The Adventures of Ergis: new thrilling physics for terrific gamers

Hi, my name is Vladimir, I’m the director of "Unusual Systems", which is a young innovative company in Nizhny Novgorod, Russia. I would like to tell you about our current project; this is a game for mobile devices on the iOS and Android platforms. It is called The Adventures of Ergis.

The main feature of the game is that an unusual physical system is used in it. As a result, the trajectory of the main character’s movement becomes absolutely unpredictable! Taking the main character through the game, you will get a possibility to know new physics, and it will be very fascinating and interesting! Moving toward each new level of the game, you will understand more and more of the game’s physics and mechanics and, probably, you will acquire a high skill of controlling the character on a new type of a surface under new physics conditions. You will be able to compete with friends, and to compare your results of passing the levels with results that the world’s best players show! And who knows, probably, YOU will become the best! But let me describe everything step by step.

Let's begin with a background… Some time ago, scientists from the Lobachevsky State University of Nizhni Novgorod set out to research an unusual physical system. At the heart of the problem is the motion of a ball on an uneven surface. It was found out that the ball's motion can be either stable or completely unpredictable! This amazing feature has inspired some young researchers, students and graduates of the University, and they decided to establish a company that would deal with the commercialization of the results of their research. The first step in this direction would be a game for the iOS and Android mobile platforms. The Adventures of Ergis is a new exciting 3D-arcade game in which you have to save the world from destruction by evil mechanisms led by a mysterious wizard named Warg Rowl!

You can find more information about the game on our site.

We are sure that our game will be a boon for everyone who would want to get acquainted with the new and interesting world, based on an unusual physical system.

Now, the game is developing. We have completed its test level, but to develop a full-fledged game product we need additional financing. For this reason, we’re launching our project on indiegogo.com on November 5. Your support is vital to us!

If you want to back us or give important advice on how to improve our game, then join us on Facebook.  Here you will find the latest news about the game, and you will be able to communicate with us and our supporters.

In the following posts, we will let you know more about our company and the game in detail, and also we will answer your questions. Thanks!

Venture capital market as symbiosis of human confidence and market requirement

The author of this post is Albina Nikkonen, the Executive Director of the Russian Venture Capital Association. You are welcome to go to their website to find out more about the organization.

In the American film "Wall Street", 1987, there is an episode which may be related to the current model of venture investor & entrepreneur’s relations. The character of Charlie Sheen, a young broker, trying to gain the confidence of the stock market "shark" Gordon Gekko, with an ambition says the sacramental phrase: "You wouldn’t regret that have chosen me. You are with the winner and I wouldn’t let you down…". The reply of tough and unscrupulous character of Michael Douglas was: "Stop advertising yourself as a cheap retailer. Tell me what I don’t know…".

Approximately the same also happens during "format" meetings of owners of the companies presenting an innovative product and venture investors prepared to give them money. But one should keep in mind that the phrases "we are pioneers in this field" and "nobody did it before us" can’t guarantee the investments. The owners of the needed sums in money equivalents always are in the process of seeking something best – best product, best company, best EBIDTA. Investors prefer startups which have definite competitive advantage in the market. It may be innovative technology, exclusive marketing and distribution relations, strong brand or access to limited resources, etc. Business idea should demonstrate guaranties of the return for investors. A worthy project corresponds to the proved long-term statistics: 2 of 100 projects having been reviewed by investors are successful and meet all the conditions of profitable allocation of capital.

Venture capital market today is a symbiosis of human confidence and market demand. To pass the way which may be referred to in the future as a successful financial deal, the parties should start from visual contact and firm handshake. This is a thorny path. Both parties – investor and entrepreneur – should clearly understand all the stages of mutual work over the project. Paraphrasing Guy Kawasaki, one may say that only the cooperation which is based on mutual willing to improve the world can be highly successful. A contract signed on the base of clear mutual understanding will allow building well coordinated interaction within the future partnership and correctly adjusting strategic plan of cooperation to a successful investor’s exit.

Novosibirsk always keeps its profile in this respect. The region with its rich infrastructure, tens of scientific and research institutes located on the territory of the world-known Novosibirsk Academic town, constantly amazes with the number of companies which are of permanent interest of investors and offer unique and creative ways of solution of the problems in the biotechnologies, medicine, IT and industrial spheres.

