Why Building A Startup In Russia Is Less Risky Than In The Valley

Serge Faguet is a Russian-born serial entrepreneur. Having built and exited a successful start-up in the Silicon Valley, he recently moved to Moscow and founded a new venture. Serge shared his reasons for switching countries in an interview with Forbes.ru. Serge's most successful start-up so far is Tokbox, a simple tool for video conferences, which he created while studying for a Stanford MBA. Tokbox raised $4,5M initial funding from Sequoia Capital and other investors. Serge exited the company in 2008, receiving a substantial but undisclosed sum. About a year ago he moved back to Moscow and together with Kirill Makharinsky founded an online hotel booking service for Russian-speaking users Ostrovok.ru.

When asked why he chose to build a start-up in Russia after working in the Silicon Valley, Serge shared that he noticed a lot of positive things in Russia that are missing in the Valley. Most importantly, there is less competition and markets are more open for conquest. 'Russia has many markets that are not dominated by anyone while in other countries similar markets have companies that are already worth billions', he noted. 'There is a lot of buzz but there are very few companies that are doing the right thing successfully.'

In terms of finding team members for a start-up, Serge noted that in Russia it is much easier to find talanted developers who can build a basic product that would serve as a foundation for the company. 'In Silicon Valley there are 200 start-ups with $1oM funding each plus Google, Twitter, Facebook and the likes. They all compete for the best developers. In Russia there are few companies that know how to effectively attract good people. There is only Yandex. Most of our developers either worked there or were invited to work there but they all chose to stay with us.'

Things are a bit more difficult when it comes to finding business talent, however. 'Though there are a lot of talented people, there aren't any good management schools. By that I mean companies that have established good management processes that would teach employees how to become high-quality managers.'

Finally, Serge pointed out that building a start-up in Russia is less risky that in the Valley. 'When building a start-up there are three major risks involved. First, is whether or not there is market for your product. If there is no no market it doesn't matter how smart you are, nothing will work out. Second risk is associated with the product: if there is market but your product doesn't match it, then again nothing will work out. Third risk is the team: if you have the right product and there is market for it but the team doesn't know how to launch it, then you loose.'

'In Silicon Valley the first two risks are very high. In Russia you can look at companies from the US, Europe and the BRICs and learn from their experience so building a successful business is easier. This helps reduce the first two risks so it all depends on the team. There are also few teams here who can raise funds, structure business processes in the right way and attract talented developers. Hence, risks for building a start-up in Russia are lower than in the Silicon Valley'.

Ostovok.ru was launched in summer 2010 and so far attracted $1M funding from the co-founders, venture funds like General Catalyst Partners and Kite Ventures as well as a couple of private investors.

Image from Runetologia .

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Anton Korenyushkin April 27, 2011

We're also creating a startup in Russia, http://www.akshell.com/ I agree that finding great developers is much easier in Russia because here even the best ones often have quite boring jobs. But for exact same reasons (lack of competition) it's harder to do B2B businesses here; so we're going to incorporate in the US and have a development office in Moscow.