Russia is at odds with some countries like the United States but despite the sanctions, the country is an incubator for a number of emerging Russian startups that the global community should watch out for. Russians are known for overcoming challenges because of their country’s turbulent history. Today that persevering trait has now become beneficial to many Russian entrepreneurs.
Russia, particularly the city of Moscow, is one of the top cities in Europe with a number of fast-growing companies that are privately owned. The city of St. Petersburg comes in second after Moscow. Together, the two Russian cities have quite a number of companies included in the Inc. 5000 list for Europe, accounting for 241 companies in total.
Analysts are saying that if there were no political risks in Russia, the country would be a powerhouse for global startups. Despite the political climate, several companies are already realizing huge revenues, such as Kompaniya Optima, Varmega, Yandex, Flocktory and ZakaZaka, among others.
Risky environment for investors
Ever since Crimea’s annexation, the situation in Russia presented some risks to investors, especially since the European Union and the United States imposed economic sanctions. The situation crippled the venture community as a number of educated citizens went to safer locations such as Paris and the United States, either to establish a business or find work.
In 2012, several investors from the U.S. such as Intel Capital, Accell and Kleiner Perkins (formerly Kleiner, Perkins, Caufield and Byers) were once optimistic about the Russian market. The venture capitalists provided around $400 million in startups in Russia. In 2013, Russian startups did not receive funding from U.S. investors and funds from local sources also dwindled, with some Russian venture capitalists looking for startups in Asia and Eastern Europe instead.
The situation is not helped by the alleged meddling of Russia in the U.S. election back in 2016. The interference of Russian bots on Facebook heightened the perception that Russia is a global hacker, which generally hurts Russian startups. Analysts predict that the tension created by these political situations will not go away soon.
Size does matter
While the political and economic situations pose challenges for the Russian entrepreneurs, the size of the country does matter. Russia ranks as the 9th most populous country in the world, being home to 146.9 million people (2018). Russia is a huge nation, a fact that cannot be ignored. It has 11 time zones. By landmass, it is considered the world’s biggest country, occupying most of the areas in Eastern Europe and extending all the way to northern Asia. Moreover, the majority of its population is highly educated and the rate of taxes in the country is low, providing encouragement to companies who want to have a talented workforce.
Favorable to startups
The factors mentioned above are helpful to other people. Take for example the case of the ‘Buy Me a Pie’ founder, Sergey Bulaev. He started the shopping list app that helps customers track the grocery they purchase. The app likewise generates revenues from the annual subscription fee of $13 and sales from advertisements. Since his company’s launch in 2011, he has earned over 500,000 active monthly users.
Mr. Bulaev specifically points to the low corporate taxes in his hometown in Ulyanovsk, where Vladimir Lenin was born. Today, the city is a promising tech hub.
Russia’s national tax rate is about 24% and regional areas may even slash it by 4%. The Washington, D.C.-based Tax Foundation says that the effective tax rate in Russia is at par with the statutory average used internationally. It is lower than the national tax rates of the U.S., Greece, India and Belgium.
Sergey Bulaev, who worked in the U.S. before going back to Russia to launch his business, added that hiring employees in his country is five times cheaper than hiring workers in the U.S. Silicon Valley. But it should be noted that it is actually less expensive to live and work in Ulyanovsk than in Moscow. The premier Russian city is home to A-listed talents who graduated from top schools such as the National Research University of Electronic Technology, the Moscow Engineering Physics Institute and Moscow State University.
Abundance of technical skills
According to the researchers of Rand Corporation, Russians possess higher technical skills because science and math were subjects emphasized in schools when the country was still called the Soviet Union. These subjects continue to be favored today. Because the country heavily invested in different scientific fields such as missile defense, many of the Russia’s talents received sophisticated training. The global think tank said that mathematicians from Russia are adept at handling complexities due of the defense problems they used to have.
These skills are extremely helpful to Russian entrepreneurs. Moreover, the people are more willing to face measured risks today. According to Mr. Bulaev, the attitude of Russians about entrepreneurship is now changing. More Russians want to launch their own business and putting more thought into it.
Moscow as a powerhouse for emerging Russian startups
The country’s capital, Moscow, is a hub for a number of emerging Russian startups. It is a veritable minefield for academics and people with sophisticated technical and scientific capabilities.
As mentioned, the current economic and political situations in the country make it difficult for startups in Russia to break through the international stage. But Russian entrepreneurs are resilient and persevering. They have ambition and they possess technical brilliance. They are willing to use their abilities for the benefit of the local population while preparing to enter the world stage.
