Amidst the Open Innovation Forum in Moscow, Russia Direct sat down with Kendrick White, founder and director of Marchmont Capital Partners, to discuss how Russian universities can commercialize their most promising technologies and develop a thriving innovation ecosystem.
"The Russian government should encourage universities to become more independent and make their own self-sufficient relationships with businesses, both locally and internationally." Photo: Theory and Practise
During the Open Innovations Forum in Moscow that took place from Oct. 28 to Nov. 1, top Russian innovators took the opportunity to promote a new agenda for developing the nation’s innovation infrastructure, creating new startups and resolving challenges that hold back attempts to innovate the economy.
Russia’s perennial struggle to modernize its economy has always attracted attention of its leading economists as well as their Western counterparts.
“The fact that our country has demonstrated outstandingly high intellectual results and can show them in mathematics, physics, astrophysics, chess, but failed to develop [effective and innovative] modern industry is a paradox that needs to be explained,” Alexander Auzan, dean and professor of the Lomonosov Moscow State University’s Faculty of Economics told Russia Direct during a conference in mid-October.
Read the Q&A with Alexander Auzan: "Why Russia won't be able to modernize economy in times of crisis"
In order to understand this paradox and find ways of tackling Russia’s innovation challenges, Russia Direct talked with Kendrick White, director of Marchmont Capital Partners, a Russian investment advisory firm, and associate professor at the Lobachevsky State University of Nizhny Novgorod (UNN). He has worked in Russia for 22 years, helping Russia’s inventors find common ground with local and international businesses.
In the 1990s, Kendrick White created one of the first Russian training centers for aspiring entrepreneurs. Source: Personal archive
With Russia Direct, White discussed ways in which Russia can commercialize its discoveries through a new generation of technology transfer centers and maximize the market value of its intellectual property, even during a time of economic crisis and a lack of funding.
Russia Direct: There have been many attempts to create various alternative technology transfer centers in Russia since 2000. By 2016, these are expected to appear in many Russian universities in order to increase competitive capabilities and commercialize research. You have such a center at Lobachevsky UNN. How do you assess the idea of creating such centers in Russia’s academia and why do you think Russian universities need such a model?
Kendrick White: Traditionally, Russian universities have used a certain model for their tech transfer offices, but such offices really only assess the scientific discoveries and deal with domestic Russian IP protection and patent filing. That’s mostly what they focused on until recently, with little research of the international market opportunities, and little assessment of the commercial value of new technologies, and little preparation of business models, financial requirements, or business plans.
These offices have generally been responsible for preparing the necessary paperwork to seek Russian patents. And when Federal Law 217 was prepared in 2009 [which made technology commercialization possible at universities], that was a very good thing, and the tech transfer offices at Russian universities began to create new university spinouts, but unfortunately the main purpose of many spinouts was to secure short-term funding, without having much of an emphasis on creating real valuable businesses.
At Lobachevsky UNN, between 2010 and 2013 the university made a number of spinouts, yet most of them were not in fact commercially viable. These spinouts were primarily geared toward securing additional short-term grant funding, but they weren’t able to prepare real functional businesses as they had few resources and little experience to do more, and that’s very unfortunate.
To address that, we created a comprehensive Technology Commercialization Center (TCC), which included one of Russia’s first ever proof-of-concept centers. This is the best practice which I learned from various U.S. universities, and their experience during the previous five years.
The proof-of-concept centers test the commercial viability of new discoveries and assess their market value. So, when you meet with angel investors, corporate partners or venture capitalists, you can speak with some level of intelligence as to what the real value of a technology will be to future market buyers.
Most Russian academic professors have little understanding of the commercial value of their ideas, and this can be the case with scientists from anywhere in the world as this is how scientists are trained to think and assess their ideas. This is quite normal. They are not prepared for these conversations and they can hardly be expected to speak directly with any investors as they don’t know how.
What they understand is the world of fundamental science research and grant applications – but that’s not what business angels want to hear about. Angel investors don’t want to give grants to projects—they want to invest in real companies that are going to produce a future value and return on funds invested.
So, we helped create a portfolio of 25 different new spinouts in the university, and then brought a number of these companies to the University of Maryland.
