Russia's investment in tech startups depends on overcoming concerns of its new web-savvy generation

According to Bloomberg’s ranking of the most innovative countries in the world, Russia ranks only 18th – ahead of China but behind not only most of its global competitors, but also relative minnows in the world economy such as Norway, The Netherlands and Austria.

It’s this gap that the Russian government hopes to shrink, with its $15bn investment in the Skolkovo Innovation Centre – an initiative close to the heart of prime minister Dmitry Medvedev, hence his extended visit to the Startup Village conference earlier this week.

Having spent a few days at the event, meeting Russian startups and hearing from some of the business leaders, politicians and oligarchs backing the project, the obvious question is whether it’s a realistic aim to propel Russia to the top of the global tech industry.

Read the previous posts written from Skolkovo:

Certainly there is no other initiative in the world that I’m aware of that is ploughing so much cash into creating a globally competitive tech startup environment. Those billions of rubles are creating, over the next five years, a small town on the outskirts of Moscow with office space, R&D facilities, a technology university, and residential properties for students, startup workers and their families. A new railway line is being built to connect the area to the Moscow metro.

It is all designed to take Russian technology and engineering skills to the world – this is not about targeting the domestic market. Startups have to demonstrate their international outlook and appeal if they are to be accepted onto a programme that offers significant tax incentives and the possibility of up to $10m in non-refundable grants.

Only one in six applicants are expected to be accepted, and only one in four of those will receive a grant – the filtering process is tough, and relies on a panel of 126 experts (35% of whom are non-Russian) to make assessments.

The Russian tech industry has few companies on the international stage. Two relatively niche suppliers – Kaspersky in security, and Parallels in virtualisation – are probably the best known. But Skolkovo supporters recognise the need for role models.

“We lack the feeling of the ‘Gold Rush’ in Silicon Valley – that critical mass of success stories,” said Alexander Kuleshov, a director at the Russian Academy of Sciences.

“The role of Skolkovo is to create success stories to give the incentive to invest in further success stories.”

Among most of the 8,500 delegates at the Startup Village, there was no lack of enthusiasm and belief – if nothing else, Skolkovo has already created the sort of upbeat, happy-clappy, funky beanbags environment associated with other startup communities such as Silicon Valley and Tech City in London.

But there is inevitable cynicism too. Skolkovo relies heavily on the emerging generation of students and young people who are the first to reach adulthood having never lived under Communism.

They have more of a global outlook than their parents, and that internationalism is key to the prospects of success at Skolkovo.

But that greater awareness has its drawbacks. Talking to some of the young people attending the event, there is also a greater desire to become a success outside Russia. President Putin is much less popular among the young, metropolitan crowd than he is among older generations and rural populations. One delegate told me that all their friends would like nothing more than to leave Russia and live abroad if they could, but they realise how difficult that will be.

Interestingly, the international disputes over Ukraine were dismissed by everyone I talked to. Russians seem to think it’s a storm in a teacup, and say it has not hampered their overseas business relations in any way. Western sanctions on Russian politicians and oligarchs are welcomed by many Russians, because it means those rich men have to spend their fortunes within the country for a change, instead of shipping it abroad.

Much of the cynicism comes from the natural distrust of government. One of the Skolkovo employees compared it to the recent Sochi Winter Olympics, where much of Russia was negative and cynical about the amount of money spent, but once the Games started it was a huge success. The reactions were an exact parallel to the UK’s experience with the London 2012 Olympics.

It’s certainly true to say that if Skolkovo is a success that it would be widely welcomed. But the challenge is that the real impact of the government’s multibillion-dollar investment is unlikely to be seen for at least 10 years, maybe 20. Meanwhile, the technology sector in the rest of the world moves on at pace.

Personally, I found the Skolkovo project to be very impressive. It is easy to be cynical when a huge, centralised government bureaucracy issues an edict to the effect that, “We WILL be successful in tech startups”.

But Russia realises how important technology will be to its long-term economic competitiveness. Separately to Skolkovo, the government plans to roll out fibre broadband to every city, town and village with more than 250 people – an enormous initiative in a country the size of Russia.

The government has also decided to give away radio spectrum for free, to stimulate development of 3G and 4G networks – the country’s communications minister Nikolay Nikiforov, chided European governments for treating radio spectrum as a cash cow, insisting that Russia would rather see telecoms companies put their money towards infrastructure roll-out rather than costly spectrum auctions.

But as long as the younger, internet-savvy generation see a government that controls the media, restricts web freedoms and relies on billionaire oligarchs, there will remain doubts about the country’s ability to achieve its ambitious plans to become a global technology player. It’s going to be one to watch.