This survey is based on a study done by Ernst & Young specialists in September and October 2010. The study was designed to give an understanding of the current state of the business incubation industry in Russia and its potential for development. The principal method of collecting data for our analysis was a survey of the heads and representatives of business incubators as well as similar innovative-technology centers and divisions of science and technology parks (hereinafter, “incubators”, “incubation programs”). Over fifty actively operating and developing Russian incubators took part in the survey. The participants included state and private incubators varying in area from 50 to 10,000 square meters in Russian cities from St. Petersburg to Khabarovsk.

1. Survey of
Russian Business
Incubators

3. Contents
Introduction 2
General information 3
Incubator services: premises 4
Incubator services:
business services 5
Incubator services: payment 6
Incubator residents 7
Incubator functioning 9
Survey of Russian Business Incubators 1

4. Introduction
We are pleased to present our survey of Russian business We hope that this survey will prove useful for organizations and
incubators. This survey is based on a study done by Ernst & Young companies seeking to gain an understanding of Russian incubators
specialists in September and October 2010. The study was and will promote further consolidation and development of the
designed to give an understanding of the current state of the industry, which is a key contributor to the country’s modernization
business incubation industry in Russia and its potential for and innovation-based development. We will be happy to answer
development. The principal method of collecting data for our your questions on the study’s findings and to work with you on
analysis was a survey of the heads and representatives of business business incubation and innovation projects.
incubators as well as similar innovative-technology centers and
divisions of science and technology parks (hereinafter, Vadim Balashov
“incubators”, “incubation programs”). Over fifty actively operating Partner, Technology Sector Leader
and developing Russian incubators took part in the survey. The
participants included state and private incubators varying in area
from 50 to 10,000 square meters in Russian cities from
St. Petersburg to Khabarovsk.
Selected findings of the study show that as an industry, business
incubation is still developing. This is indicated by the large number
of incubators positioned as subsidy programs to support small
business rather than as business projects for the development of
fast-growing, breakthrough startup companies. On the other hand,
it should be noted that most Russian incubator programs provide a
broad range of services to startups and don’t limit themselves to
renting premises at low rates. This is in line with the experience of
countries that have had the most success in developing business
incubation (the United States in particular): incubation services –
not the premises provided – are of key significance for startups.
Methodology
Respondents were selected by compiling a list of 400 innovative infrastructure projects (using public sources:
allmedia.ru, the National Centre for Monitoring of the Innovation Infrastructure and Regional Innovation
Systems, innovbusiness.ru, the Russian Technology Transfer Network (RTTN), Gate2RuBIN, the Russian Union
of Innovation and Technology Centers, opora-credit.ru). In addition to business incubators, the list included
technology parks, innovation and technology centers and other organizations that could potentially undertake
incubation programs. From this list, 150 organizations with their own Internet site or webpage were selected
and invited to participate in the survey. Fifty-three companies responded to the invitations, and their answers
were used as the basis for this study.
2 Survey of Russian Business Incubators

5. General information
The distribution of business incubators by federal district is more effective if they have a sustainable business model allowing
generally in line with Russia’s overall population distribution. Apart them to cover operating costs without additional investments from
from three districts with a minimal number of incubators (two or sponsors.
less in the Southern, Far East and North Caucasus federal
districts), the saturation level of incubation programs in Russia The ratio of private to state incubators varies widely from country
averages one incubator for every 2,700,000 persons. Not all to country. In Israel, for example, private investors finance most
incubators are taken into account in this study, so the actual figure incubators and profit from owing shares in successful startups. The
may be higher, but the overall saturation of incubation programs in state’s involvement in financing such companies is still crucial in
Russia is still around a tenth of what it is in the US, where there is the early stages (before significant venture capital is obtained). In
one incubator for every 280,000 persons. China, on the other hand, the private component in the ownership
of business incubators is almost nonexistent: the great majority of
The preponderance of state-owned incubators – designed to incubators are set up and managed by the state using state funds.
provide support rather than generate revenues – is generally in line Rent accounts for only a small portion of an incubator’s revenues
with world practice: the economic development of a region or and is insufficient even to cover operating costs. When these two
country is often the priority objective of incubation programs. It systems are compared in terms of effectiveness, the results tend to
should nonetheless be kept in mind that state incubators may be be strongly in favor of the Israeli model.
Distribution of incubators by federal district Distribution of incubators by form of ownership
4% 2%
4%
30% 9%
10%
Central State
58%
Volga Mixed
Siberian Municipal
13%
11% Northwest Private
Ural
Southern
Far East
13% North Caucasus
26% 19%
Population per business incubator
(by Russian federal district, as compared with the Russian Federation as a whole and the USA)
10 000
8 200
8 000 7 300
6 000
4 000 3 200 2 700
2 300 2 800 2 500
2 200 2 200
2 000
280
0
thousand Central Volga Siberian Northwest Ural Southern Far East North Russian USA
persons Caucasus Federation
Survey of Russian Business Incubators 3