RD: What goals did you achieve by bringing Russian companies to the University of Maryland?
K.W.: Well, we went to Maryland in order to collect data on the U.S. and other international markets. We paid the University of Maryland to help provide us with market research on the new technology trends in America and globally, as the University of Maryland is one of the top universities in the U.S. in technology commercialization. Unfortunately, such detailed research is not available in Russian universities as they currently do not have enough budget to buy the various kinds of market research reports, which any Western university already has ready access to.
The University of Maryland invests millions of dollars per year to buy fresh market research from the top consulting companies in the world in order to constantly update its comprehensive databases. And all of their students and professors have free access to those databases.
But in Russia we don’t have that, and few universities or students spend time to really understand where to position any new technology discovery. Today’s researchers and principal investigators need to look at the whole world, not just at Moscow, and to thoroughly review global patent search materials in English, not only desktop research through free of charge sources which cannot possibly offer a detailed review of market opportunities.
Summing up, the University of Maryland helped us understand how to adjust our own projects’ business models and to understand what the market in the U.S. wanted from our new Russian technologies. So, we were able to take this valuable information and bring it back to Russia and to further develop our Russian spinouts, with the university having equity stakes in each of these. Following this, we then made new business models and investment proposal for our Russian investors, inviting them to support these projects.
RD: To what extent will the tech transfer model be able to fulfill its goals: commercialize universities’ ideas / research, attract foreign investors and prevent brain drain?
K.W.: If we don’t do something in Nizhny Novgorod to keep our young brave scientists here, they are going to leave and seek out success elsewhere. And that is natural; if someone is young and smart and full of ideas, and has a PhD in physics, he or she will surely leverage these ideas in order to make money and improve his or her personal family life.
That’s the bottom line. Young people anywhere in the world want flexibility and mobility and the freedom to be able to make money, so they can relocate anywhere in the world to find a place that allows them to make the most money.
What we want to do at Lobachevsky UNN is to make our own innovation ecosystem as attractive as possible to help those students and professors to create and develop their businesses in Russia. We are working very closely with local and national business angel community and the international business community, and most importantly, we are reaching out to Russian industry to seek out partners and investors for our projects.
Also read: "The key factor in Russia's innovation future: Trust"
We are actively trying to talk to business people in Nizhny Novgorod, and our goal is to connect the university with businesses, whether it is international business or national level business or local level business.
RD: Could you give a specific example?
K.W.: In a bid to formalize professional and transparent relations with business, earlier this year our university formed an Industry Advisory Board and invited prominent local companies, like Intel Corporation, which has a large operation with a thousand people in Nizhny Novgorod. They joined and became one of the founding members of our Board. We also worked closely with companies like LG and Samsung that are also very interested in Russia and, particularly, Nizhny Novgorod.
We also invited other companies, including Bosch, Virgin Connect and Johnson & Johnson. We are simultaneously in the process of inviting Russian companies as well, but for some reason this process is harder to formulate. So, in my view, Russian universities should be ready to work with any legitimate production generating business in order to help provide directions and assignments for scientists to consider.
RD: Yet some Russian professors are very reluctant to work with business and prefer to focus on either theoretical or fundamental science. Moreover, traditionally they see those academics, which actively deal with business as a sort of “apostates.” How to persuade them that connecting business and academia is vital for Russia’s universities?
K.W.: Working with business doesn’t mean that all of the scientists at a university have to drop what they have been doing, and start working on business ideas. Not at all, that’s not what I am saying.
Maybe, 80 percent or more of scientists and professors are going to work on fundamental scientific research and national security projects funded by the Russian government. That’s absolutely fine; it is the same for other countries. But there is always going to be some percentage of graduate students and professors who want to focus on their careers and make money from business driven products. And the university has an obligation to create a system, so that they can do that, because if we don’t create this system they simply will leave [the country]. Not only in Russia, but all over the world modern universities are all facing these same challenges.
In the United States, university professors are encouraged to do business; they are rewarded if they form business partnerships. Sometimes they are even expected to show their results in new product commercialization in order to achieve tenure track career development. Not all American universities have this policy, but many are now encouraging their professors to create partnerships with business. After all, that’s where more and more funding is going to come from, as state and federal government funding becomes tighter and tighter.
