“Armenian-Russian venture fund needs to collect $30-40mln”

Interview of Vice-President of “Sitronics” OJSC Sergey Urezchenko to Mediamax Agency and Itel.am portal

In May, 2009, President of “Sitronics” Company Sergey Aslanyan stated that to attract new technologic projects to the territory of Armenia, a Russian-Armenian Venture Fund was being set up. Mediamax turned to the Vice-President of “Sitronics” Sergey Urezchenko for details.

- At which stage is the project to set up the Russian-Armenian Venture Fund?

- At present, the process of coordinating financial liabilities of the sides is on. To attract private investors, one should gain tough financial liabilities from development institutions at the volume of no less than 20% of the total capitalization of the Fund. To this end, talks are held with the World Bank (WB) and UAE government jointly with the Ministry of Economy of Armenia. Talks are planned with the International Finance Corporation for August. For our part, we held talks with representatives of the Armenian Diaspora in America.

I will remind that all this takes place against the background of the global financial crisis, this is why without guarantees of the Armenian government and international development institutions, it will be very difficult for us to persuade private investors. In this contest, one should note that we enjoy absolute understanding from the part of Armenia authorities.

- In May, Sergey Aslanyan stated that the Fund was being set up to attract new technologic projects to the territory of Armenia. Does this mean that the projects will be selected with the prospect of realization at Yerevan “Mars” plant and three Armenian scientific-research institutions, or may other players, such as private companies from Armenia, Russia or other countries, participate in realizing the projects?

- Per se, the Fund is being set up to solve two tasks: improvement of technologic infrastructure of “Mars” CJSC and establishment of a center on the basis of “Yerevan Scientific-Research Institute of Mathematical Machines” CJSC for elaborating and implementing technologies.

A few countries have taken this path (examples of Israel, Finland, Singapore, Taiwan are known). However, as a result of primary research realized, WB recommended to turn to the experience of Argentina, which has made a very strong breakthrough in the sphere of bioengineering over the past 3-5 years. This sphere of product elaboration is very strong in Armenia traditionally. There are administrative conditions for the functioning of enterprises similar with Argentina.

Concerning implementation of projects, without private investors the model will be of closed, not quite efficient nature in the context of creating innovative economy in Armenia. To this end, jointly with “Renaissance Capital” Company and given direct participation of the Ministry of Economy of Armenia, a complete series of meetings with representatives of Armenian Diaspora of America was carried out in April, 2009.

- Can you, please, tell about certain innovative projects already considered for the given Fund? 

- There are over 50 projects in various technology spheres revealed in the selection process. The projects were presented to the Ministry of Economy of Armenia and WB. Now we are at the stage of thorough study (due diligence), which involves not only “Sitronics” representatives, but also experts from outside. Following the results of the analysis, one will be able to provide more concrete information. But we already have first results, for instance, with the help of the Ministry of Economy, initial agreements with USAID program are reached on financing the works to select innovative projects in the territory of Armenia.

- When is the expected launch of the first project?

- In our business plan, we intended to undertake the launch of first projects in late 2009 early 2010. However, the financial crisis made its corrections. Besides, the issue of technologically upgrading “RAO Mars” CJSC is inseparable from establishment of a free economic zone in the territory of the enterprise. And this issue is yet at the stage of elaboration.

Nevertheless, we do not delay the approved timeframes yet, although they will be finally clear after realizing the measures to approve the free economic zone.

-What is the mechanism for presenting projects? Where should individuals and companies, having innovative ideas, turn?

- We plan to realize open competitions to collect applications from entrepreneurs, after which they will undergo profile expertise. This is a very laborious process, which requires full involvement. 

Following statistical data, only 5-10% of all projects are suitable for detailed consideration, out of which 2-4% reach the stage of funding and are able to overcome the so-called “death valley” (this expression is applied for projects at early stages of their development – 1-3 years).

Also, the issue of seed financing procedure is not quite clear yet. In all counties, this sphere is a priority for the government, since it is very risky and economically inefficient. But without this stage, it is very difficult to set up full-fledged inflow of venture deals. As far as we know, the Ministry of Economy of Armenia is now actively dealing with the issue jointly with western experts.

- What will the structure of the Fund’s shareholders be and what is the volume of necessary investments? 

- It is yet early talking about that. Everything depends on the final financial liabilities of sides, including from development institutions. What concerns the necessary investments, to secure the minimum level of the Fund’s profitability; one should collect at least $30-40mln. We deal with this issue jointly with “Renaissance Capital” IG and the Ministry of Economy of Armenia.

I would like to express my gratitude for the Prime Minister and the Minister of Economy of Armenia for the help in this project. Without their participation and in conditions of the financial crisis, the idea of establishing the Fund would be practically impossible to realize.