6. Incubator services:
premises
The majority of incubators (some 80% of respondents) are located Forty-six of our 53 survey participants rent space to residents,
in reconstructed buildings, most with a cabinet layout. This can while the remaining seven are virtual incubators. All 46 incubators
complicate their operations: the practice of setting up incubators in provide office space; relatively few offer other kinds of premises.
buildings not specially adapted for business incubation is one of This may be because the residents of incubators concentrate on
the risk factors in world practice. projects that do not involve materials and equipment, or because
they use equipment and premises in educational institutions or
American experience suggests that a building that is properly research institutes that collaborate with the incubator.
designed will make a business incubation program more effective
for a number of reasons. For example, an open plan and shared- The respondents additionally note that startups are provided with
use common areas encourage contacts and cooperation between conference rooms, lecture rooms, auditoriums, server rooms,
residents. Specially designed buildings also offer more possibilities meeting rooms, etc.
for equipping specialized shared-use areas (laboratories, server
rooms, storage, etc.).
Percentage of incubators with a given layout Percentage of incubators that rent
a given type of space to residents
6%
% of
sampling
74% 100%
20%
100%
Cabinet
Mixed 80%
Open space
60%
40%
22% 20% 20%
20%
0%
Office space Laboratories Manufacturing Storage
4 Survey of Russian Business Incubators

7. Incubator services:
business services
According to our respondents, business incubators provide a broad A number of incubators provide such additional services as
range of services that meet virtually all the needs of startup representing a company’s interests in relations with state and
companies. Nearly all incubators provide basic services (mail and regulatory agencies, assistance in protecting intellectual property,
secretarial services, office equipment, telephone and Internet various types of expert examinations, etc.
service, IT service, etc.), and incubator employees provide
consultations to residents. It should be noted that in most cases (83%) nonresidents may also
use an incubator’s services, usually for a fee. Nearly all the
A smaller number of incubators act as mentors – individually advantages of an incubator are available to nonresidents, with the
explaining the options for resolving problems and coaching new exception of preferential rent. Thus, the majority of incubators are
entrepreneurs to find their own solutions to specific business not so much exclusive private clubs for handpicked companies as
issues. Not too many incubators directly support residents’ they are sources of business services for starting entrepreneurs
operations or bring in outside experts to work with startups.
Only around a quarter of incubators provide residents with
scientific equipment – a figure in line with data on the availability of
specialized lab / manufacturing areas in incubators. Incubators
evidently have a hard time convincing potential sponsors to make
the substantial capital investments needed in order to purchase
and operate sophisticated equipment, especially if residents have
access to laboratories and equipment at nearby educational
institutions and research centers.
Percentage of incubators providing a given type of services
Basic services 94%
Consultations by incubator employees 94%
Instruction services 89%
Assistance in raising financing 87%
Assistance in developing partner relations among residents 83%
Mentoring and coaching 70%
Support for operations 65%
Consultations by outside experts/consultants 65%
Marketing support 61%
Provision of scientific equipment for shared use 26%
Other services 24%
% of sampling 0% 20% 40% 60% 80% 100%
Survey of Russian Business Incubators 5

