Comment by vtail | Hacker News Reader

Comment by vtail | Hacker News Reader

Since it's obvious that Dyson's statement is way too optimistic, I assume that for her it is (was) a good marketing - you bet a lot by investing in Russian startups, why not bet a little bit more to show to your future partners how confident you are?

Here is why the statement is way too optimistic:

- Resources always move to places where they can be used most effectively (econ 101) unless there is a significant friction

- For that type of resource (talented programmers/mathematicians) the friction is very small

- Russia has bad regulation and bad business environment in general

- Specifically, very hard to get investments[1], and investors interests are poorly protected[2]

- Silicon Valley utilizes these resource much more effectively, so that even other places in the US - NYC/Boston/Chicago - could not compete effectively

- Also, managerial talent in Russia is concentrated on more profitable business, like participating in natural resource explorations or working for state-run monopolies - very profitable and risk free if you have the right connections

Disclaimer: I'm Russian living in Silicon Valley. That may have affected my judgement.

[1] I can share the following anecdote: When I was helping some friends to find VC funding in 2008 in Russia, I learnt that most VCs in Russia require kick-backs(!) from startups that they're investing in - presumably as a way to steal from their limited partners (and even provide some advice on how these kick-backs could be recorded in accounting books).

[2] Khodorkovsky's and Chichvarkin's examples are probably the most well-known on the West.

>> When I was helping some friends to find VC funding in 2008 in Russia, I learnt that most VCs in Russia require kick-backs(!) from startups that they're investing in<<

There are stories on HN all the time about US investors requiring the same. There are fancy meals on the company's tab, first class airplane tickets from all around the world for board meetings and various other abuses that HN founders complain about.

I guess straight-up cash would be a novelty, but that probably comes from the IRS scrutiny it would engender. Is an exacting tax authority part of the root of American exceptionalism?

In this case, they were requiring 10%(!) of the investment as a kick-back.

Another interesting feature: there are plenty of 'funding advisors' that can help connecting you to a right VC[1] for a fee, typically a few percent of the funding.

Kick-backs are also typical if you are a mid-size company a need to get a commercial loan.

[1] They all claim to have connections to some government-backed VC funds such as government-backed Rusnano or Russian Venture Company.

Another interesting feature: there are plenty of 'funding advisors' that can help connecting you to a right VC[1] for a fee

Same in the US. I think Massachusetts might have a law against it?

But as another Eastern European currently in the US, I agree with you and know what you are trying to say.

I'm wondering why such market exists in the US. Assuming there is enough VC capital, why would you need an intermediary?

The demand to pitch or meet a VC is far greater then VCs.

The more prevalent US version of this is pressure to 'do business' with portfolio companies.

There was a news item in the past year or two about brokerage fees in the US for IPOs. The spread on fees was ... distinctly narrow. Especially as compared with other markets (EU?). Strongly suggesting collusive / oligopolistic behavior.

June of this year. Here we go: http://www.businessweek.com/1998/45/b3603184.htm http://blogs.reuters.com/felix-salmon/2011/06/07/the-us-ipo-...

Unfortunately, this is a market with a high barrier to entry, since IB's reputation for many investors is a proxy for the quality of due diligence. It's hard to disrupt this market unless companies will be willing to do their IPOs in other markets, like Europe or Asia.

In the past, when a market has tended toward a monopoly, the usual solution hasn't been to create new entrants so much as to split the existing monopoly.

Though both approaches have been tried, I suppose. Microsoft would be an instance in which an illegal monopoly (read the court findings, folks) was not split, as many commentators suggested, but regulated. It's arguable that this did result in a loss of standing as a monopoly, though how much of this is a matter of a shifting computer market (servers, mobile, cloud) and how much an erosion of Microsoft's still overwhelmingly dominant share of desktop OS and office suite markets is also of interest.

NB: I think Microsoft should have been partitioned, and that it still behaves as if it had and seeks an illegal monopoly, though its power has been greatly diminished.

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