Is Russia's tech future in Israel's tech past?

Some say Russia can mirror the Jewish state's success. It's not a pipe dream, writes News.com's Charles Cooper, but the analogy needs a few asterisks.

Israel and Russia. Besides a common liking for borscht, you'd be hard pressed to find two nations less similar. Yet some very serious people believe Russia is destined to duplicate the Jewish state's astounding success in high technology.

Truth be told, I never considered the connection anything more than accidental, owing to the large number of Russian immigrants who have settled in Israel since the state's founding in 1948. But I've been hearing this theory advanced by a number of venture capitalists and entrepreneurs who say it's only a question of time before Russia undergoes an entrepreneurial boom.

"If you had asked me about Germany, I would have said 'no,' said Eldad Tamir, co-founder of Tamir Fishman, a well-connected Israeli venture capital firm. "But in Russia, I've found an incredible desire, as well as a very large pool of well-trained people."

Fine and good, but that's where the story line trails off.

Russia is an ancient-new country, and I don't know whether the forces for change can elbow aside rooted traditions that date back centuries.

Russia's domestic IT business has grown 20 percent per year since 2001. Impressive at first blush, but it's only 0.15 percent of the nation's gross domestic product. Not exactly the picture I have in my mind of a high-tech Shangri-La, let alone the high-tech powerhouse long predicted by the digerati.

While tech mavens in this country, such as Esther Dyson, have touted Russia's nascent technology prowess, the country's tech takeoff never quite got going. Maybe it was the residue left over from seven deadening decades of totalitarian rule. Or the recurring political instability and domestic corruption of post-communist rule may have proved too much to handle for would-be Russian entrepreneurs.

Israel faced a different set of challenges. When I worked there in the early '80s, the country was still trying to shake off decades of social democratic rule. The bureaucracy could be maddening, even Kafkaesque at times. Still, it was a democratic society in which you were rewarded for taking risks and thinking outside of the box--in local parlance being a "rosh gadol" (literally, a big head)--rather than a "rosh katan" (a little head.)

Meanwhile, the universities were graduating generation after generation of highly skilled talent. In a small country, where connections forged in the military proved invaluable later in civilian life, the conditions were ripe. Things couldn't get going without start-up capital, which was virtually non-existent. That changed in 1985 when a trio of Israeli entrepreneurs established the country's first venture capital fund. The government later followed their lead and provided seed money to 10 VC funds.

That did the trick. Between 1990 and 2000, the number of Israeli firms on Nasdaq soared from 7 to 120, the biggest number of non-U.S. firms on the stock exchange.

So why not Russia?

Why not, indeed, asks Pitch Johnson, one of the founding partners of Asset Management. He was one of the first venture capitalists in Russia and he thinks change is on the horizon.

"Russians have the same motivations as exist anywhere...Vietnam, China, and other places that only recently were socialist economies let alone socialist states," he said. "The differences are that in Silicon Valley, we've now had 40 years of venture capital, with support systems all over the place--lawyers, consultants, accounting firms and contractors of all types."

That's a significant hurdle. Johnson allowed that while the desire to be an entrepreneur in Russia is strong, the support systems are virtually nonexistent.

The Russian government is trying to help out. It recently announced plans for a $1.25 billion "fund of funds" to spur investments by the nation's top venture capital firms. The one requirement is that the VC firms also put up their own money and invest in local entrepreneurs or Russian-based start-ups run by expatriates.

When I met up with a government delegation visiting the San Francisco Bay Area to tout that announcement, they often drew an analogy with Israel. In particular, they believe believe Russia can become a place, like Israel, where the local talent can rise to its own level once the bureaucratic shackles come off.

It's a top-down approach and it may work. The scenario would feature venture capital providing the means to promote civil society and a regulatory system that protects intellectual property.

Still, I wonder how hard it will be to change the culture. Russia is an ancient-new country, and I don't know whether the forces for change can elbow aside rooted traditions that date back centuries. Not the least being that both in Silicon Valley and in Israel, you find an acceptance of failure. That's not yet part of the Russian makeup.

Maybe one day.

Sitting down with me last week at a Silicon Valley conference for Russian start-ups and outside financiers, Israeli Eldad Tamir said he thinks the similarities outweigh the differences. All the country needs is a little help.

"I have a feeling it will work," he said.