Russia's Bad Boy Hunts for U.S. Tech Treasure
By Stepan Kravchenko and Olga Kharif
“Chubais is to be blamed for everything,” a popular Russian saying of the 1990s went. In the first post-Soviet decade, economist Anatoly Chubais helped organize the controversial privatization schemes that created Russia’s oligarchs while most Russians sank into poverty. Now, Chubais, a consummate insider who ran the electricity monopoly under Vladimir Putin (after serving as finance minister and first deputy prime minister under Boris Yeltsin), collects jokes about himself on his website. He also has access to billions in state funds to spend on cutting-edge research.
Chubais runs the government-backed RUSNANO, formerly the Russian Corporation of Nanotechnologies, and part of his job is acquiring stakes in R&D firms in Europe, China, Israel, and especially the U.S. “Luminaries in science work for these American companies,” says Chubais. The companies that accept RUSNANO funds must transfer their technologies to Russia, build laboratories there, train local scientists, and in some cases give Russians patent rights for the products developed. This fall, BIND Biosciences and Selecta Biosciences, two U.S. biotech companies, will open laboratories in a technology park near Moscow, becoming the first American enterprises to start research in Russia in cooperation with RUSNANO.
Russia imported high-tech ideas from the West during the Soviet era. “We had no transfer and no technologies in the 1990s,” says Andrei Fursenko, a former education and science minister who is now a scientific adviser to Putin. Today, “it’s no secret we lack finished scientific projects,” he says. “America is like a vacuum cleaner, absorbing innovations, part of which were made by our compatriots who emigrated to the U.S.”
Since mid-2010, RUSNANO, founded by Putin in his second term as president, has invested $1.3 billion in 18 U.S. high-tech projects. An additional 152 U.S. companies have applied to RUSNANO for funding. “It is Putin’s child,” says Fursenko. Putin gave it an initial budget of $5.2 billion for 2008–15 as well as access to billions more in state-guaranteed loans. Fursenko says he had been talking to U.S. officials and companies about technology transfer since 2002. That process resulted in a “signal that they don’t object.”
RUSNANO now works with well-known U.S. venture funds, such as Draper Fisher Jurvetson. “For me, Chubais was a representative of a new generation who behaved as American businessmen,” says Managing Director Alexandra Johnson, who came to the U.S. from Russia in 1990.
The first direct investment in a U.S. company took place in March 2011, when RUSNANO paid $4.5 million for a 29.7 percent stake in BiOptix Diagnostics, a Colorado-based producer of biochips for drug tests whose technology was developed by Nobel laureate John Hall. Other American deals include Cleveland BioLabs (CBLI), which hopes to conduct cancer drug trials with the Russians; the labs for BIND and Selecta, both of which were co-founded by Robert Langer, a prolific inventor in the medical field; Quantenna Communications, which develops chips for Wi-Fi video networking devices; and NeoPhotonics (NPTN), which works on voice and video transmission technology for clients such as Alcatel-Lucent (ALU).
Although Chubais is in the U.S. at least once a month and peppers his Russian with English-language management terms, the U.S. companies RUSNANO courts had to educate the Russians about how business is done in America. Michael Fonstein, the Russia-born co-founder of Cleveland BioLabs, wrote a proposal for RUSNANO in 2009 and “a mutually painful learning experience” began, he says. RUSNANO insisted that as a state-controlled corporation, it couldn’t lose money on its investment. “We had to tell them: Guys, there is a potential of losing everything or winning very big. That was not easy for them to understand,” Fonstein says. RUSNANO signed an agreement with BioLabs in 2011. Of Chubais, Fonstein says he has “a direct phone line with the Czar. You can’t have an ally in a better position than he is.”
Other U.S. executives have made an extra effort to work with RUSNANO as well. Sam Heidari, chief executive officer of Quantenna, has visited Moscow six times to “make sure things are going right.” RUSNANO has pledged up to $40 million for Quantenna. "They had the whole package-the size of the check, and they have visibility in that part of the world,” Heidari says.
One factor in RUSNANO’s deals is the continued goodwill of the U. S. Committee on Foreign Investment (CFIUS), the watchdog over strategic American assets. “We are now reviewing some projects we’ll have to get CFIUS permission for,” Chubais says. He doesn’t rule out potential misunderstandings with American officials, calling it “a risk that exists in every country. We clash over Syria and make up over Afghanistan, but I don’t expect an overall worsening that could put a brake on our projects.”
The bottom line: RUSNANO has invested $1.3 billion in 18 U.S. companies that agreed to tech transfer deals or joint ventures in Russia.
Source: Businessweek, August 23, 2012