Russian venture capitalist from Palo Alto

Galina Kostina, Expert magazine.

A doctor from Barnaul has become a successful venture capitalist in Silicon Valley for nine years. Now he believes that it is not necessary to go to the USA for success, it is possible to be realized in Russia

For the second time, representatives of innovation circles from Silicon Valley are visiting Moscow as part of the Global Innovation Partnership Forum. Russia is becoming interesting to venture capital funds with world renown. More recently, investors preferred to invest exclusively in local companies, and now they are actively working in China, India, Israel and Russia in search of greater efficiency. The globalization of the industry dictates a global increase in capital, besides, venture capitalists are interested in markets with good development potential. Russia is becoming more understandable largely thanks to state policy. American investors are already negotiating investments in Skolkovo, the creation of joint funds, and the opening of their offices. "Now is the time to think about Russia," says Evgeny Zaitsev, a member of the American delegation, our compatriot, one of the partners of the Helix Ventures venture fund.

Stanford is a relationshipThe career of Evgeny Zaitsev, who graduated from the medical university in Barnaul, had to develop against the background of the general collapse in the early nineties, when many changed the medical gown for the image of a small businessman.

However, Evgeny was passionate about his studies, scientific research at the Department of Normal Physiology and social activities. After graduate school, Zaitsev combined scientific research with an applied aspect – in the area of the Semipalatinsk nuclear test site, where a federal program was launched to study and eliminate the consequences of nuclear tests. There he became deputy director for Science of a specially created Research Institute of Regional Biomedical Problems. According to Evgeny, the work was unique, it included about 80 groups from leading academic institutions and universities of the country, as well as specialists from the USA and Europe. Zaitsev was engaged in this work for seven years, during which many scientific problems were solved. A new period of life was brewing. "I was thinking about private business based on my medical and biological knowledge," says Evgeny, "but I didn't have an exact goal at that time." But it was clear that business needed knowledge that the medical university did not provide.

Zaitsev was wondering where to go for new knowledge – to Moscow, to Europe or to America – and sent applications to various business schools. And as a result, he was among 360 students selected from 8 thousand applicants at one of the best schools in the world – Stanford. Probably, he thought later, his scientific and organizational activities in the Semipalatinsk program played a role, since Stanford tries to select first of all those who have good development potential from incoming entrepreneurs and businessmen. Zaitsev did not want to lose touch with his profession, he wanted to "upgrade" himself in order to do some business directly in the field of medicine and biology. And I absolutely did not think of becoming a venture capitalist, although many people entering school only dreamed of it.

In his first year, Zaitsev learned the basics of economics, management, accounting and finance, company and personnel management. In addition to an amazing educational program, he remembered meetings with people who built iconic Silicon Valley companies. Professors often brought businessmen to lectures in order to conduct a "debriefing" together with students – the work of the companies entrusted to these businessmen. "Such an interactive form of education, which is very popular in the United States, including at Stanford, helps to understand many things much better than the monotonous lectures that our education is famous for," recalls Zaitsev. – But we must also pay tribute to our universities: the most important thing that I learned from my education at the Altai State Medical University is the ability to study." Of course, basic knowledge was also obtained at his native university, but in California, Eugene experienced, as he put it, a cultural shock when he saw how far this knowledge is from modern biology and medicine. I had to catch up in libraries and on the Internet.

After graduating from Stanford, there were only five of Zaitsev's classmates in the venture business. He explains as follows: it is very difficult to get into good venture companies, as a rule, they are small, there is no turnover, there are no personnel departments searching for new employees. They get there by acquaintance, but not by fraud. "You need to be recognized, they tried to work with you, and if you are the person who can fit into the team, they can take you," Zaitsev continues. – Stanford is a relationship. With famous scientists and businessmen, with classmates, with former graduates. It's a kind of brotherhood that helps a lot to find yourself." For example, after the first year, students seek internships in decent companies, and many of them send letters to Stanford graduates, knowing about Stanford ethics: you need to help your friends, even if you don't know them personally. Graham Crook, a partner of a very well-known Asset Management Company in the USA, headed by one of the pioneers of the American venture business, Franklin "Pitch" Johnson, responded to such an email from Zaitsev.