Due to the accumulated experience and the impetuous development of promising areas, the region long since has gained the statute of innovation cluster of Russia; and the professional level of preparation of the companies to presentation of their projects has become a quality mark of such events. The coaching with the RVCA experts on the threshold of the Fair has become a permanent annual event that tells on the high level of the exhibitor companies.

In November, different directions capable to occupy deserved niches in B2B and B2C sector will be presented by the companies of the region. For example, IT sector proposes a cloud solution which allows comparing all restaurants by menus, prices, interiors and occupancies of the facilities in on-line mode using a computer or a smartphone.

In the medical equipment sphere, a device will be offered which can carry out blood tests of a wide range on the base of high-precision digital recording, is 3-5 times cheaper than the analogous apparatus, and doesn’t require reagents. It may sufficiently affect the availability of medical care for all categories of population.

One of the industrial sector companies will present a system of accumulating electrical energy on the base of the accumulator batteries. It’s impressive that the variants of the system usage are varying from "home" to "corporate" solution and "distributed generation".

This is far from being a complete list of innovative companies which will be presented at the Exposition of the Venture Fair. The whole list is imposing and it includes practically all the spheres of financial interests. We hope that the exhibitor companies will attract attention of a wide range of investors.

The Siberian region annually vividly demonstrates the potentiality of innovative developments, both demanded at the regional level and targeted at the expansion on the international market.

On behalf of the RVCA, I want to wish all the companies participating in the Siberian Venture Fair a success in raising capital. And don’t forget the key constituent of a presentation: to be interesting, short-spoken, and tell investors the things they have never known before…

With united Siberian and Russian Venture Fairs we're on the right track

The author of this post is Albina Nikkonen, the Executive Director of the Russian Venture Capital Association. You are welcome to go to their website to find out more about the organization.

The United 14th Russian and 7th Siberian Venture Fair will take place in the framework of International Forum of technological development “Technoprom-2013” in Novosibirsk, November 14-15. This synergy is not accidental. The Forum lays a serious claim to become not only the center of attraction for present-day high-tech business, but a reflection of future prospects of international cooperation, too. In this connection, in the context of such concept the approaching movement of two large-scale events – Venture Fair with its experience and Forum with its ambitions and strategic initiatives – looks very promising in its capacity of driver for the process of global changes.

Selection of Novosibirsk Oblast as an arena for the events is well-grounded. Siberian federal district – the region with well-established academic traditions, which more than half a century retains leading positions in the science and technology sphere – has been long since prepared for such global project. Originality of geographic position of the region makes such event an integral part of solution for many strategically important tasks in Russia and abroad.

It is not a secret that Russia, from the technological point of view, is situated in “isolated” position today. I agree with the words of Igor Agamirzian, Director of RVC, that “… there is a warp in system of values in Russia… As far as a banker, bureaucrat, or an official of large oil company have prestige with the society, what kind of investment development may be? The heroes of present days should be teachers, scientists, technological entrepreneurs…”

Maintenance of such image misbalance can lead to human capital scarcity and lack of promising innovative projects. In order to bring back interest to entrepreneurship, to development and commercialization of projects in manufacturing sphere, the investment environment should correspond with the needs of the united economical space of all technologically developed countries. This is not only legal aspects of deals, common understanding of venture investment principles, usage of scientific achievements in real life and economy, but also total commitment in the development of the technological projects sector that will constitute material part of day-by-day life of people. Fundamental principle of venture business – “to earn money, make the consumers’ life better” – this is a slogan of tomorrow.

Joining the 6th Technological Mode is one more task in front of business community of our country, which includes development of biotechnologies, nano-electronics, robotechnics, creation of artificial intellect and new level education systems. These important elements of progressive future are crucial for international positioning of Russia as economically advantageous sector. The “format meetings” which are directly connected with setting constructive dialog between Russian and foreign venture community will be able to adequately respond to the challenges of tomorrow.

The Venture Fair for the years of its conducting in the regions was able to give an opportunity to reveal potential of many talented scientists, inventors and developers that allowed in the future realizing a number of innovation projects. On the base of international experience of conducting such events which are the drivers of communicative progress, one can say with confidence that organizing the United 14th Russian and 7th Siberian Venture Fair in the framework of “Technoprom-2013” International Forum is a step in right direction, and we’ll look forward to its results.

