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Innovative MBA Can Generate Real Returns

SkolkovoLawrence Wright, Startup Projects Director at the Moscow School of Management.

Historically Russia's research enclaves have been isolated from the market, leading some observers to question the latest attempts at modernization. Skolkovo, however, is different, according to the director of its Startup Academy. He points to the high-profile success of two alumni.

A mobile chip and pin validation system for credit cards, and a wearable alarm button for vulnerable people are among successful startups launched by alumni of Skolkovo's Moscow School of Management. Both firms have already raised millions of dollars in funding from investors.

It is evidence that a degree at the innovation center can launch a second career and generate a real return on the cost, effort and time spent on gaining new skills.

Skolkovo's director of Startup projects, Lawrence Wright, has been in the role since Spring of 2011. He is in charge of the entrepreneurial component of the MBA program that has produced a number of successful businesses — and a pipeline of potential projects.

Wright has a background in the industry, having worked as CEO of Xlerate Technologies, providing venture capital for startup projects. His involvement with Russia goes back two decades, including leading roles in bilateral US-Russian technology programs and a Fortune 500 systems integration and engineering firm.

Wright highlighted two projects that have grown from his Startup Academy, including Russia's first EMV-certified mobile payments system (EMV standing for the initials of leading payment brands), launched in September 2012. The company hopes its product, comparable to Square and iZettle of the US, will get a further boost next year when Russia's central bank bans the use of cards without chips. The company has just raised  $5 million in a second round of funding led by InVenture Partners.

Knopka Zhizni or Life Button has raised over 35 million rubles, or about $1 million, for its medical alert service for the elderly and disabled. Founded in November 2010, its financing came from Rintech, a systems integrator in the social and health sectors. The company also sees applications in the corporate sector.

Lawrence Wright: High Hopes For Local Production

There is a lot of talk about the creation of the Russian Silicon Valley. Is the Innograd project really closer to the tradition of research enclaves?

I very know them very well. I previously worked on the U.S. side for the International Science and Technology Center, a structure which no longer exists. In the 1990s it was trying to save as much as possible of the former Soviet research. It was a $1 billion fund intended to retain skills and knowledge in the Institute. We tried to turn the results of this research into something commercial. I see untapped innovation potential in these research enclaves. But Russian science is not focused on the market. In the U.S. research centers are concentrated around universities: Harvard, Stanford, MIT, etc. This allows you to bring young cadres into the scientific activities of the institutes, along with fresh ideas, greater openness to the world and, of course, an orientation to the market.

What is the role played by American companies in technology exchange or financing R&D centers in Russia?

We know abut companies like DuPont, Microsoft, Intel and Boeing. These are good examples of companies that have a development strategy in Russia. There is no shortage of developers in the field of IT but greater attention should be paid to material science, and biology.

Comparing ICT, pharmaceuticals, chemistry and physics, which sectors of Russian R&D are most successful commercially?

Certainly IT because it is the most dynamic and, so to say, fast-moving sector. Many companies have been working in this market in Russia: EMC, Microsoft and others. There are no companies that operate only in the nano sector, because nanotechnology is used in completely different industries. In the case of projects that grew out of basic science, physics or chemistry, they require deep understanding and expertise. It is possible that the ultimate commercial application of research is very different from what was imagined by the creators.

Are the business angels or private venture capitalists who invest in startups Russian or foreign organizations?

For the most part they are Russian and foreign. Often they are American but the proportion is 80/20 in favor of the Russians.

Small businesses operate in a complex environment in Russia. Is it easier to commercialize their ideas abroad?

There is such an opinion among developers. Despite the fact that there are many legal and other problems in Russia, it all depends on where the market is. For example, if you make a new battery then most likely the greater need for this product will be in Europe and North America, or in China rather than in Russia. And the production has to be where the customers are. There are a lot of bureaucratic difficulties with the tax and visa regimes. In Russia there need to be more favorable conditions for doing business because the risks are higher than in the U.S. or Western Europe.

Do you think Russian innovators have moved away from manufacturing hardware — and does the production of high-tech software always involve a higher margin?

