Russia inherited from the Soviet Union a strong tradition in the natural sciences and an impressive educational system devoted largely to the natural and technical sciences. What it did not inherit from the Soviet period--and what it still does not possess today--is an entrepreneurial and commercial culture capable of turning technical innovations into products that are competitive on the world market. But the painful beginnings of a new commercial culture of high technology, especially for small enterprises, are now visible.
In 1994, the Russian government created the Federal Fund for Assistance to Small Innovative Enterprises ("The Fund for Assistance"). The Fund grants preferential credit (at 50 percent of the standard bank rate) to small innovative firms that are entering the market with high-tech products. Over the past six years, the Fund has supported about 600 projects and has received a rate of return on its loans of between 50 and 70 percent. However, as a governmental foundation, it has been rather conservative and has not supported the most risky stages of innovation.
First Venture Capital Fund
In 1997, the Russian government, working together with the Fund for Assistance, announced plans to create the first venture capital fund, with the government providing 30 percent of the capital as an inducement for other potential participants. In March 2000, the new fund, named "The Russian Venture Foundation," was officially created by presidential decree and given an initial government investment of $4 million. The Venture Foundation will be responsible for developing regional venture foundations. So far, six regions of Russia are participating in this program: St. Petersburg, Samara, Saratov, Nizhny Novgorod, Novgorod, and Tatarstan.
In addition to these new funding agencies, several new types of R&D organizations supporting small innovative firms have also emerged. One of the most interesting, also promoted by the Fund for Assistance, is the Innovation Technology Center (ITC), where small innovative enterprises are housed under one roof. Being in such close proximity, these small firms can benefit both from central services (lower-than-average rent, modern telecommunication networks, information support, consulting services) and also have better protection against crime through a central security service. Today there are 38 ITCs, financed from both federal and local sources (approximately 50 percent each).
However, a number of factors still hamper high-tech business in Russia. These include: underfinancing of innovation, especially by private sources; the underdevelopment of a legal basis for private business; inadequate protection of intellectual property; and the continuing threats of crime and corruption. These obstacles explain why the number of small innovative enterprises in Russia is actually decreasing, from 38,800 in 1998 to 31,000 in April 2000. The ability of the Fund for Assistance to halt this decline is limited by its modest financial resources; in 1999 it provided support to only 245 firms.
In order to assist managers of small firms to overcome the formidable obstacles they face, the ITCs are supplying managerial training, a service also being provided by several foreign or international organizations, including the United Nations Industrial Development Organization (UNIDO), the Technical Assistance to the Commonwealth of Independent States (TACIS), the Eurasia Foundation, and the U.S. Civilian Research and Development Foundation (CRDF, which also helps U.S. companies locate scientists in the former Soviet Union with specific technical capabilities). …