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Nov 9

Nat Torkington

Nat Torkington

Global Venture Capital

Continuing on from my post on the effects of the USD slump on Silicon Valley, I see today that Russia is creating a state-run VC fund. Leaving aside the inefficiencies of a state-run capitalist enterprise, this represents a huge pool of cash that may let Russian entrepreneurs stay at home instead of coming to the US. And as the US dollar falls in value, US workers can earn more by moving offshore. It'll be interesting times ahead!

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Comments: 7

Douglas [11.09.07 01:07 PM]

Yes, dollar is almost halved comapred to euro a few years ago...

Ross Stapleton-Gray [11.09.07 07:55 PM]

"Leaving aside the inefficiencies of a state-run capitalist enterprise"... it looks, from the article, that it's just the state lending money specifically for VCs to take and invest, with quite minimal control or risk, yes?

Paul Sobocinski [11.10.07 08:41 AM]

Yes, interesting times indeed.

My concern is of the global equity bubble that we're seeing develop. There has been a lot of hype around investing in BRIC (Brazil, Russia, India, and China) countries, while factors such as such as censorship, corruption and political volatility don't seem to be reflected in the soaring stock prices in these countries.

I don't like coming across as a pessimist, but some traders believe that the downturn in the housing market is a precursor to a much larger market "correction" that will occur on a global scale. Actually it seems to have added fuel to the fire, as US investors are now turning to foreign equity, believed to be the last "safe bet" (what real estate used to be).

So, like the rest of the foreign equity market, the Russian VC fund is over-hyped, in my opinion. The fact that it's state-run is even more discouraging, as I imagine investments will be made based in part on a political agenda, versus purely on what will make the most money with the least amount of risk (i.e. the inefficiencies you pointed out).

Having said that, I still have full faith in Silicon Valley. It got through the dot com bubble, and it'll get through this.

Paul Sobocinski.

Ross Stapleton-Gray [11.10.07 08:09 PM]

"The fact that it's state-run is even more discouraging, as I imagine investments will be made based in part on a political agenda, versus purely on what will make the most money with the least amount of risk" - actually, we like that governments make investments based on political agendas, e.g., the GI Bill, or in funding small business (via the SBIR program) without even an equity stake in return. Government has a special role to play.

Our particular government, of course, is still engaged in a particularly bad investment in the Middle East, pouring tens of billions of dollars of gasoline on the fire in Iraq, but it doesn't mean that other governments will be similarly unwise.

If I were the Russian government, establishing a Russian VC fund (and NB, it still sounds like the government is pretty far removed from the actual end investent in specific entrepreneurs, at least from that article), I'd absolutely want to skew it toward, among other things, creation of viable small business, and development of technologies of special relevance to Russia, e.g., in natural resource extraction, environmental remediation, health care, etc.

Scott Eblen [11.12.07 01:15 AM]

American VCs investing overseas are also affected. Consider a startup that receives a tranched investment in dollars. The buying power of those funds would decrease noticeably. Even though US investors want to back the best companies in the world, entrepreneurs may be skeptical of taking dollar investments.

There was a noticeable drop in investments in dollars in the UK last quarter. You can see the graph of this trend here: It will be interesting to see if this continues.

Peter Barkman [11.12.07 01:32 PM]

Similar state supported development is being discussed in Finland. There is a debate ongoing about the government changing its funding philosophy towards the Israeli model.

The Israeli government matches private investment in venture funds and only takes 10% interest on capital. A very attractive model for VC's and startups alike. It has worked well in Israel.

The reason for it being considered in Finland is that although Finland has received accolades for efficient and good support of innovations and entrepreneurs the actual business results have been thin. The measurements are wrong and the government is actually supporting many "life-style" entrepreneurs that never have made it big.

The Russian initiative and similar plans in Finland make Scandinavia and Northern Europe a very interesting place to be a VC and a start up in the future.

Olaf [11.16.07 07:19 AM]

Russia simply now has enough money to be a player in this game: Every scientist is purcheable and works for the company which pays the most money. That's are now more and more Russian companies!

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