IVI Presentation at UNECE Conference, May 2008

Scaling Up Innovation in Russia
UNECE Conference:
Moscow Russia, 23 May 2008

Innovative Ventures Inc.
Haslett, MI. USA
Moscow, Russia
Thomas Nastas
President
Tom@IVIpe.com
www.IVIpe.com
23 May 2008 www.IVIpe.com
Info@IVIpe.com

Today’s Message
Part I
What’s Happening in the Market?
The Good & the Bad

Part II
GoForward Plan to Accelerate $$
For Entrepreneurs/SMEs
For Gov’t Policy Makers

Info@IVIpe.com

IVI History-Direct Invest &
Advisory
Canada (1992)
Europe (1992/94)
C$100MM-Canadian
TP Fund, $10MM-
Bus. Dev. Bank
EU, $-Financière
St Dominique,
Paris

USA (1986)
Russia (1997)
The Michigan Product
HP LP, $30MM-EBRD &
Dev. Fund ($5MM)
USAID
Africa (1993/96)
E. Africa $5MM, Sub-
Saharan, $200MM, South
Africa,$30MM, IFC/WB
Info@IVIpe.com

About Me
• Founder of IVI,1986. In
Russia since 1997

• Moscow Bank, Member,
Board of Directors, 2007

• Independent Directors Ass.
Member, Board of Directors,
2008

• Moscow MBA Program, Prof
of VC & Marketing, 2001

• Moscow, MBA Advising, 2001
Info@IVIpe.com

Part I: What’s Happening in
the Market?

The Good & the Bad

Info@IVIpe.com

Successes in the Market
Since 2001

PBC Lasers
& Wostec

Multinationals w/R&D Labs in Russia

Info@IVIpe.com

Some Clouds Too: Learning
Curve Lessons
Optiva ($49M) liquidates:
Nanotech's 1st big flame-out

Startup doctors ease portfolio
pain-Trustworks ($23M)
Cybiko Ceases
Operations

Not Seeing Entrepreneurial SME Creation
from MNC R&D Labs
Multinationals w/R&D Labs in Russia

Info@IVIpe.com

Realities of VC in Russia
High Rejection Rates of Russian Tech:
Undeveloped Opportunity
Lack of Uniqueness/Competitive Advantage in
Performance (Customer Benefits)
Too much $$$, too much time & too little reward
(Alternative Invest Opts & Foreign Competition)
Lack of People (mgt/employees) & Transparency
Lack of IP/Uncertainty of IP
What to do with the SMEs that are rejected?
Ignore? Sympathize? Seek New Solutions?
Info@IVIpe.com

Reasons for Rejecting
Russian Tech Deals

Info@IVIpe.com

Realities of VC Investment
Ex: Global Spend in Clean Tech
(2006)
• Corporate R&D Investment = $22 billion
• Government R&D Investment = $24 Billion
• VC Investment in R&D = $2 Billion

Same Pattern Repeated in Most Industries:
VCs Fund Commercialization, not Tech Dev.
Info@IVIpe.com

Reasons Why
Probability
Components of SME Success
80%
Company has enough $$
80%
Mgt Capable & Focused
80%
PD Successful
80%
Mfging Successful
80%
Competitors Behave as Expected
80%
Customers Want Product
80%
Pricing is Correct
80%
IP Issued
17%
Combined Probability of Success
Success Rate <10% if Probability of One Event falls
from 80% to 50%
Info@IVIpe.com

Part II: GoForward Plan to
Accelerating VC $$

For Entrepreneurs/SMEs

Info@IVIpe.com

Action Item #1 for
Entrepreneurs/SMEs
1. Invest in Tech for Domestic Mkt
Link w/Corporates: User Pull, Testing,
Deployment & Commercialization

Solve Tech & Supply Chain Needs

Don’t Worry about Small Volumes

Build Locally, Upgrade Later for National &
Int’l Expansion
Info@IVIpe.com

Opts for Russian Tech

Info@IVIpe.com

Examples of Domestic Growth
$570Bln for
Transportation Overhaul
21 May 2008 Combined
Reports
Ford Will Build 2nd Plant in Russia:
Ford European VP Jim Tetreault

Info@IVIpe.com

Where’s the Customer Pain
(Need) in the Industry?
1. MORE Perf, Execution & Cost Reduction
Not GameChangers; blocking/tackling tech so
customers meet business plan
2. MORE Local Content
More Value-added Tech
Tech Sold to Multiple Customers
Generate Supplier Sustainability thru Multiple
Products/Services
3. What Else?
Info@IVIpe.com

Domestic Opts to Build Bio-
Tech Supply Chain in Russia
Research, Testing, &
Agricultural Medical Devices
Drugs & Hospitals
Medical Labs
Feedstock/Chemicals Pharmaceuticals & Equipment

Agricultural Medicinal & Laboratory Specialty Biological
processing botanicals apparatus & hospitals research
furniture
Basic organic Pharma- University Commercial
chemicals ceutical Surgical, medical medical
preparations medical, dental, research research
Ethyl alcohol
ophthalmic hospitals
mfg. Diagnostic Testing
& analytical
substances Clinical laboratories
Organic fiber instruments &
research
mfg. equipment
Biological Medical
institutions
products laboratories &
Fertilizers Irradiation
diagnostic
apparatus &
Pesticides and imaging
electromedical
other agricultural
centers
chemicals equipment