8. Incubator services:
payment
Rent 85% of respondents charge rent.
15% of respondents do not charge rent (typically, these are incubators that are structural
subdivisions of educational institutions and research institutes).
Indexation The majority of incubators set escalating rates of rent for office space.
The rents and rent dynamics may be affected by:
• Restrictions placed on state and municipal business incubators by the Ministry
of Economic Development of the Russian Federation
• Indexing for inflation
• Changes in the average market rates
Payment for services 50% of incubators charge residents for services provided. In addition to rent,
residents generally pay for:
• Basic services and utilities
• Accounting services, personnel record-keeping, recruiting assistance (support for operations)
• Instruction services (internships, training)
• Use of special scientific equipment
Foreign experience with business incubation indicates that low Note: Here and hereinafter, legal restrictions are cited pursuant to:
rates of rent are not the primary advantage that incubators have
1. Order No. 59 of the Ministry of Economic Development of the
over ordinary business centers. The heart of business incubation
Russian Federation of 16 February 2010 “Concerning the
programs is the services they provide. Thus an incubator offering
Implementation of Measures for the State Support of Small and
mid-market rental rates and a broad range of services for startups
Medium-Sized Business in 2010”.
is more likely to nurture a successful company than an incubator
offering cut-rate premises and minimal services. 2. Decree No. 178 of the Government of the Russian Federation of
27 February 2009 “Concerning the Distribution and Provision
For state and municipal incubators, the level of rent depends on the of Subsidies from the Federal Budget to the Budgets of
rate for premises owned by the constituent entity of the Russian Constituent Entities of the Russian Federation for the State
Federation or municipality. The amount of discounts for length of Support of Small and Medium-Sized Business, Including Peasant
residence in a business incubator is also regulated by law. (Farm) Holdings” (as amended by Decrees No. 798 of 3
October 2009 and No. 1181 of 31 December 2009 of the
Government of the Russian Federation).
6 Survey of Russian Business Incubators

9. Incubator residents
Russian incubators have an average of around eighteen residents. importance to the experience of a startup’s employees and to
Residents come from different industries, and the diagram shows whether it has the funds for rent payments. Synergy with existing
that a single incubator may have residents of varying profiles. residents was not even mentioned. The study did not identify any
generally accepted methods of evaluating potential residents in the
The likely reason for the large number of respondents citing a Russian business incubation industry.
company’s specialization, early stage of development and the
quality of its business plan* as criteria is that these are legal In international practice, all of the above criteria are typically
requirements for state and municipal business incubators. The evaluated, and a decision to accept a resident is usually based on a
previous diagram shows that in practice a flexible approach tends combination of all parameters. This allows a comprehensive
to be taken with respect to specialization. evaluation of a startup’s potential in a given incubation program as
well as a flexible approach to companies that fall short of one or
Among the criteria named by incubators themselves (“other another parameter. Promising startups that would be screened out
criteria” in the diagram), the most common were a project’s social if criteria were strictly adhered to can still be accepted as residents.
effectiveness and importance. Incubators attached relatively little
Percentage of incubators with residents of a given business profile
80% 74%
67% 63% 61%
60%
46%
37%
40%
20%
0%
% of Manufacturing Software Business Internet Research Other
sampling development services projects & development
Percentage of incubators that apply a given criterion in accepting residents
Startup specialization 83%
Startup business plan quality 74%
Early stage of startup development (up to 1 year) 67%
Other criteria 39%
Sufficient funds for rent payments 24%
Experience of a startup employees 22%
% of sampling
0% 20% 40% 60% 80% 100%
* Among the chief criteria of a business plan’s quality, the Ministry of Economic Development lists the following:
• The quality of a description of the advantages of goods or services over equivalents/competitors
• The quality of marketing, operating and financial strategies for the development of a small business
• Projected changes in a small business’s financial performance and number of jobs
• A project’s recoupment period
Survey of Russian Business Incubators 7

