27 Even so, funding for early-stage companies or initiatives is largely – if not entirely – lacking in Russia. Early-stage investing, as practised in some advanced economies, involves angel investors, spin-offs and spillovers from multinational firms and remains largely absent in Russia. Addressing these deficiencies will depend, above all, on confidence on the part of potential innovators that funding will be available throughout the cycle, as well as on innovators’ ability to reliably derive rents from their innovation. Patent protection and the ability to enforce contracts play a central role in this regard. In neither case is the situation in Russia particularly supportive. Similarly, for potential investors to enter and engage in early-stage financing requires adequate investor protection and an ability to reap returns over a number of years. The same deficiencies in the business environment have materially affected the willingness of investors to enter the market. Fifth, a cornerstone of innovation policy in Russia has been the decision to give public agencies a strong direct role in the allocation of funding. Rusnano and other initiatives such as RVC are the most obvious examples in this regard. These initiatives will need to be managed carefully in order to avoid the many risks associated with government involvement in venture funding. These include a lack of transparency, the introduction of multiple objectives, weak governance and the risk that the priority sectors chosen by the government may not, ultimately, be the sectors where national comparative advantages develop most naturally. (To its credit, Rusnano has recently worked to address these risks by strengthening its governance, seeking foreign co-investment and taking a very broad view of what qualifies as nanotechnology.) Furthermore, in line with other countries’ experience of government finance, the profile of the companies that these funds actually support may potentially be skewed more towards relatively mature, low-risk activity, rather than truly innovative activity. Hence, this type of government support might be perfectly consistent with commercial viability, without necessarily addressing the perceived innovation shortfall. Sixth, there has been a broad and protracted debate about the merits or otherwise of governments using industrial policy, including the use of government-supported finance. 28 As we have seen above, there are indeed instances in which government finance has proven to be a successful catalyst supporting innovation and, in particular, the growth of a venture capital industry. But for every Israel, there are countless examples of countries that have tried and failed to use and manage public resources in the service of innovation and/or diversification. Thus, while it is clear that a theoretical – and even a practical – case can be made for public intervention, this has to be 26 The World Bank (2011) offers a comprehensive discussion of these issues. 27 See, for example, the discussion in GEM (2010). However, while financing is cited as a significant factor
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