There is an almost total absence of early-stage venture capital (or “angel” investors) in Russia, because venture capital is aimed at assisting business growth at a later stage. Though FASIE<sup>9</sup> provides funding up to Rub 3 million (about US$ 100,000), companies assess the funding gap in the range of Rub 10 million to Rub 150 million (US$ 330,000 to US$ 5 million). Moreover, FASIE’s budget is very limited: it receives 1.5 percent of the federal civilian R&D budget, which amounted in 2009 to Rub 1.34 billion (around US$ 45 million) and in 2010 to Rub 2.55 billion (about US$ 85 million).

Early-stage financing through business angels does not cover the financing gap and is not widely used due to mistrust and lack of an entrepreneurial culture. Though the financial gap can be covered on certain occasions by business angels, their requirement is to acquire control of the spinoff, which from the point of view of the entrepreneurs is often not desirable. The idea of becoming a serial entrepreneur – one who funds a company based on IP, nurtures it and sells it, and later starts again with a new company – is not an idea that Russian entrepreneurs seem to like.

RVC’s seed capital to fund early-stage ventures is not used because the 25 percent co-financing required is hard to obtain for the start-up. RVC launched its RVC Seed Fund in October 2008. Its mission is to invest in Russian innovation-based start-ups promising high-growth opportunities in Russian and foreign IT markets. This Rub 2 billion (about US$ 68 million) vehicle is assisted by a network of venture partners – special entities that have access to academic, technological, and financial resources required for their activities. As of August 2010, the RVC Seed Fund had awarded venture partner status to 58 companies from different regions of Russia. By late 2010, the network included about 100 venture partners. Nevertheless, companies implementing innovation projects at the earliest stages would receive up to 75 percent of the investment required from the Seed Fund, meaning they have to match the remaining 25 percent, which often proves difficult.

# **II.4. Intellectual Property Legal Framework**

Patent applications by Russian scientists – a prerequisite for subsequently commercializing research through licensing and start-ups based on intellectual property (IP) – increased from 2005 to 2009. However, the ratio patent per researcher is much lower than in more advanced economies. The number of patent applications averaged, in 1999–2007, only 0.05 per researcher. The average for the same period in the United States, for example, was almost three times as high, at 0.14.

Patent applications by Russian scientists are often made solely in Russia, that is, there is no protection in global markets which reflects a lack of an international commercialization strategy. In Russia only 4 percent of total applications are registered abroad, against, for example, 26 percent in Korea (calculations based on WIPO 2010<sup>10</sup> ). The large Russian home market, at least in certain product categories, may not push companies to foreign markets, and therefore they feel no need for IP protection abroad (Kaartemo 2009). Yet, truly groundbreaking inventions may indeed have an international market. The proportion of patents filed by foreigners in Rospatent<sup>11</sup> has steadily increased between 2005 and 2009, reaching 34% of total patent applications. While the success in getting the patent granted has increased for foreigners, reaching 67% in 2009, Russian applicants have an even higher and increasing success rate, reaching 92% in 2009 (Table 7). Annex III provides a regional breakdown of patent applications in Russia. Half of the applications are concentrated in the Central Federal District (Moscow), followed by the Volga district (15%). While at the national level most patent applications are filed by

> 9 FASIE is a non-profit state organization, set up in 1994 by the Government of Russia, to implement state policy for the development and support of small innovative businesses

> 10 <u>http://www.wipo.int/ipstats/en/statistics/patents/</u>

> 11 Russian Patent Office

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