Moscow, which is home to some of the finest institutions of higher learning in the country, is known for its technological and scientific heritage. It has a population of over 12 million people. It has already established itself as a giant tech hub, being the home of Kaspersky Lab, a global cybersecurity company and Yandex, a multinational company dealing with Internet-related services and products.
Further, the city has several startup incubators, such as Technopark Strogino, the Plekhanov Russian University of Economics Incubator and Higher School of Economics Business Incubator. It is also home to a number of accelerators including the Internet Initiatives Development Fund, Future Fintech, Disruptive, GenerationS and the Skolkovo Startup Academy. Moscow is very friendly and accessible to startups, with the Innovative Entrepreneurship Support Fund, the Skolkovo Fund Granting Program and the Innovation Assistance Fund, among others providing assistance and grant programs.
Despite the odds, the venture capital scene in Moscow is more than thriving. Startups have several options when they look for capitalization. AddVenture, Bright Capital, The Untitled Ventures, Starta Capital, the Moscow Seed Fund, the Russian Venture Company, Rusnano and AltaIR are just some of the venture capitalists willing to fund their business ventures.
Moscow startups to watch
With the healthy startup environment in Moscow and the abundance of talents in different fields, it is no longer surprising to know that several startups In Moscow are being noticed by the international community. Here are some of them.
- Busfor. It’s a travel startup based in Moscow. The company connects sellers of bus tickets with travelers. Currently, the service is being used by over two million customers monthly and over 5,000 bus companies operating in Thailand, Georgia, Belarus, Poland, Ukraine and Russia. It also has clients in several countries in the European Union.
- Deliver. It’s a web-based platform creator. Its service calculates the price and then orders the transport of products through different means. Deliver started in 2014, founded by Danil Rudakov. Deliver’s service includes a driver’s reliability scoring system.
- Doc+. The company has a team of doctors as its founders. It was established in 2014. It is operating as a digital health company that specialized in on-demand medical services. Services include telemedicine and house calls, medical data and electronic health records management.
- Elementaree. The company has been around since 2013, founded by Szilard Buksha and Olga Zinovieva who are both graduates from Harvard. The company delivers meal ingredients that are already prepared to customers’ homes. They include cooking instructions with the delivery.
- ID Finance. The company is enjoying massive success. Alexander Dunaev and Boris Batine founded the company in 2012. Originally based in Moscow, their present headquarters is located in Barcelona. ID Finance is a digital finance provider, credit scoring and data science company. It currently serves 5.3 million registered clients and earns $15 million monthly. Every month it releases over 60,000 loans. ID Finance employs more than 520 staff in its offices in Russia, Georgia, Spain, Poland, Kazakhstan, Brazil and Mexico. Its research and development department is found at Hi Tech Park in Minsk, Belarus.
- NtechLab. It’s a software products developer for machine learning and artificial neural networks. Its products include the FindFace facial-recognition system, the app that is used by the 170,000-surveillance camera network in Moscow. Alexander Kabakov and Artem Kuharenko founded the company in 2015. FindFace is considered as one of the leading facial-recognition systems in the world.
- Robot Vera. Stafory from St. Petersburg and Moscow produced the AI called Robot Vera, from founders Alexander Uraksin, Vladimir Sveshnikov and Alexey Kostarev. It makes interviewing prospective employees easier and faster. The app is capable of simultaneously interviewing hundreds of job applicants through voice or video calls. It has the capability to provide a list of 10 candidates that are the most suitable for the job. The app is now used by 300 clients, including L’Oréal, Pepsico and IKEA.
These are not the only startups to watch coming from Moscow. Several more companies that produce applications for various fields and industries, both for local Russian clients and international markets are coming out from the one of the world’s largest countries.
Resources: Fintech and Localization go together when expanding to international markets. Visit our free guide on Going Global in the Fintech Industry.
Connecting Russian startups to the rest of the world
With the healthy business scene in Moscow and other parts of Russia, effective communication between foreign venture capitalists, entrepreneurs and local counterparts is needed. Day Translations, Inc. is professional translation company that offers a full suite of language services for international clients. For high quality and accurate translation from Russian into more than 100 languages, don’t look any further. Our human translators are native speakers and they live in-country. We can connect you to a Russian translator quickly, because we understand the urgency of your need. We are always ready to serve as we are open 24/7, all days of the year. You can easily get in touch with us by calling 1-800-969-6853. Or it might be more convenient for you to send us an email at Contact us.