The Globalization of Russian Companies

This op-ed by Michael A. Tappan, the President and CEO of RSR Russia LLC., was originally published in the spring issue of Russia Business Watch (RBW), which is the report of the U.S.-Russia Business Council, and is rerun here by courtesy of the author.

In a Moscow Times article dated March 7, 2013, partners of PwC predicted a “sharp rise” in foreign mergers and acquisitions by Russian companies. The article was based on a report by the firm entitled “Resetting the Compass: Russian Investors Look West.” The report, co-authored by Andrew Cann, Partner – Transaction Services at PwC Russia, states that foreign investment by Russian companies reached an annual peak just above $20 billion in both 2007 and 2008 but has since remained at around $10 billion per year. The number of Russian cross-border deals dropped in that period from over 60 in 2008 to about 40 in 2011 and about 30 in 2012. In contrast, in 2011 Chinese companies did around 120 foreign deals and Indian companies about 80.

The PwC report points out that to date about 70 percent of all Russian mergers and acquisitions activity has been domestic due primarily to privatization plans and industry consolidation. It is now expected that Russia will ramp up its participation with the other high growth market countries in mergers and acquisitions in mature markets to accelerate corporate growth. The main drivers for Russian investors will be:

• Acquisition of technology and skills to leverage at home.

• Diversification away from the domestic market.

• Achieving globalization.

• Taking advantage of opportunities as mature market companies seek to divest.

A study by Deloitte in 2008 identified some advantages enjoyed by Russian companies as they faced the challenges of cross-border transactions and expanding their business abroad, including a high technological base inherited from the former Soviet Union and adaptability to adverse external environ-ments acquired in the course of painful market reforms in Russia. Nonetheless, the results of early Russian attempts to expand into global markets did not meet with 100 percent success. The problems these companies faced were, of course, exacerbated by the global financial crisis, which in many cases forced companies to turn their attention and resources back to problems at home.

The Deloitte study identified the main challenges faced by Russian companies during the deployment of multinational operations, and they would seem to be as pertinent today as they were five years ago:

• The formation of a foreign direct investment and international production development strategy.

• The creation of effective organizational structures to manage the international network.

• The integration of foreign production entities into corporate management and governance mechanisms.

• Adaptation to foreign legal and tax environments.

• Adaptation to foreign social and economic environments and building relations with local communities.

• Growing “investment protectionism” in developed market economies.

Strategy formulation — The failure to adequately address strategic issues raised by a policy of acquisition abroad risks financial losses and harm to the company’s international business reputation. With vision, commitment and direction from the board of directors, a long-term global expansion planning process must be established and a management team formed specifically to oversee all aspects of a company’s foreign expansion, including the targeting of potential acquisition candidates. Foreign directors can be added to the board explicitly for the particular contributions they can make to the management of a company’s globalization strategy.

International network management — This mechanism should be built into the corporate organizational structure, for example through the creation of an international division or through integration of foreign operations into existing functional or product-based divisions.

Internationalized corporate management and governance systems — Incompatibility of business processes, accounting and operation planning systems, financial and management reporting and information systems as well as differences in business culture and practices, including corporate governance practices, must all be addressed through integration and adaptation. The adoption of international standards of corporate governance will be essential to all aspects of any corporate globalization program. Anything that contributes to easier due diligence and a positive assessment by the company considering acquisition by a Russian company should be undertaken.

Foreign legal and tax environments – The board and management will face a host of issues that have legal and tax consequences and will seek professional help from bankers, lawyers, accountants, and other consultants.

Host country social and economic environment — One of the first obstacles an acquiring Russian company is likely to meet is negative perception of Russian business, such as an association with criminality and corruption, still being fostered by international mass media coverage. This view can hinder acquisition negotiations, prejudice local authorities against sale to a Russian entity, complicate relations with labor unions, and interfere with recruitment of senior staff. A strong board including foreign directors of high reputation can go a long way in avoiding these problems.

Investment protectionism — The trend toward “targeted” investment protectionism in many developed market economies is of particular concern for Russian companies acquiring existing foreign companies as opposed to “green field” investment. Russian companies with state shareholdings are particularly vulnerable. Integration of the company’s corporate governance standards with those of the host country helps, as do programs designed to demonstrate transparent reporting and decision-making. An understanding of the local political environment is extremely important.

