is what The Street.com offers in terms of advice:
Brazil, Russia, India and China are the four countries expected to outpace their emerging market peers over the next several decades…of the BRIC countries, Russia is probably the most volatile market and the one that has been off the radar of mainstream American investors the longest.
I think this is one of the most reasonable overviews of exchange traded funds that I have read in the last few months
Continue reading "Russian IPOs: Week 29 of 2007 Reviewed:
R is For Russia - and Returns" »
Director of Equity Financing, FINAM Investment Company, Moscow
In a previous Russia Blog post (Russia's Most Wanted: Experienced Investment Bankers), I wrote about more and more foreign banks coming to Russia and finding their own ways to enter the Russian banking system. Some of them pick the organic growth path of getting the licenses and starting from scratch. Other major foreign financial institutions prefer to acquire a Russian bank and build their business in this country from an existing foundation. Last week there were two news items regarding foreign banks' plans for mergers and acquisitions to enter Russia’s banking sector.
Continue reading "More Foreign Banks Launching M&As in Russia" »
Director of Equity Financing, FINAM Investment Company, Moscow
Thomson Financial, one of the most trusted business information providers in the world, released its Equity Capital Markets Review this month for the second quarter of 2007. The Russian investment bank Renaissance Capital was ranked in 10th place in this survey, up from 29th place last year. Among the major equity capital market (ECM) transactions in Russia, RenCap has led all takers this year by raising $8 billion in an IPO for Vneshtorbank (the largest IPO worldwide this year), where RenCap acted as a joint bookrunner. RenCap has also acted as an underwriter on IPOs for MMK (see the extended post), Integra, Volga Gas, Dixi, Nutritek, Rosinter, United Bank for Africa and several other secondary transactions and private placements this year. Renaissance has advised 12 ECM transactions in the first six months of 2007, with a total value of $12 billion.
Click on the extended post to see a table from the Equity Capital Markets Review by Thomson Financial.
Continue reading "Thomson Financial Rates Renaissance Capital
Is Russia's MMK Coming to Ohio?" »
Director of Equity Financing, FINAM Investment Company, Moscow
Russian President Vladimir Putin
- Russia continues to deliver very solid economic data, and demonstrate that it is unlikely to stop expanding in the event of an unexpected fall in oil prices. Domestic demand is now the main driver of growth.
- Political risks associated with the transition to a new president in March 2008 are the biggest short-term concerns. President Putin has repeatedly vowed that he will step down in accordance with the constitution. Here at FINAM, we strongly believe there will be a smooth transition and we expect no major revisions to current policies.
- Steady improvements in living standards have provided the Kremlin with a strong mandate, and have provided the basis for more consumer demand. The policy of increasing state ownership of strategic sectors like aerospace, energy and metals is unlikely to change in the near future. This will cement the role of the “national champions” as the foundation of the country’s economic system, even as private and individual investment continues to grow.
- Strong economic performance and positive sentiment on future economic development has strengthened Russia’s ambitions to play a more influential role both internationally and in the near abroad. Periodic tensions in inter-CIS relations are likely in the coming years, particularly as Russia continues to eliminate special CIS prices for energy and other raw materials.
Continue reading "Russia's Rising Ambition" »
Director of Equity Financing, FINAM Investment Company, Moscow
A new railway station at Moscow's Domodedovo international airport
Photo by: Airport-Technology.com
In April 2007 I wrote about Russian state capitalism, this curious hybrid of government-owned “national champions” in strategic industries operating alongside a booming private sector. In recent months some new developments have emerged and I want to pinpoint some new investment opportunities.
The trend towards public private partnerships (PPPs) is becoming more pronounced with every month. In fact, the MMD public relations firm recently released a report describing in detail what is going on in this area of the economy. Here are a few citations:
“Public Private Partnerships (PPPs) have become an integral part of a new national idea: creating a strong Russian state that defends its national interests, combined with strong Russian businesses [that are] competitive worldwide.”
Click on the extended post to read more.
Continue reading "Public/Private Partnerships in Russia" »
Director of Equity Financing, FINAM Investment Company, Moscow
Sergei Ivanov and Vladimir Putin
50% of Russians expect President Vladimir V. Putin to run for a third consecutive term, according to a poll released last week by Renaissance Capital. Just one in three voters believe the President's promise that he will step down after the March 2008 elections.
The Russian constitution currently forbids three consecutive Presidential terms, although it would not prohibit Putin from running for President again in 2012. Putin's youth (he will only be 56 next year) and recent statements that he would like to continue serving in public life has fueled speculation that "VVP" might return to politics after four years in a corporate position, perhaps as chairman of Gazprom.
Continue reading "Renaissance Capital Poll:
50% of Russians Expect Putin Third Term" »
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