10. Percentage of incubators whose residents make use of a given source of financing
Programs for the support and development
of small and medium sized business 72%
Bank loans 48%
Business angel financing 24%
Financing by the business incubator 22%
No data 9%
% of sampling 0% 10% 20% 30% 40% 50% 60% 70% 80%
Financing of incubator residents generally takes the form of In the opinion of some directors of American incubation programs,
subsidies and grants, federal programs for the support of this attitude on the part of venture funds betrays a poor
entrepreneurship and bank loans. Private investments play a understanding of incubation principles and results. The
relatively minor role. A low level of cooperation between incubators consultations, support and partner network provided by an
and private investors (venture capital investors and business incubator give startups a substantially better chance of success:
angels) is also apparent. statistically, some 85% of companies in incubators are successful,
as compared with only 20% of those not in incubators. Incubators
It should be noted that venture capital doesn’t play a large role for thus reduce the investment risks of venture capital. On this basis,
incubator residents in the US either. This has to do with the fact companies at an earlier stage of development than those normally
that many representatives of venture capital regard companies in targeted by venture capital investors may be quite attractive as
incubators as being in an early stage of development and thus risky investments.
investments.
Percentage of incubators that apply a given criterion of graduation from an incubation program
Maximum incubation period 74%
Other criteria 33%
Financial indicators 28%
Number of employees / space occupied 19%
% of sampling 0% 10% 20% 30% 40% 50% 60% 70% 80%
The survey findings show that the main criterion for graduation in market conditions. In international practice, a decision to
from an incubation program is completion of a startup’s legally graduate a company from a business incubator is based on a
established incubation period. This criterion has little to do with the regular comprehensive assessment of residents’ activities. Such an
real demands of the business incubation industry. It can hardly be assessment may include:
expected that a startup’s need for incubation support will be
minimal by the end of its incubation period, regardless of industry • Determining a company’s need for further incubation services
and project specifics. • Monitoring a company’s progress in fulfilling its business plan
• Monitoring compliance with formal graduation criteria (a certain
Premature graduation is as likely to hurt a startup’s success as is
staff size, a positive cash flow balance/favorable ratio of income
keeping it too long in a business incubator. It is thus important to
to expenditures, short- or long-term financing, etc.)
correctly assess how ready a new company is to operate on its own
8 Survey of Russian Business Incubators

11. Incubator functioning
A large number of incubators identify rent and fees for services as None of the survey participants named revenues from successful
important sources of income. A significant number receive startups (i.e., proceeds from the sale of an interest in a successful
subsidies that the regional authorities use to stimulate the company) as a source of funds. Though this source of income is
development of entrepreneurship. Other sources named by the not critical for the majority of successful Western incubators, the
incubators themselves include grants distributed by means of possibility of generating revenues from successful residents helps
specialized competitions and the budgets of “parent” organizations link the goals of an incubator’s management to the incubator’s
– institutions of higher education or technology parks. mission, thereby enhancing the incubator’s effectiveness.
Percentage of incubators with a given source of financing
70% 59% 57%
60%
50% 44%
40%
30% 20% 17% 15%
20% 11%
10%
0%
% of Rent Fees for Regional Other Sponsor Federal Local
sampling services budget sources contributions budget budget
Assessment of the effectiveness of incubation programs
Assesment of resident's performance indicators 69%
Assesment of incubator's performance indicators 59%
Comparison with the incubator's business plan 20%
Other criteria 20%
No assesment 6%
% of sampling 0% 10% 20% 30% 40% 50% 60% 70% 80%
Relatively few respondents mentioned the business plan as a It is also common in world practice for the success of an incubator
performance criterion. This may be due to the incubator lacking a to be measured by its contribution to the development of the local
business plan in many cases. International practice shows that an economy. This contribution may be assessed in terms of the
incubator cannot afford to be without such a plan if it wants to be number of graduates operating independently on the local market
successful. Incubators are rarely profitable, but they should be or acquired by larger companies, the number of jobs created by
organized like a real business. Otherwise, an incubator’s goals may residents and graduates, the amount of tax revenues from
shift from business to charity, resulting in the dissipation of its graduates, etc. It is also advisable to assess the activities of
limited resources. business incubators by conducting regular surveys of residents and
monitoring the long-term development of graduates.
Survey of Russian Business Incubators 9

12. Partner relations of Russian business incubators
With universities and institutes 69%
With other organizations 65%
With other business incubators 63%
With companies in the industry 41%
No partner relations 6%
% of sampling 0% 10% 20% 30% 40% 50% 60% 70% 80%
International experience shows that an incubator network of • Companies interested in new technologies may finance business
partners and contacts is a prime benefit for startups in a business incubators in their technology cluster.
incubation program. Partner relations are the key to resolving most • Cooperation with other business incubators allows an exchange
problems that arise. For example: of experience, know-how and support programs. National and
international networks of business incubators, such as NBIA in
• An educational institution may provide a business incubator with the US and EBN in the European Union, have long been in
useful services and resources as well as promote projects by operation abroad.
involving students specializing in the relevant areas (including
• Growth of partner networks is a key development strategy for
for no charge).
any incubator. Our study indicates that this may become one of
the main efforts of the management of Russian incubation
programs in the near future.
Map of federal districts of the Russian Federation
– Central federal district
– Volga federal district
– Siberian federal district
– North-Western federal district
– Ural federal district
– Far Eastern federal district
– Southern federal district
– North Caucasian federal district
10 Survey of Russian Business Incubators

