By Yuliya Chernova
Twice a week, Andrey Zyuzin leaves his main office at Cisco
Systems Inc. in the center of Moscow to work out of one of Cisco's
outposts in a futuristic building on the city outskirts.
By now, Mr. Zyuzin, director of corporate affairs at Cisco
Russia, was supposed to be working full time in the
government-funded Skolkovo technology hub. Instead, the foundation
of the building that will contain his future office is just being
laid.
"There are carcasses of new buildings," said Mr. Zyuzin of the
view he has from his temporary outpost in the HyperCube--the
27-million square-foot development's only completed building so
far.
Skolkovo was once touted by government officials as a budding
version of Silicon Valley that would help Russia transition from
its oil-and-gas economy and into a diversified, technologically
driven future. Around 2010, foreign venture investors and tech
companies began stepping up their investment in Russia as the
government seemed ready to align with the West.
The atmosphere has changed.
Skolkovo, conceived as a project that would attract a lot of
international investment and knowledge, has faded from the agenda
of the Russian government. More broadly, the interest from the
government in collaborating with the West's technology sector
lessened sharply. Concurrently, the West's passion for Russian
technology sector has also cooled.
The conflict with Ukraine, new laws limiting the freedom of
Internet users and companies, sanctions imposed on Russia, and
official rhetoric focused on disengagement with the West, all have
ratcheted up the risk of doing business in the country.
Western venture firms have sharply decreased investment this
year, choking off funding for startups. Some Russian technology
startups have fled the country altogether.
"We'll never say never, but the bar just went up even higher,"
said Sonali De Rycker, partner at Accel Partners, a Silicon Valley
venture firm that made several large investments in Russia in the
past few years but isn't planning to make any new ones anytime
soon.
Other big firms have followed a similar path.
New York-based Bessemer Venture Partners allocated $20 million
to Skolkovo projects in early 2012 to spend over the following two
years but has spent none of it. Brian Feinstein, partner at
Bessemer, said that the firm hasn't found the right opportunity in
Russia. He stopped attending Skolkovo investment advisory board
meetings last year, because the trips to Moscow no longer fit his
schedule, he said. Mr. Feinstein said Bessemer will continue
evaluating investments in Russia.
European firm Index Ventures, meanwhile, didn't take part in a
$150 million funding round earlier this year for e-commerce company
Ozon Holdings Inc., which has been called "Russian's Amazon," after
investing prominently in earlier rounds.
As for Skolkovo, construction has been delayed. HyperCube, the
futuristic building where Cisco's outpost is located, opened in
2013, and remains the lone active structure around. Original plans
called for about 10,000 people to work and live in Skolkovo by the
beginning of this year, but for now there are just 2,500, all
commuters.
Startups that accepted Skolkovo grants--roughly $400 million so
far, allocated to 259 companies--were required by law to move into
offices there by the start of 2014, but when it became clear that
their offices wouldn't be ready by then, the law was amended to
change the deadline to the start of 2016.
Skolkovo's price tag rose from $4 billion to $8 billion, and $2
billion is still needed from private investors to get the main part
of the project done, said Anton Iakovenko, general director for
ODAS Skolkovo, a group responsible for the hub's construction.
Mr. Zyuzin said Cisco remains committed to Russia and to
Skolkovo.
More than construction delays, though, the idea of technological
reform and cooperation with the West now seems to be set in
reverse.
Back in 2010, when then-President Dmitry Medvedev visited
Silicon Valley to meet with tech companies such as Apple Inc. and
Google Inc. and tout the Skolkovo project, he spoke of cooperation
between the countries, of Russia being "eager to be an open
country" in terms of investment, trade and collaborative projects.
Russia needed to learn from the American experience, he said.
That talk contrasts with recent comments by Vladimir Putin--who
again became president in 2012--calling the Internet a CIA project
and criticizing Yandex NV, Russia's biggest online search company,
for having European and American representatives among its
managers.
"The new idea is disintegration [with the West]," said Serguei
Beloussov, who has started several technology companies in Russia
and is an investor at venture fund Runa Capital. "This project
doesn't jibe" with the new politics and is no longer a major
priority of the government, he said of Skolkovo. One of Mr.
Beloussov's companies, Parallels, has received a Skolkovo grant
valued at $5.5 million, and is set to move parts of its operations
to the complex once it is completed.
Vasily Belov, senior vice president for innovations development
at the Skolkovo Foundation--a nonprofit overseeing Skolkovo's
development--played down the recent upheaval.
He said Russian investors in August were due to close four
rounds of venture-capital funding in startups that accepted
Skolkovo grants, which he said was similar to last year's
numbers.
Several laws that passed in recent years have made technology
companies feel unwelcome in Russia, some entrepreneurs and
investors say. One allows the government to ban websites with
objectionable information; another, which passed this year and has
yet to be implemented, would require Russian Internet user data to
be stored on servers located in Russia only.
As a result of the changed circumstances, some Russian startups
and venture investors have packed up and relocated out of the
country, and others are considering that option.
In May, Alexey Sheremetyev, the founder of home-décor app
Planner 5D, moved from Moscow to Vilnius, Lithuania, in search of
visa-free access to customers and partners in Europe. He said the
situation for startups in Russia has worsened since he moved.
"I feel pressure and the pressure is rising," said Alexander
Galitsky, managing partner at Moscow-based venture-capital firm
Almaz Capital and a board member of the Skolkovo project who is now
exploring moving his team out of Russia entirely. In late July, the
European Bank for Reconstruction and Development, which invested
billions in Russia, including into Almaz Capital, said it was
freezing all investments there.
Anton Gladkoborodov, an entrepreneur who launched several
high-profile startups in Russia, rented a room in an artist's
studio in Manhattan's Chinatown in July and hired two people for
his short-video-creation startup Coub, whose website draws 50
million unique users monthly.
The rest of his team is still in Moscow, but Mr. Gladkoborodov
is strategizing on how to move them too. "Tomorrow the borders may
close," he said in July. "Tomorrow we might start a war with
Ukraine, and by extension the world. Tomorrow, my website may be
shut down...No one knows."
Some investors see opportunities in Russia's startup
slowdown.
"The Russian venture market is down...there's less competition,
and many good projects at good valuations," said Lev Leviev, an
investor and the co-founder of VKontakte, one of Russia's largest
social networks.
Nick Shchetko contributed to this article.
Write to Yuliya Chernova at yuliya.chernova@wsj.com
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