Pitch PrinciplesDuring the lunch meeting, Graham Crook honestly admitted that the company does not need new employees, hinting at the "Stanford" duty to meet and just talk.

However, by the end of the meeting, he promised Evgeny to introduce him to the legendary Pitch: he was supposedly interested in Russia, he even had some investments there. The meeting took place. "Two days later, at the weekend, where Pitch invited me, I already knew his large family and met the fund's investors there," says Zaitsev. – By the way, it is at such events that important decisions are made, some informal promises can be made at them, which serve as a better guarantee than a signed piece of paper. If you promised to invest in a company in an informal setting, then its manager can be sure that the deal will take place."

Evgeny was taken first for three summer months as an intern. Then they gave him a part-time job, at that time he was finishing the second year of business school, by the end of which he had already been hired as a full-time associate. Soon he became a principal, and two years later he became a partner of the firm. "I can't exactly transfer my pre–partner positions," says Evgeny, "but I was doing the same thing as the rest of the company's investment professionals. In total, there were eleven people in the company, including a secretary, an accountant and the pilot of a small Galaxy jet plane, on which Pitch flies around the world." In business school, Evgeny studied from Pitch textbooks, and at work - from him personally: "His comments or opinions, which he expressed every time at the investment committee or in other conversations, had an educational character for me. I have learned its fundamental principles and lessons, which I follow now."

One of the main principles is that you cannot change your investment strategy depending on market fluctuations. This has always been a principle for Pitch and was confirmed by an illustrative lesson during the burst of the IT bubble: this is what the euphoria of rapid entry and exit from invested companies can turn into. Yes, many managed to make a huge amount of money on this, but many lost the same huge amount of money.

The second lesson of the Pitch, in fact, followed from the first – companies are not sold, but bought. You can't invest in a company in order to sell it quickly. "This is often a temptation for venture capitalists," says Zaitsev. – And from such venture capitalists who try to push small companies as quickly as possible, the latter can get either a quick death, or an uninteresting suspended fortune with shares less than a dollar. Companies, according to Pitch, should be built with such consideration in order to become self-sufficient, generating good profitability or at least having the potential for this. Then there is no need to look for buyers, they themselves are quickly located." One of the recent illustrative examples is the sale in 2009 of BiPar Sciences, which the Asset Management Company joined in 2004 at an estimated cost of only $ 5 million, to the pharmaceutical giant Sanofi–Aventis for $ 500 million. By the way, Zaitsev himself found this company through a Russian-born scientist Valeria Ossovskaya, who worked at the University of California in San Francisco at that time. "She said that she cooperates with this company and there is a very interesting product in the preclinic," recalls Evgeny. "I got to know them, and the results impressed me." BiPar has developed a drug that could potentially be effective for the treatment of many forms of cancer. The drug had the ability to inhibit an enzyme characteristic of cancer cells that interferes with the programmed death of a cancer cell. Asset Management Company, as the first institutional investor, was able to quickly form a powerful syndicate of investors, which included such well–known funds as Vulkan Capital (the fund of Paul Allen, the founder of Microsoft) and Canaan Partners, in the second round – Domain Associate. In total, the syndicate invested about $ 63 million in BiPar. Already in 2008, the second phase of clinical trials gave such encouraging results that BiPar received several tempting offers from big Pharma at once. Sanofi-Aventis, which is now finishing the third phase of the clinic, won the Grand prix competition. This transaction was the largest transaction in the biotech industry in 2009.

Syndicated investing is the third rule of the Pitch. "Attracting additional participants not only reduces the risks of financing in the next rounds, because biotech is a long money, where one round is not enough," explains Zaitsev, "but also allows you to include very large specialists from these funds in the board of directors of a developing company. Practice shows that their help to a new company can be very useful."

Starting as an intern, Zaitsev immediately joined the full-fledged work of the foundation. The activities of each employee from a small staff of a venture fund are multifaceted: search for new deals, modeling of a future product, business expertise and business analysis, negotiations and decision-making, participation in the management of an invested company. "We help these companies in their development, find the right specialists and services necessary for rapid promotion, investors for the next rounds of financing," explains Zaitsev. According to him, not all venture funds adhere to such principles even in the USA: "There are a lot of funds with negative returns in America that do not return money to their investors. There are only 15-20 percent of venture capital funds that create returns, and I am proud that the funds I participated in managing are included in this top."