13. Region City Name
Central federal district
Belgorod oblast Belgorod Belgorod RRITs innovation business incubator
Moscow region Dubna Innovation technology incubator of Dubna science city
Moscow Moscow RosNOU Innovation Park
Moscow Moscow Zagorie Technopark business incubator
Moscow Moscow Project business incubator of Bauman Moscow State Technical University
Moscow Moscow Higher School of Economics business incubator
Moscow Moscow Smart Capital
Moscow Moscow Academy of National Economy under the Government of Russian
Federation business incubator
Moscow Moscow Moscow State University science park
Moscow Moscow Strogino technopark
Kaluga oblast Obninsk Obninsk Center of Science and Technology business incubator
Kaluga oblast Obninsk Obninsk business incubator
Moscow region Serpukhov Serpukhov business incubator
Tambov oblast Tambov Innovatika business incubator
Moscow region Troitsk Troitsk business incubator
Tver oblast Tver TGFPMP business incubator
Volga federal district
Udmurtia Izhevsk Izhevsk State Technical University business incubator
Udmurtia Izhevsk Udmurtia Republic business incubator
Tatarstan Kazan Sviaga business incubator
Tatarstan Kazan Povolzhsky light industry business incubator
Kirov oblast Kirov Business learning center for the youth
Chuvashia Krasnoarmeiskoye Krasnoarmeisky business development center
Tatarstan Leninogorsk Idea-South-West Innovation manufacturing technopark
Nizhny Novgorod oblast Nizhny Novgorod Innovation technological center of Nizhny Novgorod State University
Orenburg oblast Orsk Orsky business incubator
Penza oblast Penza SBU "PROBI"
Bashkortostan Sibay Business center Delovoy Mir Zauralya
Ulyanovsk oblast Ulyanovsk Ulyanovsk State University high technology technopark
Mari El Yoshkar-Ola Mari El Republic business incubator
Penza oblast Zarechny Impulse business incubator
Survey of Russian Business Incubators 11

14. Region City Name
Siberian federal district
Altai Barnaul Altai business incubator
Irkutsk oblast Irkutsk Irkutsk State Technical University incubator
Krasnoyarsk Krasnoyarsk Distance consulting incubator of Krasnoyarsk Krai
Novosibirsk oblast Novosibirsk Akadempark business incubator
Omsk oblast Omsk Omsk State Pedagogical University incubator
Omsk oblast Omsk Omsk regional business incubator
Tomsk oblast Tomsk Druzhba Intrauniversity student business incubator
North-Western federal district
Murmansk oblast Murmansk Murmansk regional innovation business incubator
Murmansk oblast Murmansk Polar Star business incubator
Karelia Petrozavodsk Karelia Republic business incubator
Saint Petersburg Saint Petersburg First Saint Petersburg city business incubator
Saint Petersburg Saint Petersburg Ingria business incubator
Vologda oblast Vologda Vologda oblast business incubator
Ural federal district
Chelyabinsk oblast Chelyabinsk Chelyabinsk oblast innovation business incubator
Sverdlovsk oblast Ekaterinburg Ekaterinburg chamber of manufacturers business incubator
Kurgan oblast Kurgan Kurgan oblast business incubator
Chelyabinsk oblast Magnitogorsk Magnitogorsk innovation business incubator
Tyumen oblast Tyumen, Tobolsk, Ishim Tyumen oblast business incubator
Far Eastern federal district
Khabarovsk Khabarovsk Pacific Ocean University business incubator
Sakha Yakutsk Sakha Republic business incubator
Southern federal district
Rostov oblast Novocherkassk InTehDon innovation technological center
Volgograd oblast Volzhsky Volgograd oblast business incubator
North Caucasian federal district
Stavropol Stavropol Stavropol business incubator
12 Survey of Russian Business Incubators

15. Contact information:
Alexander Levchenko
Partner, Technology Sector
Tel.: +7 (495) 755 9758
Alexander.Levchenko@ru.ey.com
Petr Fedorov
Executive Director, Ernst & Young
Technology Center
Tel.: +7 (495) 644 0836
Petr.Fedorov@ru.ey.com
Vadim Balashov
Partner, Technology Sector Leader
Tel.: +7 (495) 755 9721
Vadim.Balashov@ru.ey.com
Survey of Russian Business Incubators 13

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