In Moscow Today, Entrepreneurs Not Oligarchs

by francine Hardaway on June 23, 2014

It took several days to penetrate beyond the Moscow of the tour guide to the Moscow I wanted to see — the one of the Muscovite entrepreneur. Having read about opportunities and fast growth in the BRIC countries, it was hard to believe Russia was last on my list. I’d already seen the enormous energy in Brazil, India and China, further away but not tarred with the Cold War brush that still makes it unattractive as an investment to many Americans.
Fortunately, we were able to get a meeting with a former NBC journalist who has lived on and off for two decades in Moscow and is now the communications strategist for Russian Standard, a major consumer brands company.He characterized Russia as a country in which things are allowed to get to the brink of disaster and then are suddenly fixed. The taxes were impossibly high, and suddenly Putin imposed a 13% flat tax, lowering them for just about everyone. Life expectancy in the country was in free fall, and suddenly a number of measures, including seatbelt laws, a dramatic increase in traffic fines, smoking bans and restrictions on alcohol advertising — all contributors to Russia’s demographic crisis — were implemented and quickly began to restore population growth.

Russian Standard was founded at the end of the Cold War by Roustam Tariko, then a young entrepreneur who realized he could make money by booking Italian tourists into Russian hotels and importing and distributing Italian consumer brands into Russia. Twenty-five years later, it is now the largest consumer brands company in the country and expanding over Eastern Europe. Its vodka is all over the world. Like any good entrepreneur, as opportunities presented themselves Tariko embraced them, and he also founded a bank that made him a billionaire. Because he was in the right place at the right time (young and entrepreneurial at the moment Moscow opened its arms to the west), opportunities presented themselves to him the way they always do in emerging economies. Roustam’s story is exciting because he’s not an oligarch in the sense we know the word — a friend of the government who made his money by receiving privatized government assets — but a man who built the assets from nothing by himself, like a classic western entrepreneur.

I also met Alexander Frolov, a young Russian VC with Target Ventures, who after several years of working in London had returned to Moscow to invest in later stage companies. Frolov told me that there was a lot of pure scientific research going on that can’t be productized, a holdover from the Soviet era when scientists were paid very well to do research in anything they wanted. As a consequence, most of the billion dollar Russian companies are not in science or pure tech, but in natural resources or consumer brands. Yandex is the obvious exception.

Frolov also told me there’s a big generational difference between Muscovites who grew up in the Stalinist era of isolation and the younger connected generation who face Europe. Every Russian mother now knows that if she wants her child to be successful, he or she must speak English and it is taught in the schools. Most engineers speak English, and there are several successful software development companies that provide engineering resources Europe. But since Moscow is very expensive, many of these companies maintain only a sales office there, with their development teams in the “country” where’s it’s cheaper.

I asked about the sort of Russian criminal business mentality that we read about in American media, and they both said they don’t see it; Russian streets are generally safe and the crime rate low. Although we read about hackers and Russian Mafia rings, these are not a part of daily life for average Russians or foreigners living in Russia. Frolov did say that Russians are true to their words, and that even the Mafia had its own code of ethics.:-) Frolov also referred to Russians as “creative,” with a talent for workarounds that has grown out of living in less than ideal conditions. This talent, which we might label “hacking,” sometimes gets in the way of delivering quality, although the country is working on that.

The former journalist characterized Russia as a country in which things are allowed to get to the brink of disaster and then are suddenly fixed.

Like most stories, that of Russia is not black and white. The United States, because of its historical stance and its awkward relations with Putin, who has very high approval ratings, may have missed many opportunities to invest there because our policies blow hot and cold. In contrast. there appears to be a regular commute for young people between London’s financial center and Russia’s, and much exchange between the two entrepreneurial communities.

In contrast, Alexander the VC told me that one of the companies in his portfolio had been about to be acquired by an American tech company wanting a presence in Russia when the American government imposed sanctions on Putin and the deal fell through. The company was afraid of “appearances” if they went through with the acquisition under current political conditions. I was surprised, and first said I thought most American companies would do a good business deal despite cool political conditions, because our government leaves us a great deal of freedom to conduct business anywhere.

But then I found myself wondering: how much do I really know? The large expat community In Russia working for American corporations is usually the first to feel the brunt of US political conditions. If I had more time, they’d be the people i’d ask next. Anyone with more information, please let me know.

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