Product-Oriented www.IVIpe.com Service-Oriented
23 May 2008
Info@IVIpe.com

Action Item #2 for
Entrepreneurs/SMEs
2. Benchmark Your Tech to Competitors
& Alternative

Often & Early
Define Strengths & Weaknesses
Test Under Different Operating &
Customer Conditions
Invest to Overcome Deficiencies

Info@IVIpe.com

Part II: GoForward Plan to
Accelerating $$

For Gov’t Policy Makers

Info@IVIpe.com

GoForward Plan: Action Item
#1 for Gov’t Policy Makers

1. Create ‘ Tech Proof of Concept’ Fund
Transform ideas = deals
Generate data to confirm performance,
show weaknesses vs. competition &
alternatives.
Benchmark to int’l standards

Info@IVIpe.com

Chubais Opens Landmark Power Unit
But industry players are skeptical about the
efficiency and modernity of the Russian-made
turbines.
Info@IVIpe.com


2. Capitalize a ‘Mini-Grant’ Program
Define biz opts for a technology
Cost is US$3,000-US$10,000/technology
Not a biz plan, but 3-4 page document on
tech’s potential

Info@IVIpe.com

3.Create an IP Fund
Fund costs of Filing IP, especially Int’l
Pay-back as a Royalty on Sales
Funded by Russian Gov’t Initiative/PPP

Info@IVIpe.com


4. Inventory Your Tech & Publish as a
Database on the Internet
Org by tech, product & mkt
Benefits by cost & performance
Stage of dev., R&D, PD, Testing,
Plan w/Timetable, milestones,
budgets
IP issued/filed & competing IP
Info@IVIpe.com

5. Establish a Biz Dev Office
Scouts for Opts in SMEs & Institutes
Develops projects for ‘Mini-Grant’ & ‘Proof of
Concept’ Funds
Promote to Customers
Keeps the Team Focused. Align Interests
Sell Data or Provide Answers?
Incentives: Cash/Salary or Equity?
Transparent or Opaque? Responsive or Egocentric?
Info@IVIpe.com

6. Organize R&D & Supply Chain
Competitions for Users of Tech
Go After Corporates & Corporate Investors
vs. Financial Investors
Interaction between R&D developers &
Corporations & Corporate VC
Corporations fund R&D, guide development
& access opts in the supply chain
Lower dev risk & get to market quickly
Establish Industry Consortiums
Info@IVIpe.com

Technology In Many Places!
Just Look & Define

Slaughter Raising Genetic Engineering
& Breeding

Butcher
Distribution, Storage & Retail Locations
Processing- Ham, Kielbasa
Delivery
Info@IVIpe.com

Info@IVIpe.com

Thomas D. Nastas
Tom@IVIpe.com
www.IVIpe.com
Tel. 7.985.923.47.27
Innovative Ventures Inc. Moscow, Russia
Haslett, MI USA
Info@IVIpe.com

Back-up Slides Follow

Info@IVIpe.com

What’s Working Against Early
Stage Tech & VC in Russia
Plenty of $: It’s Competition:
Domestic Growth, FMCGs, F&B, Retailing,
Financial Services, Media, etc.
Keeps Entrepreneurs in Non-Tech
From Other Asset Classes w/Quicker & >
Profits, e.g., Stocks & Real Estate
From Israel, Ireland, USA, etc., with Good
Deals, Technologies, Entrepreneurs &
Successes
Info@IVIpe.com

Best Practices

Factors of Best Practice
Success
Engaged Institutes engaged in econ dev
Institutes with & committed to tech transfer
Active
Have mechanism for tech
Leadership
commercialization

Info@IVIpe.com

Best Practices
Success

Capital is Programs for
Available commercialization, pre-seed, &
seed financing gaps (help
establish & build SMEs)

Active informal angel networks

Investors include private & and
public entities

Info@IVIpe.com

Best Practices
Success
Discretionary Receive significant federal
R&D Funding funding

Centers serve as anchors for a
region’s bioscience base

Info@IVIpe.com

Best Practices
Success
Talent Pool Talent is the #1 the variable
to build comparative advantage

Educational institutions
responsive to training students
to meet the needs for workers
at all skill levels, e.g.,
scientists, technicians, &
production workers

Info@IVIpe.com

Best Practices
Success
Specialized Leading bioscience regions
Facilities and have private markets that
Equipment provide facilities for bioscience
SMEs

Specialized bioscience
incubators and research parks
are a growing trend

Access to specialized facilities
and equipment
Info@IVIpe.com

Best Practices
Factors of Best Practice States/Regions
Success
Patience and Building a critical mass takes
Long-term years or even decades
Perspective
Early technology pioneers took
25 years, now 12 to 14 years to
mature

Info@IVIpe.com

IVI Presentation at UNECE Conference, May 2008

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IVI Presentation at UNECE Conference, May 2008