As stated above, the execution of a successful cross-border acquisition or greenfield investment program requires the assistance of an array of professional consultants, including bankers, lawyers, accountants, and management consultants. At the most strategic level, however, Russian companies contemplating such a program should consider adding one or more foreign independent directors to the board to gain the specific contributions they can make from plan conception through to its implementation:

• Strategic guidance based on prior experience at the board or top management level in the execution of a corporate globalization program.

• Specific knowledge of foreign markets of greatest interest.

• Experience in and therefore deep knowledge of the industry in which acquisition candidates will be sought.

• Specific knowledge of key technologies relevant to the acquisition program.

• Full understanding of the business culture and standards in the target market or markets.

• Awareness of potential political issues affecting acquisition of companies in particular foreign markets.

• Perspective on the company, its general stance in the acquisition process, and the specifics of its presentations to acquisition candidates and their professional advisers.

• Ability and the right position to serve as spokespersons for the Russian company in the prospective new market.

• High reputation and visibility that will enhance the credibility of the Russian company as a trustworthy negotiator and potential business partner or owner.

• Ability to make key introductions.

Unlike the earlier surge in cross-border acquisitions by Russian companies, which was effectively stymied by the global financial crisis in 2008, participation in the new trend will extend beyond a few natural resources and metals and mining companies to a much wider range of industries. Furthermore, globalization will be sought not just by major Russian multinationals but also by smaller companies through acquisition as well as organic growth abroad. For example, at a conference in Moscow in October 2012, Igor Agamirzian, General Director of the Russian Venture Company, stated, “Russian development institutions, including Rusnano, RVC, and Skolkovo, are extremely interested in globalization of Russian technology businesses.” Our own experience at RSR Russia has made us aware also of relatively small publicly-owned companies pursuing aggressive growth plans in foreign markets, and we expect this trend to become established and continue.

Looking forward to new epoch of business dialogue between Europe and Russia

The 3rd Russian Tech Tour is coming to Russia’s Moscow and Kazan later this month to identify the upcoming and leading top 25 high-growth privately held companies in Russian regions and to introduce them to key European, US and Asian investors and professionals who can assist in their global expansion. Aynur Aydeldinov, the president of the Russian Tech Tour 2013 and the CEO of the Investment and Venture Fund of the Republic of Tatarstan (IVFRT), explained to Marchmont the reasons for picking his home region for the event, and also shared his expectations.

To me, Moscow and Kazan are leaders in Russia for the technology industry.

Well, yes, Moscow has always been on the cutting edge of innovation and business activity, but it is necessary to show that Russia is a very multicultural country with sustainable progress in the venture industry in Kazan as well as other regions. The background of scientific discovery in Moscow and Kazan serve as a basis for breakthroughs in technology and the development of the region as a hub for innovation. Investments in these regions have risen substantially in the last year in such leading sectors as IT, energy-efficient and nanotechnologies.

Kazan, located in the Republic of Tatarstan, has been investing heavily in innovation infrastructure during last decade. Russia is dedicated to switching our region’s economy towards a path of innovation and technology. This has resulted in a number of techno-parks, business incubators, accelerators, and co-financing start-ups with the help of state funds.

The regions also have industrial backgrounds in advanced areas of chemistry and petrochemistry, avionics, machine building, and construction, which provide an additional horizon for future stages of development for the technology companies we support.

As the Russian Tech Tour is returning to Russia in April, I keep thinking of the changes that I have seen in the ecosystem since this international program last visited Tatarstan in 2009. The last four years have marked a period of exponential growth for start-ups in various spheres of industry. The opening of major institutes for development, such as Skolkovo and Nanocenter, have redefined the way investors see Russia. Tatarstan has cultivated and launched new projects such as Innopolis and Smart City, raising investment interest in the region.

Still, there remain significant challenges that entrepreneurs in Russia have to face. The main issue is that entrepreneurship is a relatively new idea for Russians. “Entrepreneur” is not yet considered an occupation. To counteract this way of thinking there is an enormous amount of effort and financial support coming from the government in both Kazan and Moscow to bring entrepreneurs together in order to educate and foster them. Kazan, in partnership with the Center for Entrepreneurship, has recently developed a training program for entrepreneurs to compose their business plans.  These initiatives reflect our commitment to growing a generation of skilled entrepreneurs in the Russian Federation.

