20 December 2009
Opening Remarks for the US-Russia Technology Conference
Opening Remarks for the US-Russia Technology Conference
by Mark Stein
Director, USRCCNE; Partner, McDermott Will & Emery LLP
December 7, 2009
On behalf of McDermott Will & Emery and the US- Russia Chamber of Commerce of New England, welcome to this US-Russia Technology Conference.
I would like to thank our fellow sponsors of this event: CRDF, RVCA, Babson, Rosnano, AJK. To our guests from the Russian Federation, I would like to thank you for undertaking the trip to meet with us in Boston. We know that this has been a painful week in Russia, with two senseless tragedies leading to the death or injury of many innocent people, and we pause here for a moment, in respect for your fellow citizens.
We have a terrific program for you today, and I hope that you will find the presentations informative and the networking useful and entertaining.
We are at a crucial moment in the era of technological innovation and venture capital investing in early stage technology-based companies.
The global recession, which began almost two years ago, has inflicted substantial financial strain on all companies, but particularly those which have emerging products or business models, or are thinly capitalized. The liquidity crisis has meant that venture firms and other investors have generally been unable to exit an investment through an IPO or trade sale. As a result, venture capital funds have focused on maintaining and supporting the existing companies in their portfolios, and have scaled back on making new investments or raising new funds. Indeed, according to the National Venture Capital Association, the volume and value of venture financings in the last 12 months are at 10-year lows. In the first 3 quarters of 2009, the number of venture capital investments was down 38% from the corresponding period in 2008. First-time investments in companies are down 46% for the same period. And, U.S. venture capital firms raised only $8 billion in the first 3 quarters of 2009, down from $25 billion in the corresponding period in 2008. On a related note, M&A deal volume is down 11% from 2008, which itself was a down year.
Against this backdrop, questions have been posed about the efficacy and efficiency of the model of venture capital as a source for growing a new generation of great technology-based companies. The traditional model of using venture capital to invest in new drug candidates is under debate. And in various other sectors Ц such as web-based social communities and clean-tech - the question of where the revolution ends and hype begins is unclear.
The challenge of cross-border investing is even more daunting. Differences in legal systems, cultural attributes and market dynamics require extra attention. Many Americans wonder if private property rights will be fully respected in Russia. Many Russians may perceive the U.S. to be particularly litigious and U.S. business partners all to eager to file lawsuits.
What then, is the future for venture capital investing?
We can not be discouraged by the difficult times we have endured. It is said that, to be an entrepreneur, you must be prepared to run headlong into a brick wall, absolutely convinced that the wall will move before you strike it.
Indeed, there have been many times when skeptics have questioned the future of new technology, and of technology-based innovations to the economy. In 1905, the U.S. Commissioner of Patents recommended that the patent office be shut down for lack of future work, because everything of value which could be invented had been invented. This, by the way, was the year in which Albert Einstein published five papers that changed the world.
According to the 2009 Global Venture Capital Survey, one of the major trends to develop, as we emerge from the recession, will be the globalization of venture capital. The survey noted that many entrepreneurs educated in the U.S. will return home to start new companies in their home countries. Likewise, 52% of venture capitalists surveyed indicated that they are currently investing outside their home countries.
The world has tremendous need, across a range of industries, for new technologies -- from power systems to health care data analytics, from nanotechnology to advanced materials, from personalized medicines to technologies to combat global warming. It will be the responsibility of entrepreneurs to develop and introduce these technologies, and venture capitalists are singularly positioned to identify the most promising applications and finance and assist in their development. It just so happens that the U.S. and Russia are particularly strong in many of these technologies and have numerous opportunities to cooperate through their respective entrepreneurs. For this reason, conferences and meetings like this will play an indispensible role in reinvigorating venture capital-based technology development. And therefore today is an auspicious day for business opportunities in technology in the U.S. and Russia.
I wanted to see if there were any historical indications that today was an important day. Americans, of course, will recall that today, December 7th, is Pearl Harbor Day. Not a day of celebration, of course. But it is the day that signaled the transformation of the U.S. role in international affairs and the U.S. economy. What about Russia? December 7th is celebrated as the birthday of the Hermitage. ItТs the day in 1764 when Catherine the Great brought 225 paintings from Berlin to St. Petersburg; these paintings became the basis of her fabulous collection. On December 6, 1741, Yelizoveta Petrovna, youngest daughter of Peter the Great, became Empress and ushered in an era of science, education and culture. So, there is reason to believe that this last day of the first week of December is an auspicious time to look forward to the transformation of our world for the better with new science and new technology.
Read more about the conference here.