Kickstarting the first Russian-American startup accelerator
A Russian entrepreneur once told me, “Don’t split the bear’s skin before you kill the bear.” I’m still not sure I completely understand the proverb, but what I make of it is this: Always remember to put one foot before the other or you will stumble. Of course, looking where you are going is always a smart thing to do, but when it comes to startups, vision is key. Same goes for developing startup ecosystems. That’s why I was so surprised to see the progression of Moscow’s startup scene into an innovation hub that’s churning out ideas and entrepreneurs — not just dramatic mainstream-media headlines.
When outsiders think of Moscow, they may consider the frigid temperature, bottles of vodka being devoured, and Russian hackers working in super secret facilities like in the movie ‘Goldeneye.’ Well, there may be some truth to the vodka part (I was offered everything from Beluga vodka with black unpasteurized caviar to fermented horse milk and horseradish vodka), but what I experienced in Moscow was something a little bit more surprising.
New-Year wonders in Moscow streets
My wife and I arrived in Moscow at the end of November. The average temperature was around -6°C during my two months stay as the Entrepreneur-in-Residence (E.I.R.) for the Sberbank-500 Startups startup accelerator. The first surprising part was that we rarely felt cold. We are Americans who grew up in Moscow of the Midwest: Minneapolis, Minnesota, so the cold didn’t seem as bad as we were made to believe. Uber, Gett, and Yandex Taxi are readily available (in four types of luxury classes from black car all the way up to Maybach) coupled with an extremely efficient and beautiful subway system that keeps your windchill time limited.
The 500 Startups-Sberbank accelerator program was special because it was the first American-Russian accelerator of its kind and Sberbank [Russia’s largest, state-controlled financial institution with $40 billion in annual revenue and 325,000 employees] spared no expense to introduce the innovative partnership with epic proportions. The office was fully designed and rivaled anything you’d see in Silicon Valley. There were treadmill desks, a six-person swinging conference table, and stationary bikes with laptop stands. Snacks overflowed in the kitchen, scooters zoomed entrepreneurs around the office and conference rooms labeled after famous tech entrepreneurs filled the space. It was impressive, and, to be honest, had more gadgets than most offices in San Francisco I’ve visited.
Harder than Harvard
As an E.I.R., I worked weekly with 15 of the 30 startups that were selected for the program by 500 Startups and Sberbank executive investors. The 30 companies that made it into the program were selected out of 853 applications — a 3.5% chance. That’s harder than getting into Harvard (5.6% chance). These founders were the best and brightest of the Russian startup scene and I had the privilege to work with them.
The founders weren’t intimidating Russian hackers either. That was the second surprise. They were emotionally intelligent, thoughtful, and full of energy. They understood the value of the program and building a bridge to the United States, Europe, and wherever the market is for their business regardless of borders. I never even heard a single political pun or ‘are you a spy’ joke despite the current US-Russian political tensions. After two months together, I would call each founder a friend. They truly made an impact on me and I left a big part of my heart in Moscow.
The third surprise was the early successes of the startups. My companies had an average of $250,000 in revenue in 2018 — that’s USD — with each team holding an average headcount of 14. In Silicon Valley, you often find a startup looking to raise money with just an idea and zero traction. Not here. The scrappy lean startup growth I saw was impressive and it taught me something about Russian founders: They know how to bootstrap growth within an ecosystem that has limited venture capital resources.
From digital health to retail tech
My companies spanned the range of digital health to travel tech, sharing economy to retail tech. I had a company called iBrain who helped stroke victims recover with brainwave technology tied to a software platform. I had a company called MaxBionic that built affordable robotic hands that came with an RDK (robotic development kit). I had companies using blockchain underlying medical information transfer and wholesale fish markets. I even had genomic data marketplace that would secure your DNA and dechunk it to sell or share anonymized pieces to researchers or brands. The technology was exciting and the potential unlimited.
The main challenges for the Russian founders going through the program were how to base themselves in Russia and expand globally while keeping the trust of foreign partners and investors. Dealing with subjective emotions like trust is difficult when it’s out of your control. It’s also taking time for equity structures that reward employees with options and founder-friendly convertible notes that give early stage startups funding with less restrictions to be commonplace — both frequent topics throughout the program. In startup hubs around the world this is a problem, including countries like Australia, but things are changing rapidly and equity incentives around the world are moving closer to the U.S. standard that considers giving your early employees equity in the business as a must.
As I sit in an office in Riyadh, Saudi Arabia kickstarting another 500 Startups program, I find I’m never too far from Moscow. There’s a Russian co-founder that recently flew in from the city of gold domes to work with his Saudi business partner. As I left the office today he whispered, “Paka,” to me seeing if I’d catch the Russian word for goodbye. I hope it’s not too long before I can say, “Privet,” to Moscow again.
Previously published on East-West Digital News.