As the president of the Russian Tech Tour I would like to see the event opening a new epoch of business dialogue between Europe and Russia. The Russian Tech Tour will showcase a new wave of entrepreneurs that are following in the footsteps of a number of Russian technology companies that have already become global players in the industry.

Global innovation rankings: Is Russia 14th, 51st or 85th?

This op-ed by Adrien Henni, co-founder and chief editor of East-West Digital News, the first international resource on Russian digital industries, and a member of Marchmont's Advisory Board, was first published on the EWDN website.

A few weeks ago, Bloomberg issued a “Global Innovation Index” which ranked Russia as the world’s 14th most innovative nation – just between Norway (13th) and Belgium (15th) and well ahead of China (29th) and even Israel (32nd).

Here is how Russia ranked in Bloomberg’s determining factors:

• R&D intensity: 29th
• Productivity: 41st
• High-tech density: 2nd
• Researcher concentration: 24th
• Manufacturing capability: 38th
• Tertiary efficiency: 2nd
• Patent activity: 8th

Just months before, however, the country had been ranked 51st on INSEAD’s Global Innovation Index (GII) and stood 85th on the Global Competitive Index of the World Economic Forum for criteria related to “innovation capacity” – in a discouraging fall from 57th place in the previous edition (2010–2011).

True, these three rankings are based on completely different methodologies; and no one should expect converging results when comparing apples and oranges from different continents using different measuring instruments. With all due respect to the seriousness of the researchers and analysts behind these rankings, then, one should think it twice before drawing conclusions from any of them.

My personal opinion, stemming from a 25-year relationship with this country, is that Russia is not among the world’s most innovative nations. By such key parameters as Internet penetration (a bit more than 50%) or R&D investment as a proportion of national income (around 1%), Russia lags far behind the international leaders – and its technological retardation becomes obvious outside its largest cities.

The country’s economy remains fundamentally oriented towards exploiting natural resources and importing technology, while its industry still needs modernization
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These views are shared by the Russian authorities themselves. The government’s efforts to spur innovation in the country over the past few years have been praiseworthy, though not always efficient – which is likely to remain the case as long as decisive efforts are not undertaken to assert the rule of law, root out corruption and make the country more attractive to its most enterprising and creative citizens.

From “emerging” to “established”

Yet what Bloomberg’s optimistic 14th place for Russia tells us is that the country of Sputnik and Yandex is progressing at an unbelievable pace. Suffice it to look at the booming Moscow innovation scene. Only a few years ago, the city had just one business incubator, HSE Inc., founded in 2006 by students at the Higher School of Economics. Since then a plethora of incubators, accelerators and tech centers of all kinds have sprung up in Moscow, many of them integrating themselves with international innovation networks.

And while the local venture scene looked almost like a desert a mere three years ago, with hardly more than a couple dozen really active funds, domestic and foreign investors have now made an impressive pile of money available to Russian startups. State support has become a tangible reality too, from high profile nationwide projects to local initiatives in Moscow, Tatarstan, Novosibirsk and many other places.

But Russia is just one hot spot among many on the new global innovation map. The rise of innovative technologies, companies and even entire high tech industries in emerging countries now appears to be a major and irreversible trend of globalization.

The practice of innovation that was originally spawned in Silicon Valley and some other privileged areas in a few Western and Asian countries is now quickly spreading internationally, creating a global playing field from Berlin to Shanghai to Moscow to Rio de Janeiro, while more and more startups and funds tend to operate globally.

The rising status of countries beyond the G7 axis has just been quantified in a report by Thomson Reuters, encompassing data on R&D spending, human capital, research publications and patent filings. These are the key indicators of the sustained, diversified research innovation base enjoyed by many of the G7 knowledge economies, the news agency noted.

And this is how Brazil, Russia, India, China, South Korea and several other nations are now moving from “emerging” to “established.”

Russian business needs long-term thinking

This op-ed by Gregg Robins, managing director of UBS in Russia, a musician and a member of Marchmont's Advisory Board, was first published on Reuters.

