''There are venture funds that were large but ceased to exist''

Stanford Professor discloses the secret of Silicon Valley

''There are venture funds that were large but ceased to exist'' Photo: kpfu.ru

Ilya Strebulaev, Professor of Finance at Stanford Graduate School of Business, has recently given a lecture ''New trends in Silicon Valley and innovations'' in IT Park, Kazan. The economic observer of Realnoe Vremya Albert Bikbov, who attended the lecture, liked the general and therefore easily comprehensible to a wide audience speech. After the lecture, the journalists had an opportunity to ask Mr. Strebulaev several questions.

Valley alone provides 5.7% of GDP

Ilya Strebulaev, who has been a Professor of one of the best universities in the world for 13 years, is quite an interesting lecturer. Not least because he knows the subject of the lecture profoundly as he lives and works in the thick of one of the most creative places in the world. In his quite general lecture, Professor told Kazan entrepreneurs about the role of venture capital in the development of innovative economy and what the phenomenon of Silicon Valley is, that has become a symbol of high technology and free enterprise.

Silicon Valley in California is an embodiment of the word ''innovation'' in the whole world. Corporations such as Apple, Google, Twitter and other thousands of other innovation companies arose here. The most financially successful ideas are born here. Today's overall share of Silicon Valley in the economy of the USA is 5.7% of GDP. It is known as the land of the most venturesome, breakthrough and as a result hyper-successful brands. Until the 1970s Valley included only the university campus, famous Stanford. Strebulaev highlighted that it is the university that has given an impetus to such a rapid technological and economic growth in the region, having become the supplier of specialists and developments and it created the fully-fledged economic cluster.

Ilya Strebulaev told about the most important technological fields that are being developed in Silicon Valley. Photo: sntat.ru

Silicon dead clones

Many countries dream of a Silicon Valley. Is it possible to replicate such a unique eco system? Many governments explain the phenomenon of Silicon Valley by state idea and state funding alone. As a result, we have a full range of failed clones in Europe, Asia and Latin America. And a number of dead is increasing. The most important problem, in his opinion, of most attempts to replicate Silicon Valley is an absence of financing chains with attraction of venture capital. Innovations should develop at private money and there should be a special attitude to risks.

In his lecture, Pr. Strebulaev disclosed some secrets of success of the eco system of Silicon Valley. In particular, he told about how promising business ideas are selected and financed, how entrepreneurs compete with each other in order to attract investors, and why American start-ups are always ready for a possible fail as an impetus for further development. Ilya Streulaev urged our entrepreneurs not to be afraid of fails.

World trends

Ilya Strebulaev said briefly about the most important new technological fields developing in Silicon Valley:

— Electric cars. For example, according to scientists at Stanford University, by 2040 there will half a billion electric cars in the world, and in a few years we will not have to get a driving licence, all cars will drive themselves. They will learn to assess a road situation wisely.

— Drones. Unmanned aerial vehicles.

— The Internet of things.

— Distance education.

— Robotization. Many processes will pass under the control of technologies, but it does not mean that people will remain out of work. We will manage the machines, control their interaction.

— Medical startups, genomics. Personalized medicine, sport, when any pharmaceutical or physical exercise will be really designed for each person individually.

— Big Data.

''Tatarstan has a chance to create a project that is equal to Israel one or Silicon Valley. But you need to take into account issues of private and public funding and be prepared for the fact that failures are inevitable.'' Photo: sntat.ru

''Look at the giant, Sberbank, it is very innovative, but at the same time, it is a state-owned company''

After the lecture, Ilya Strebulaev answered the questions of the journalists:

Here, in Tatarstan, we are working on creating a Silicon Valley, the project of Innopolis. Do you know this project?

I don't know much about Innopolis, Minister of Informatization and Communications of Tatarstan Roman Shaikhutdinov held a small presentationof it. But what I heard it already made an impression. I am glad that the government of the Republic really has a desire to develop, to act and not only promise. The transformation of Innopolis from an ambitious regional project into a global IT center requires private investments. When a decision to invest in particular startups is taken by only officials, it leads to nothing. The main problem in the attempts to create a Silicon valley — absence of chain-financing with attraction of venture capital. It is money of large companies that are ready to take risks. Known today Facebook, Google and others were developed under that scheme. Mentors are also required for a qualitative development. Their role can be successfully fulfilled by investors. In this case, they should not be confined to investments, they should also monitor processes, to seek human capital. It is what you should pay attention to when developing a center such as Innopolis. Such innovation ecosystem can hardly be created without a university. I have been pleasantly surprised that Innopolis is trying to develop it. Yes, of course, there are questions how to do it, but the idea is right.

Is it right that the whole Innopolis together with the university and startups are being created in artificial, not evolutionary way?

Such projects are created this way, and that's normal. In Israel, such platform was created artificially, this was done by the state, but they withdrew from it on time. Now it does not sponsor technology, private investors do this. Tatarstan has a chance to create a project that is equal to Israel one or Silicon Valley. But you need to take into account issues of private and public funding and be prepared for the fact that failures are inevitable.

Do you consider a high level of monopolization of the Russian economy and its nationalization when the share of state companies in the economy reaches 70-75% compatible with innovative development?

In general, I am not a supporter of state-owned companies and those that are monopolies. Again, I'm not an economist of the general plan, but still I'm saying that usually state-owned companies are inflexible, although they have a good financial base. But there are exceptions — look at the giant, Sberbank, it is very innovative, but at the same time, it is a state-owned company. Although maybe it depends on the character of their extraordinary leader.

''There are funds that were very famous and large, and they ceased to exist. But there are also new funds that are just starting to show tremendous results. For successful major funds, the secret lies in the quality of the management team.'' Photo: kpfu.ru

''There are funds that were very famous and large, and they ceased to exist''

Common law system, this system of Anglo-American law, does it really play an important role in innovation support? Do we need to create in Russia a special zone or reservation where the system will operate? In Singapore, at first, they did this, they even sued in the High Court of Justice in England...

Yes, in general, the Anglo-American legal system promotes innovation for various reasons. But the creation of special zones, in which this system will operate, it's still a question of the reputation of the whole country, which is little acceptable.

There is a number of very large investment funds specializing in venture investing, like Kleiner Perkins Caufield & Byers and Sequoia Capital, which manage to ''beat the market'' over long distances, to show stable profitability. What is their secret?

It is not exactly like that. There are funds that were very famous and large, and they ceased to exist. But there are also new funds that are just starting to show tremendous results. For successful major funds, the secret lies in the quality of the management team who is very well versed in the quality of startups. It is also important that these funds are not on state funding, they are private. The scale is also important, the closure of one or more failed startups for such funds is not fatal because they have hundreds of other projects, among them someone will definitely succeed. Besides, they always have promising start-ups, there are very good projects under their names. It is a very big advantage.

Now crowdfunding platform based on blockchain technologies are developing. Do they have a future?

Yes, blockchain technology will change not only the market of crowdfunding. Blockchain will change the entire financial system, the entire economy as a whole. German Gref, saying such things, is right.

Thank you!

By Albert Bikbov