(BN) Russian Silicon Valley Plans First IPO as Venture Capital Booms

July 20 (Bloomberg) -- The Kremlin's innovation incubator plans to hold the first in a series of share sales by technology companies this year, buoyed by record venture capital investment in the country.

The first tenant of the Skolkovo Foundation technology park to go public will be VIST Mining, a software developer for metals companies that expects to raise $50 million selling stock in the next few months, Skolkovo Vice President Conor Lenihan said in an interview yesterday.

"This is a great blueprint for what Skolkovo can do," said Lenihan, 49, a former science, technology & innovation minister of Ireland. It's "within the pipeline of 500 startups, even though the park doesn't officially open till next year."

Viktor Vekselberg, Skolkovo's billionaire president, hired Lenihan last year to help lure international companies to the 400-hectare (1,000-acre) campus in the Moscow suburb of the same name, southwest of the Russian capital. Former President Dmitry Medvedev started the project in 2010 as Russia's attempt to duplicate the success of Silicon Valley, where companies such as Apple Inc. and Google Inc. have flourished. Skolkovo advisers include Google Executive Chairman Eric Schmidt, Cisco Systems Inc. CEO John Chambers, Siemens AG CEO Peter Loescher, former Intel Corp. CEO Craig Barrett and three Nobel Prize winners.

Venture Capital

The emergence of Skolkovo is coinciding with a boom in venture capital investment in Russia-based companies, which jumped fourfold to a record $276 million this year to July 20, data compiled by Bloomberg show.

That includes the $75 million that Accel Partners, an early backer of Facebook Inc., said in May it would invest with partners including Baring Vostok Capital Partners into Avito.ru, a classified ads site that attracts 40 percent of Russian Internet users every month. VTB Capital, the securities unit of the country's second-biggest lender, has invested $18 million in Internet startups so far this year, according to the company.

Since forming Skolkovo, the government has allocated about $4.2 billion for the project and amended about 200 laws to encourage high-tech investment, according to the company's website. The campus, designed by France's AREP and scheduled for completion next year, will be able to accommodate 31,000 scientists, researchers, students and entrepreneurs. Vekselberg has said the final cost may reach $10 billion.

Brain Drain

Lenihan said he was recruited personally by Vekselberg, whom he met through a mutual acquaintance in Rome after an exhibit of the billionaire's Faberge egg collection in the Vatican. He said he was intrigued with the idea of helping create the kind of jobs that would let Russia retain some of its most talented people. Scientists and engineers left Russia en masse after the Soviet Union collapsed and President Vladimir Putin has made reversing the so-called brain drain a priority.

Vekselberg, whose assets include stakes in oil producer TNK-BP and aluminum maker United Co. Rusal, stepped down as Rusal's chairman in March and now spends "about 70 percent" of his time on Skolkovo, Lenihan said.

"Viktor appreciates what happened in the 1990s was catastrophic, when you had this massive outflow of really talented scientists who are now contributing hugely to successful companies in Silicon Valley," Lenihan said. "Cisco alone employs 700 Russian scientists and technologists there, which goes to show the talent pool we are tapping into."

Microsoft, Siemens

Vekselberg has already used tax breaks and other incentives to lure commitments from global companies such as Microsoft Corp., Siemens, Cisco and Nokia Oyj.

"The Russian technology space hasn't lived up to everybody's fondest hopes but it has developed dramatically," said Esther Dyson, a venture capitalist active in Russia for more than a decade and a board member of Yandex NV, operator of the country's most-used search engine. "It's now very easy to start a company, but it's much harder to build one to scale."

Yandex raised $1.3 billion in a New York IPO in January 2011, two months after its biggest domestic competitor, Facebook shareholder Mail.ru Group Ltd., raised $912 million in a London IPO. Both Yandex and Mail.ru have held talks with Skolkovo without committing to work on the campus, Lenihan said.

"We are not trying to shoe-horn them in," Lenihan said. "Yandex and Mail.ru are already a success and already accessing Russian talent and their success predates Skolkovo. Likewise, we are not pressuring Intel to move their Intel Lab from St. Petersburg to Skolkovo."

Intel, Microsoft

Intel, the world's largest semiconductor maker, last month agreed to build an R&D center in Skolkovo to work on smart-car technologies based on Glonass, Russia's version of the U.S. Global Positioning System satellite network for navigation. Microsoft in May said it would hire more than 100 researchers to work on cloud-computing architecture at Skolkovo.

Still, luring the big U.S. venture capital funds has proven harder, mainly because of the pace of development and the perceived lack of protection for intellectual property, Lenihan said. Skolkovo plans to overcome some of that reluctance by having its own legally-binding intellectual property court, customs and tax services, he said.

"In Ireland, we have had difficulty getting U.S. venture capital funds to travel across the Atlantic," said Lenihan, whose brother was Ireland's finance minister when he was innovation minister. "Finance departments typically look for immediate commercialization but it takes 10 years to get all the pieces in place."