Russia’s political developments make headlines, but it’s the country’s business development and demographics that are central to its longer-term prosperity. Russia experienced a massive, rapid ownership transformation in the 1990s and is undergoing another one today. Although more gradual than before, the current transformation exposes a profound problem: an emerging leadership gap in business.

The current generation of business owners is not thinking about how best to transfer control of their sizable companies, apart from selling them. And a younger generation is largely unwilling or unable to take over.

This lack of vision has serious consequences. The Family Business Institute notes that “family business failures can essentially be traced to one factor: an unfortunate lack of family business succession planning.” In Russia, succession is especially important because the country is experiencing its first major generational transfer, which should set the foundation for evolution. A shortage of buyers and leaders is a further blight on the future.

Russia will need to address this issue if it is to develop large family-owned business sectors, such as the German Mittelstand and the many world-renowned brands in Italy, such as Alessi, Lavazza and Zegna. Succession across generations has provided stability and its social and economic benefits to these countries.

Apart from Russia’s massive companies, such as Gazprom, there are many sizable businesses where private ownership is concentrated in individuals and their families. These are not “family businesses” in the American sense of corner stores or restaurants, but more akin to Mittelstand. A recent study by Campden Research , sponsored by UBS, explores attitudes of Russian owners of such $50 million to $1 billion businesses in manufacturing, technology, financial services, real estate, pharmaceuticals, mining and telecommunications. Ninety-five percent of these owners say they lack a succession plan.

That’s not surprising in light of the short-term horizons that prevail in Russia. Capitalism is still in an early stage, profit margins are high relative to other emerging markets, and uncertainty is rife. The short-term mindset emerged in the Soviet Union’s final years and persisted as markets opened further in the early nineties. Short-term thinkers – the most nimble and adaptable to the frequently changing environment — were the most successful.

Demographics shed further light on the problem. Three generations constitute at least three distinct Russias.

The older generation have largely not made the transition to the new Russia. They still adhere to the paternalistic Soviet ideology in which the state provides for citizens’ work, health, and cultural needs. Most are passengers in the new system, supported by the state and by their children and families, and not involved in business development.

The middle generation have successfully bridged the old and new systems through knowledge and connections, and have succeeded in many cases as entrepreneurs, some extraordinarily so. Many have diversified their businesses, assets and lifestyles, and found varying degrees of balance between Russia and abroad.

Many business owners want their children to have an “easier,” more “peaceful” life, perhaps in a place outside Russia. In many cases they feel potential business heirs are not well-versed in Russian business culture – partly by virtue of their education and experience abroad. A much higher percentage of Russian business owners wish to sell their companies, as compared with other countries, and they increasingly want private equity firms to take stakes.

As the middle generation shirks planning, the younger generation becomes critical to Russia’s business future. They are more global in mindset and experience than their parents, less ideological and more technologically savvy. They are more likely to have studied and lived abroad.

While this greater sophistication and worldliness should be all to the good, the young are also more often planning to settle outside Russia permanently. More than a million people, many of them young and capable, are estimated to have left over a five-year period. Yet for those who choose to stay and build their careers, evidence suggests that Russia’s traditional competitive advantage in higher education among emerging markets may be slipping. Russia ranked 26th out of 28 countries according to a recent PwC Family Business Survey based on family firms’ assessments of having the right skilled people entering the job market.

Both those trends portend a dearth of business leadership in Russia. The looming deficit is troubling since Russian companies depend a great deal on their managers to cope with endemic challenges, such as bureaucracy, corruption and other inefficiencies. These issues tend to create top-down rather than flat management structures.

Successful transfers of businesses mean higher growth rates, better products for consumers and higher tax revenues to pay for investments in education as well as pensions, critical for maintaining stability. Russia counts on a high oil price relative to other oil exporters to keep its budget in balance, and there is not a large margin for error. A recent report presented at Davos by the World Economic Forum underscores these inter-related factors as they affect Russia’s ability to maintain essential social cohesion.

Short-termism is nothing new in Russia, but a commitment to the continuity of Russian businesses is now urgently needed. The stakes are too high to get this wrong.

Conscience Is In, Greed Is Out and Crowdfunding Is On

This op-ed by Victoria Silchenko, founder and CEO of the U.S.-based Metropole Capital Group and a member of Marchmont's Advisory Board, was first published at Huffington Post. Victoria has taken a pro-active stance in promoting crowdfunding--and not only in LA.

