You’d think that Russian companies would be facing some stiff challenges, what with economic sanctions, a low level of venture funding and the general egg on the face from recent international events.
Nonetheless, Moscow has been ranked as the number 2 city for rapidly growing private companies on Inc’s 5000 Europe list. St Petersburg also made the list in 9th place.
Companies like Moscow-based Varmega and Kompaniya Optima are excellent examples, seeing their respective revenues skyrocket by 1,990 percent and 2,076 percent since 2013. And Yandex, the Russian Internet behemoth, is responsible for 54% of online searches and reported $1.6 billion in sales last year, a 24% increase over 2016.
William Courtney, a former diplomat and executive director of the nonprofit Rand Business Leaders Forum in Arlington, Virginia says “if it weren’t for political risks, Russia could become a global startup powerhouse.” However, the risks aren’t inconsequential. Sanctions are having an impact, and educated Russians are leaving the country to work and invest in the US and Europe. The impact on the venture capital community has been significant.
American investors were once keen on the Russian market, investing more than $400 million in Russian startups in 2012. In 2017, no Russian startups listed US investors. The trouble is likely to abate soon either, as evidence of Russia’s meddling in the 2016 US election could result in new sanctions. Evidence of Russian skullduggery on Facebook to increase discord among liberals and conservatives in the US is also likely to exacerbate suspicions of Russia and the perception of the country’s business environment.
One thing about Russia though, is that the bear is too big to ignore. By population, the country is 9th in the world and it also offers a pleasingly low tax rate and a highly educated population. This is good news indeed for those looking to start a business. Sergey Bulaev, founder of the shopping-list app Buy Me a Pie, saw the climate as extremely promising. His app, which for a $13 annual fee allows customers to track grocery purchases, has added half a million users since its 2011 launch. Bulaev calls attention to the low corporate tax rates in Russia as a boon; the federal rate is around 24% compared to 35% in the US.
Bulaev also cites the cost of labor in Russia, noting that it’s 80% cheaper to hire employees in Russia compared to Silicon Valley. His company is based in the tech hub of Ulyanovsk, which to be fair has a significantly lower cost of living than Moscow.
Russian workers often boast superior technical skills and Moscow is home to a number of prestigious higher educational institutions, including Moscow State University, the Moscow Engineering Physics Institute, the National Research University of Electronic Technology,and the New Economic School as well as the Skolkovo Innovation Center.
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Like It or Not, Startups Are Soaring in Russia. Here’s Why | Inc