Alexander Galitsky: It's a Matter of Trust

Founder of Almaz Capital Partners venture capital firm Alexander Galitsky answered our questions on the demise of the Internet and the challenges facing Russian technology companies. The interview was prepared for publication by RIAC Program Director Ivan Timofeev and RIAC correspondent Yaroslav Menshenin.

Founder of Almaz Capital Partners venture capital firm Alexander Galitsky answered our questions on the demise of the Internet and the challenges facing Russian technology companies. The interview was prepared for publication by RIAC Program Director Ivan Timofeev and RIAC correspondent Yaroslav Menshenin.

Alexander, after the geopolitical events of 2014, Dauria Aerospace founder Mikhail Kokorich complained that foreign investments were disappearing. Is this the same for all Russian firms?

Far from all young Russian technology firms have been hit. In 2014, some businesses with Russian origins appear to have raised and closed investment rounds. If the company is hot, investors cannot resist the lure.

The situation is quite different with regard to companies with multi-component and interdependent business structures and more complicated technologies like Dauria. The aerospace sector is especially sensitive because the technologies can be listed as dual-use. Even if the firm does not develop such technologies, it interacts with entities and people who work for both defense and commercial sectors. To this end, a host of problems is likely to emerge on both shores of the ocean.

In general, Westerners have radically changed their approach, and we seem to have plunged back into the 1990s, when operations were based on personal trust and people were assigned a sort of international reliability label. On the bright side, now we have more of such people, a galaxy that has managed to become institutionalized internationally through recognition.

You seem to invest mostly in IT-companies. Does this have any relation to your future plans?

This is just the sphere I understand best of all, since I used to operate in that environment. All venture capital funds are targeted at 10-year cycles. Hence, I insist that for me, technological ties are more important than politics. Unlike technologies and businesses, too many policies change over a 10-year span.

Do you agree with Google CEO Eric Schmidt who says that the Internet will soon disappear and literally dissolve into humans?

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Eric is my old friend since the 1990s, and I fully share his view. Just take the search and advertising functions that are integrated on Facebook. People forget about traditional browser search, preferring the Twitter and Facebook options. So, the conventional browser appears to be dying, just like the Internet in its habitual form. The deep-rooted cause lies in the connection between the physical and digital worlds, with a set of absolutely new tools emerging within a single network.

The other trend is towards universal decentralization. We live in a world with countless information sources. And as many as eight years ago, I said that Apple and Google would provide banking services, which appeared obvious. And they are moving exactly in that direction. It is these technologies that create changes in the world and our modus vivendi.

How many years will it take for the Internet disappear?

Five years, maybe a bit more. Say, five plus.

Why is Google expanding into areas seemingly unrelated to the Internet giant?

In order to foresee the future and reach it, you must do a lot of things. Google is trying to launch multiple processes that will trigger multiple hidden processes. But if nobody tries to do so, nobody will see them. Hence, we all will still be blindfolded.

As far as Facebook is concerned, we see that professional journalists are frequently referring to the comments of individuals on their personal pages. Why is this not the case with VKontakte, Odnoklassniki or LiveJournal?

There are many information-generating platforms. But Facebook is more convenient than LiveJournal because of the additional links offered and because people read materials published by their friends and colleagues who they trust. Facebook has correctly guessed this trend and is victoriously moving forward.

Information flows are built on trusted sources. And we know that on average, each generation is two percent smarter than its predecessor. But the global knowledge base and its accessibility follow different rules. In the long run, each of us fails to adequately process incoming data and to properly function due to the lack of deep knowledge in a certain domain. There are some people with diverse competencies. Therefore, both today and tomorrow, success will hinge on effective collaboration between specialists. And the Facebook or LinkedIn help create groups of people for handling problems. Hence, these models win.

Is it correct to raise the problem of technological sovereignty?

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I refuse to believe neither in traditional sovereignties of any kind, nor that we could create an unexpectedly productive coalition to accomplish the same things as those done by another part of mankind within positive and trusting relations. This relates to one's niche in the global technology chain. Just take any device manufactured on our planet and you see that the iPhone is a product of many countries. I doubt one can now launch a full-fledged space program or make an iPhone in the absence of international technology cooperation.

Yaroslav Kuzminov, Rector of the Higher School of Economics, once said that if Americans fall out with the larger part of the world, they will face problems. Do you agree?

Exactly. If Americans quarrel with Samsung, they will be deprived of many iPhone components. But such a scenario is unlikely because both Apple and Samsung operate within the legal framework and within their business reputations. Hence, this is not about quarrels but about finding ways to cooperate and protect one's interests. And I think we are suffering greatly along these lines. We must remember that a pure idea has no value; it must be materialized, which is far from possible beyond the existing global technology chain.

RVK Director General Igor Agamirzyan told me that the share of nonmaterial assets in the value of smartphone runs at 90 percent of the cost.

This is the reason why I insist that a company's country is determined by the location of its engineering portion. If I write Developed in Russia and Manufactured in the Antarctic, the added value will anyway emerge where the intellectual value was created.

What are Russian startups currently lacking?

To launch a good startup, one must know an industry well. And this knowledge may come only from leaders who communicate with numerous users inside the sector. If we establish the State of Facebook, it will be world's largest country in the world. Information is being obtained by billions of people, which can be transferred to any sector.

It is hard to understand the importance of this issue in the absence of sectoral leaders. All innovation firms are built on this foundation, both those set up on a business model and other technology firms.

This is the problem for any startup in a minor technology country, both in Germany and in France.

Do you think an investor should provide managers with a degree of freedom or instead will close controlling them do just as well?

I don’t understand what rigid company control means. Any firm is invariably headed by its CEO. If you want to manage the CEO, try to manage the company. I don't know any rigid venture capitalists. There are both levelheaded and irrational people. One needs toughness when plans are scrapped despite effective agreements. I always proceed from the point that a venture firm is a service firm that helps a businessman at various project stages. A businessman should not be given too much since he is sure to know everything himself.

People frequently say that grants spoil businesses. How do you handle this problem?

We invest in people. It's people who come first and not the practical project stage at a certain moment. Grants do spoil people. I would offer grants only as an attachment to venture investments, for example at a 1:2 ratio.