When I opened our monthly Global LAVA group meeting last Friday, I couldn't help but pronounce it out loud: "If anyone would like to know what the market trends are, check out our LAVA (Los Angeles Venture Association) meetings and see how packed the room is!" What made about 80 people meet at rather a vicious time -- 7:30 a.m. -- was not a question but a matter of fact: crowdfunding, our Global LAVA's topic of the month, is clearly on the minds of entrepreneurs.

The enormous impetus of the entrepreneurial community's decisive move toward crowdfunding -- the relatively new way to raise money via online communities -- is a result of the ultimate failure of the financial system that has proved to be dysfunctional for the most self-starters in the U.S. and globally.

In the past four years, according to the National SBA survey, almost half of small businesses have not been able to secure capital; 38 percent of small businesses had loans and lines of credit either reduced or revoked. As the most recent PWC Money Tree Report revealed, the investments into seed stage companies decreased by 31 percent last year -- the lowest annual seed dollars since 2003.

I believe there is a whole generation of the brightest and brilliant minds that have failed to obtain capital not because of their poor business models or lack of ambitions but because the VCs have primary focused on tech for at least past 25 years.

There is one more "catch." As a new study released by the Institute for Exceptional Growth Companies (IEGC) and Pepperdine University confirms, women-owned and foreign-owned businesses are 23 percent and 46 percent accordingly less likely to obtain venture capital.

While the fate of equity-based crowdfunding here in the United States is in the hands of the Securities & Exchange Commission (that was due to arrive with regulation rules last year but missed the deadline), rewards and donation's based crowdfunding models are getting their momentum. Why?

I would seriously argue that today, if you are a minority or represent any start-up but tech, and you look for seed capital, chances are crowdfunding is most likely the only option to go with.

After tirelessly trying to get the attention from Silicon Valley and local VCs to his SATORI Brands, an LA based international beverage start-up company, Daniel Regidor has recently turned to the on-line community. He started his first crowdfunding campaign on Kickstarter and presented the potential backers with an insightful video produced by the SATORI supporter Anthony Zuiker (a creator of the CSI TV series). In less than a week the company received almost 4,000 Facebook "likes" and on the day I am writing this post, there is $33K pledged toward the $60K goal.

If you are an entrepreneur and about to jump into crowdfunding websites, a note of warning: running a crowdfunding campaign is not easy and might be a grueling process. As Regidor confessed, without benefits of having an established network of friends and supporters in the media industry here in Los Angeles, the cost of his crowdfunding campaign would easily jump to $10K and more. He and his team are also in the dark on how to be featured on Kickstarter's main page, which increases the chances of being financed significantly. Lastly, the "all-or-nothing" model operated by Kickstarter means that if you haven't met a pre-set target, the money that you've been able to raise will be returned to the backers.

To date there are numerous other, primary niche crowdfunding platforms and not all of them have the "Cinderella clock." One of my favorite examples is WhenYouWish.com, a global reward-based crowdfunding platform with a focus on non-profits. The company is backed by John Mackey, the founder of Whole Foods Market and author of the recently published Conscious Capitalism. I love the book. At our Global LAVA meeting, the CEO and co-founder of When U Wish, Dave Harvilicz, was wearing a yellow t-shirt that had the tag "Team Conscious Capitalism" on. Harvilicz's motto -- "Forget big banks and government -- we, the people, can unite to bailout each other." Harvilicz and a team of other doers and disruptors are going to speak at our second annual Next Entrepreneurship and Global Crowdfunding Forum here in Los Angles on November 15th, 2013. Please mark your calendar. And let me know if you want the yellow t-shirt as well.

The rise of crowdfunding is not sudden. To date this new form of financing is the only form that directly connects passion with a market demand and a supply of capital. Add to this an emerging culture of transparency, thanks to the unlimited potential of thousands of blogs, discussion groups and e-mail threads that are on safeguard, and I bet you'll feel a welcome change in the financial system.

But most importantly, for most entrepreneurs crowdfunding is not just an option anymore. It is a necessity. And as we all know, necessity is the mother of invention. Stay tuned.

