It’s hip2b2

I am just finishing a trip to the US. I was fortunate enough to visit one of the most popular places of computer lore … Silicon Valley. Out of our meager dwelling in Palo Alto, we were able to go around and visit new people, companies and places. The biggest names in information technology are just in this area the size (probably a bit smaller) of Metro Manila.

One interesting conversations was about the relationship of venture capital and the academe. It is very clear that part of Silicon Valley’s emergence as a global technology super-area was by virtue of being near such great schools such as Stanford, UCB (and many others) and access to capital. I commented on students in the valley area being very fortunate to around such an environment conducive to innovation (schools) and entrepreneurship (capital). However, a comment in the discussion was that students in the US are not that different from students in other countries (like the Philippines). In the US, a student takes up college and uses the same Linux, Java, PHP, C/C++, vi/emacs and other tools. Of course, there are probably better instructors and access to equipment in many cases. The same tools are being used by students in other countries. So what is the difference?

In this article by VentureBeat, it discusses the emergence of venture capital in Russia.

People in places like the Valley seem to take availability of angel and venture capital for granted, but every tech economy has a jump-start before it becomes self-sustaining.

Pioneering Silicon Valley venture capitalists, for example, got help from the U.S. government’s SBIC program in early 1960s. Other geographies were less lucky. In the last 20 years, other countries began catching up - Britain, Taiwan, India, Israel, China - but not Russia.

A few years ago, it became obvious that Russia’s tech economy was not going to start by itself. Not that the Russians aren’t able entrepreneurs when placed in a proper environment (Brin and Levchin, to name a couple), but in the absence of venture capital, who would build a startup knowing it might consume millions of dollars before even reaching the hope of breaking even?
Lack of success stories in tech and startup culture, coupled with Russia’s booming domestic market sucked all the capital into bricks-and-mortar businesses.

So a vicious circle had to be broken. Last year, Russian government set up a $600 million (RUB 15 billion to be exact) fund of venture funds. Russian Venture Company, as the fund is officially called (for legal reasons, it was structured as a business development company) promised to provide 49% of capital to venture firms that meet its criteria and which raise the remaining 51% of their funds from private sources. This money came with a few strings attached: A firm could capitalize only one fund from the government; funds were supposed to be from $40 million to $110 million in size (again, in Russian currency, RUB 1,2 to 3 billion); funds had to put 80% of funds in early stage companies; all funded companies had to be high-tech. And the tastiest bit: all returns made on government money above 5% or inflation, whichever is greater, go to investors and managers.

Lucky Russians! Seriously, lack of access to capital is a major problem in the Philippines. Aside from this, Filipinos tend to be a careful bunch. There are definitely investors in the Philippines. There are even some venture funds. These people have done a lot to increase access to capital. However, these funds typically expect returns quickly. Also potential Filipino entrepot, in general, tend to be risk adverse and do not really want to go out and setup ventures on their own. There are a number of great Filipino start-ups already. However, it would not hurt to have more right?

There are many other theories. Migs even blogged about starting up. I feel that this “lack of access to capital” is still the biggest stumbling block to building the next great Filipino start-up.

This entry was posted on Friday, June 1st, 2007 at 8:35 pm and is filed under Musings and Speculations. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.