No, there may be a trend but I would not say that they have abandoned hardware. We have a very interesting project for the production of 3-D printers.  America has lost its textile production. Now it is all in China and Southeast Asia. But some companies began to return their production back to the U.S., for example, General Electric. They saw that innovation is inseparable from production. You cannot separate the designers and engineers from the innovation. After connecting these units the company started to save, not only on the reduction of transport costs but also on production optimization and innovation in the production process. Interdisciplinary teams have a great potential for new creative solutions. And you cannot create something when the brains are in one place and production in another.

Nikolai Zhmurenko: Secure Payments On The Go

Smartfin

Nikolai Zhmurenko (right) CEO Smartfin and business partner.

Tell us a little about your project?

2can is a mobile banking service. The 2can mobile terminal is an app for smart phones and tablets, either iOS or Android and a small card reader. It allows merchants to accept bank card payments from their customers. It is an analog of the traditional point-of-sale terminal but smaller, more convenient. For example it lets you perform analytics in the application and in a private office on the web.

Unlike a traditional POS terminal it has intuitive menus and there are specialized solutions for insurance companies,  taxi drivers, delivery services , and so on.

It allows small businesses to accept cards where conventional equipment is not readily available or is to costly. Traditional POS terminals are quite expensive devices, at $600 to $800. Banks often require an entrepreneurs to have a substantial monthly turnover. In our case there is no minimum turnover since we do not need customers to buy expensive equipment. The price of smart phones and tablets is falling and an Android smartphone is as cheap as 3,000 rubles (about $100). This makes our card reader system one tenth of the price of a traditional POS terminal.

How did your studies contribute to launching your commercial project?

At Skolkovo's Moscow School of Management I almost immediately began working on the 2can project. In the  spring of 2012 I took part in Lawrence Wright's Startup Academy. You see, 2Can is my first start-up. Prior to it, I had been employed for 18 years in finance, and for 13 years worked as a CFO in big telecom companies and companies dealing with telecoms. But managing your own project, even if not as large as my previous work, requires somewhat different, broader competencies than working as an employee. I was looking for where to get the missing experience and the Startup Academy Skolkovo caught my attention.

Where did you get your funding, in Russia or abroad?

Our first investment in the project, about 300 thousand dollars, came from my funds, and those of my co-founder in the project Yuri Vladimirov. This allowed us to create the first members of our team, pay them wages, rent an office, buy equipment and make the first version of the product. In September 2012 we raised funds from outside investors, including InVenture Partners and a group of business angels such as the former vice president of Cisco, Robert Agee.

Irina Linnik: Medical Assistance At The Push Of A Button

Irina Linnik,
cofounder, Knopka Zhizni

Skolkovo

What is your product and who is your target audience?

It is a medical and social emergency button for elderly people and those with disabilities. Pressing the SOS button alerts a 24-hour call center, from which a physician can see not only your call but also your medical card, any problems and your location. We are accurate to 6 meters and can locate a person even if he falls in the street. It is first of all, a panic button for people and secondly a line of support for the elderly.

In addition, we occasionally call our customers to find out how they are. Our company's philosophy is to do our job as we would for a loved one. Many relatives of our employees, including my grandmother, are subscribers.

How have you commercialized the project?

We sell the device and a subscription to our services. There are different rates and we can choose a convenient option for each client. For example, you do not have to buy our device but can still use the call center. Alternatively, the client is not supported by call center but uses the device and geolocation service. We offer a special tracker pendant with a single click to call. If it is dropped, it places an automatic call to the number preset by you or to the call center. It also records movements of the holder and keeps it on the user's account.  This can be useful when your relatives visit hospital. In addition we sell a SIM card, which comes with a number to our call center.

Do you produce the hardware yourselves?

We initially decided not to produce anything but we could not find a suitable device: they were either unstable or non-functional. We decided what to produce in terms of logistics, technology and price, which was more affordable in China than anywhere else. We do the design of some devices like trackers in Canada and produce them in China. Working with China is quite flexible. We have a wonderful specialist from Vietnam with extensive engineering experience, he quickly agreed the terms of reference with the Chinese manufacturers. We achieved a good price-to-quality ratio for our first batch of three thousand devices.