Tapping Into Group Effort

This op-ed by Victoria Silchenko, founder and CEO of the U.S.-based Metropole Capital Group and a member of Marchmont's Advisory Board, was first published at Los Angeles Business Journal. Victoria has taken a pro-active stance in promoting crowdfunding--and not only in LA. 

Los Angeles has always been a hotbed of opportunity and creativity. But even with the highest number of entrepreneurs living here of any U.S. city (580 per every 100,000 adults, according to a Kauffman Foundation study), it still remains better known for its entertainment industry than any entrepreneurial spirit.

Though that could all be about to change with the rise of crowdfunding – a means to raise capital in small amounts from a large group of people from the Internet and social media.

Suggestions that this phenomenon could change the perception of La-La Land were very much in evidence at a recent gathering of leading local and international innovators, visionaries and investors. Many attendees at the first annual Next Generation Entrepreneurship and Global Crowdfunding Forum at Santa Monica on Nov. 16 saw crowdfunding as the clearest path to an economic comeback.

One of the distinguished speakers, Howard J. Leonhardt, founder of the California Stock Xchange, predicted: “Crowdfunding will bring the grandest expression of human creativity and economic growth ever seen in the history of human civilization and will unleash the dreams, will and burning desire of people who want to show what they can do – particularly those who have never been given a chance before.”

Others pointed out how crowdfunding has the potential to transform and democratize the funding industry by putting a lot more capability into the hands of the public – who have already proved their financing power. According to the Global Entrepreneurship Monitor in 2010, while $9.4 billion was committed by angel investors, $41.6 billion in private capital came from friends and family.

More recent data reveals further insights: In 2011, 4.8 percent of the U.S. population personally provided funds for new businesses while only 1 percent of the population was represented by venture capitalists and accredited investors (who must have an annual income of at least $200,000 or more than $1 million in liquid net worth). Moreover, the number of accredited investors dropped last year by 12.5 percent and was roughly just about 120,000 people.

The unconventional truth that was revealed at the forum was that formal investors do not have enough capacity to back all of the startups. Two prominent entrepreneurs, angel investors and founders of leading local accelerators, David Carter (of the Amplify business accelerator) and Howard Marks (of StartEngine), agreed that they don’t have to compete with each other as there is plenty of businesses to go round.

Carter noted that out of 2,000 applications, Amplify invested in 16 ventures.

According to Marks, StartEngine’s current portfolio includes 42 companies and with that, the number of companies that are backed by the remaining L.A. accelerators is believed to be about 100. But with 400,000 registered businesses in Los Angeles and 4,000 local engineers who are graduates from the country’s leading schools, the number of “accelerated” ventures should be much higher.

“There is no doubt the amount of (entrepreneurial) activity in Southern California has never been close to this level and it continues to expand,” said Rick Smith, managing director of Crosscut Ventures, who has been a venture capitalist for more than 15 years and who is very optimistic about the L.A. investment climate.

“Local accelerators are bringing new companies and entrepreneurs even from outside of California.”

Long way to go

Los Angeles – and particularly the Westside technology hub dubbed Silicon Beach – still has a long way to go to match Silicon Valley, known worldwide for such brand-name IPOs as Facebook and Yahoo. The AngelList presently names 5,861 startups in Silicon Valley, almost four times as many as in the whole of Los Angeles.

But Los Angeles doesn’t have to have “the next Facebook” in town in order to earn public acceptance as a technology hub, for crowdfunding can transform the startup ecosystem of the city.

A note of caution was sounded by Hale Boggs, a partner at Manatt Phelps & Phillips LLP, a leading L.A.-based law firm focused on emerging ventures, who told the forum: “While the concept of the new asset class is exciting … a lot has to do with how the regulations about all this come down (from the Securities and Exchange Commission). And the reason that they have not come down yet is that the regulators are struggling about the amount of disclosure and what kind of disclosure has to be provided to everyone out there who can write a $50 check or even less. … It really does make you wonder – can it really work?”

The entrepreneurial and investment community is mostly positive that it can – and that Los Angeles can be at the forefront. With L.A.’s famous creativity and flexibility plus the present boom of its digital media and technology industries, it is clear that the city is a vibrant place for startups, and the forum revealed a lot of potential synergies.

The future is bright – and apparently that future is being crowdfunded.