In the U.S., funding from the government is not going up and up, as it used to. It is going down. In this situation, universities have been developing independent relationships with businesses, because the government can’t pay for all the research that needs to be done.
In addition, modern university students and researchers in the U.S., for example, don’t always want to work on the research ordered by Washington—they want to work on science projects funded by Google, or robotics projects funded by Uber or other major corporations. So, what I was trying to do at Lobachevsky UNN is to look at global trends and help our university to better understand these trends and adapt their programs to the changing global conditions and expectations and realities in our modern globally interconnected world.
RD: What are these global trends, from your point of view?
K.W.: Look at the Chinese. They have now increased the number of students who studied in America. Over 700,000 students from China are sent to America to study each year, and that is a 25 percent increase over the last two years.
So, China is actively studying the American technology commercialization model and when their students return, they use their knowledge to build their own innovation ecosystem. Within the next 10 years China is going to be a top leader in the global economy. Russia needs to look around the world for best practices just as the Chinese are doing now.
RD: Given the current economic crisis in Russia, to what extent is it reasonable to rely on the government to tackle Russia’s innovation challenges?
K.W.: You can’t exclusively rely on the government. That model doesn’t work anywhere in the world. The state capitalism model is in competition globally with other forms of capitalism, this is obvious. But it’s not the most efficient form of capitalism as competition is not encouraged, which severely limits the necessary investments into the constant modernization which modern industry needs in order to compete on a global scale.
RD: So, what does Russia need to do?
K.W.: Russia needs to create an innovation-driven economic model to diversify its overall economy. This is absolutely clear from any economic perspective. A diversified economy is what is going to bring success in the 21st century. So, the Russian government should encourage universities to become more independent and make their own self-sufficient relationships with businesses, both locally and internationally.
If Russia doesn’t do this now, it will become even more dependent on oil and gas, remaining an outdated commodity-driven economy. This is an old model and it doesn’t work now. Russia has a capability few other countries in the world have—it has the ability to be very creative and develop new fundamental science discoveries. But Russia has rarely been able to leverage these discoveries into real commercial products which can win global markets.
The leaders of the country should ask themselves: Why does this problem linger for years? The answer lies in the need to urgently modernize Russia’s great universities and use global best practices in technology transfer and commercialization which is what I and the whole top management team at Lobachevsky UNN have been working on during the past few years. Today, we have succeeded in developing a new model which is open and available for any other Russian university to review and adapt as they see fit.
If Russia closes itself and decides that it doesn’t want to collaborate with international partners, what can help advance Russian science in its development? In today’s world, every student clearly understands that cross-disciplinary scientific collaboration is the only way to come up with real world solutions and new products which people can use to solve their problems.
If you want to create a solution to a problem, you have to find right partners, and these partners are most likely not sitting next to you in the same university between one biology department and one chemistry department. The people to collaborate with are people working on the same sort of problem you are, but from different angles. And they could be at another university in Russia; they could be at another university in China, or in America, or Singapore or Israel.
If the government doesn’t encourage that [open collaboration between universities and partners], it is not going to happen by itself. And if it doesn’t happen, Russia will continue to be an oil-dependent economy. But that type of economy is inherently unstable and highly cyclical. As the global commodity prices go up, the government can make a lot of money; as they go down, the country’s budget suffers.
RD: So, getting rid of oil dependence is a big challenge for Russia. What other challenges hamper Russia’s attempts to modernize its economy and innovate?
K.W.: The lack of transparency. Very often companies send their technology broker representatives into universities. They identify some technology and buy it very cheaply for cash. In this situation nobody wins, because these companies don’t actually get the best technologies, the professors get small amounts of money, and the university is hardly likely to get anything at all.
It is first and foremost necessary that any university first assess the commercial value of any new technology discovery and then negotiate with potential buyers or investors to get the best valuation for the technology. To take a leading position in the global innovation economy—and I firmly believe that this country can do this and become a strong economic power able to work on equal terms with any partners in the world—Russia first needs to better understand how to maximize the value of its intellectual property—and that has been one of our primary goals at Lobachevsky UNN.