This content is from: Portfolio

Dodging Geopolitics, Russia’s Skolkovo Tech Center Evolves

The technology incubation campus outside Moscow has retooled itself in the face of challenging times and a changing political scene.

John Tefft, the U.S. ambassador to Russia, does not deliver many warm ceremonial speeches these days. He did get a chance to dust off his ribbon-cutting skills last month at the opening of Startup Village at the Skolkovo Innovation Center outside Moscow, also known as the would-be Russian Silicon Valley. “I’m here today to testify to the continuing interest of the U.S. in this project,” Tefft said. “Skolkovo has played a very positive role in encouraging businesses, and much more lies ahead.”

Skolkovo is the brainchild of another time — the short-lived era of then-President Dmitry Medvedev’s “modernization” and President Barack Obama’s “reset” of U.S.-Russian relations — and struggles to remain relevant in very different conditions five years later. Breaking ground in 2010 on vacant farmland abutting the Moscow ring road, the center was meant to symbolize Russia’s march from commodities dependence and act as a magnet to the world’s technology elite, most of it American. The Massachusetts Institute of Technology signed up to codevelop a graduate university known as Skoltech, which handed out its first diplomas this June. Microsoft Corp., IBM, Cisco Systems, Intel Corp. and Johnson & Johnson headed an A-list of corporations promising to turn Skolkovo into a global hub for research and development.

MIT, which is receiving a reported $300 million for its intellectual input, remains enthusiastic about Skoltech. “MIT is excited about this collaboration, which is off to a good start and attracting excellent students and faculty,” says Bruce Tidor, MIT professor of biological engineering and computer science and the faculty lead for the collaborative project.

Corporate partners offer similarly warm words. “We are very optimistic about the opportunities that lie ahead,” said Alexey Palladin, senior director at Microsoft’s headquarters in Redmond, Washington, after a meeting at Skolkovo last November, as Russia’s confrontation with the West was heating up over the annexation of Crimea and alleged fomenting of armed rebellion in eastern Ukraine. “Skolkovo has now created critical mass to support a new entrepreneurial spirit.”

Promised big-ticket investments have so far failed to materialize, however. Microsoft agreed in 2012 to put an R&D center on the ground by 2015 employing at least 100 researchers. The complex remains on paper, although it would not violate any of the Ukraine-related sanctions imposed against Russia by the U.S. and European Union. Cisco similarly committed to a $1 billion investment in Russia, with Skolkovo as its centerpiece; its most visible, real outlay has been sponsoring a 5.25 million ruble ($91,000) innovation prize.

The Russians nearly killed off Skolkovo themselves in 2013, after Vladimir Putin resumed the presidency and Medvedev was demoted to prime minister. Heavily armed police raided the center’s offices to arrest two senior managers for corruption, scooping up a visiting Intel executive in the process. Budgetary funds were withheld while the federal Audit Chamber combed through the innovation center’s finances. The graft charges were later reduced, and friends of Skolkovo describe the incident as “a personal vendetta of the kind common for Russian law enforcement.”

But Skolkovo regrouped with a fresh promise of 136 billion rubles in Russian government funding to spend for the rest of this decade. As the Startup Village festivities indicate, the project is also rebranding itself as a backer of Russia’s considerable domestic tech ferment. “Skolkovo never claimed to be Silicon Valley,” says Kirill Kaem, director of the center’s biotechnology cluster and informal liaison with its multinational friends. “We are trying to build entrepreneurship on the foundation of Russia’s basic science achievements.”

By that metric, he reports considerable progress. Skolkovo is already funding more than 1,000 start-ups, which employ a total of 15,000 people. The project’s physical infrastructure is materializing after the 2013 delays. Most of the central Technopark will be completed this year, while private oligarchs, including oil magnate and Chelsea Football Club owner Roman Abramovich, finance massive housing complexes in the neighborhood for Skolkovo’s anticipated intellectual elite.

Skolkovo owes much of its vitality to another ex-Soviet billionaire, Viktor Vekselberg, a doctorate-level mathematician turned oil and metals tycoon who has headed the Skolkovo Foundation, the project’s administrative and funding center, since its inception. “Vekselberg is trying very hard, recruiting competent young managers with MBAs from Harvard and who-knows-where,” says Dieter Bimberg, a professor of physics at Technical University of Berlin who sits on Skolkovo’s Scientific Advisory Council. (The co-chair is Roger Kornberg, a Nobel Prize–winning chemist at Stanford University’s medical school.)

Kaem himself fits this mold. Trained as a medical doctor in the late-Soviet period, he earned an MBA at Taylor University, an evangelical Christian institution in Indiana, then ran two health care–related start-ups in Moscow before joining Skolkovo after the troubles of 2013. “I came because I’m a believer, and I can be more creative here than in a corporate environment,” he says.

The reality of Russian bureaucracy does intrude on Skolkovo’s vision of a humming national venture capital fund. “The application forms are so complicated to fill out that many companies give up,” says Katia Gaika, who recently resigned as deputy director of Skolkovo’s information technology cluster to start an online platform for charitable giving. She insists that the selection process is transparent and merit-based, though, and advisers from the likes of Microsoft and IBM are available as “potential clients and mentors,” even if their organizations are delaying brick-and-mortar investment.

Bimberg applauds Skolkovo’s shift away from “Potemkin village dreams” of a Kremlin-devised Silicon Valley. A more realistic but quite worthy model, he says, is Adlershof, a technology center German authorities nurtured in postreunification East Berlin that is now home to some 1,000 companies partnering with nearby Humboldt University.

Skolkovo is not the only island within the Russian state trying to maintain the cooperative paradigm of modernization against a background of confrontation and nationalist revival. State-owned investment firm Rusnano, launched in 2009 by the reformist politician and state manager Anatoly Chubais, and development institute Russian Venture Co., run for the past six years by Microsoft veteran Igor Agamirzian, are tilling similar treacherous ground, Kaem says.

The outside world is not betting on their success but for now wishes them well. “I am quite open about disagreeing with Russian policy on Crimea and Ukraine,” Bimberg says. “But building Skolkovo is better than Russia building missiles.”

Although it has curtailed some of its grander ambitions, Skolkovo remains an island of hope for a future Russia that could nurture its intellectual gifts in a soil of international amity.

Get more on emerging markets and on trading and technology.

Related Content