Tablets with a microchipAsset Management has always invested in young companies with information and medical technologies.

Approximately 80% of investments are in the early stages (if we are talking about biotech – in a preclinic or an early clinic), 20% – in later stages. Companies are selected with products that will solve important problems in the industry and for which there will be demand. Of his interesting deals, Zaitsev recalls the company Fusion Medical Technologies, which developed a surgical glue to quickly stop massive bleeding. It was sold to Baxter International for $ 157 million, which brought Asset Management a return exceeding the investment by 4.8 times. Another company, MicroVention, has developed devices for the treatment of cerebral aneurysms – blisters on the walls of blood vessels that can burst and lead to a stroke. The first-generation technique was based on the introduction of platinum spirals into the aneurysm cavity through a catheter, forming the overgrowth of bubbles. The second generation also included a hydrogel, which accelerated healing and reduced the frequency of complications. In 2006, MicroVention was acquired by the Japanese Terumo group for $200 million.

There are many rising stars among the invested companies. For example, Sonoma Orthopedic Products creates implants for fixing tubular bones. This is a new technology in non-invasive surgery, it allows you to implant a flexible device into the bone marrow, and into such complex bones as the collarbone, and then by turning the screw, as it were, to dissolve the "umbrella" that fixes the bones rigidly and reliably. The development, according to Evgeny, has already caused a stir in the market: many Americans lead an active lifestyle, the flip side of which is fractures. This means that hundreds of thousands of devices are needed to repair bones.

Next – Proteus Biomedical with a specialization in the treatment of cardiovascular diseases. The company has two interesting products in development. The first is a device that sets a certain rhythm to the heart, it should help those suffering from arrhythmia. But Proteus took into account that the heart does not always need the same rhythm, it needs more fine tuning, and made a whole system – something like a computer network with several sensors – capable of synchronizing the work of different parts of the heart. The second product is intended for those who must take pills strictly by the hour: for example, patients with diabetes, HIV, tuberculosis, mental illness. This is a system that includes a microchip superimposed on a tablet and a patch that transmits a signal to a mobile phone. Signals about taking pills can be transmitted to patients, as well as to doctors or relatives. The idea of introducing information technologies into medicine is one of the modern trends, and Proteus is in the forefront in this sense. "The company has already been recognized as a global technology leader at the Davos forums," says Zaitsev. – We were the first institutional investors with an estimated value of five million dollars. Now she has six corporate partners, and the estimated value is approximately $ 300 million. The market is looking forward to her products."

In 2009, Asset Management Company decided to split the fund, since managing a diversified fund, that is, investments in the field of information technology and biotechnology, is a difficult task. "These are two fundamentally different investment strategies,– explains Zaitsev. – Different dynamics, different amounts of capital, different profitability. It was decided to separate the biomedical practice into a separate management company, while Pitch committed to invest in a new fund." The company was named Helix Ventures, considering the word "helix" not only beautiful, but also tied to the topic: it means spiral and refers to the DNA spiral. The new company included medical specialists Asset Management Company, and Graham Crook and Evgeny Zaitsev became partners. Soon they were joined in the same capacity by Philip Sawyer, who had previously been CEO of one of the successful invested Asset companies, Fusion Medical. The new fund quite naturally follows the same investment strategy that the team has been using for many years. Approximately half of the fund's investments are in companies developing medical devices, and half are in medicines. Helix Ventures continues to conduct biomedical projects initiated by Asset, but already invests in promising companies itself. For example, at Invuity, which is developing a new lighting system for surgical instruments for minimally invasive surgery.

Russia needs very littleThere are no Russian companies in the Helix Ventures portfolio, although there were companies with the participation of our former ones.

"So far, unfortunately, Russian biotech does not look competitive," says Zaitsev, "but it seems to me that it has a great future." Evgeny and his partners are attracted by the complexity and scale of the task of building a biomedical industry in Russia. "We are currently discussing options for joint work with several partners and development institutions in Russia. As venture investors with an established reputation, we have access not only to technologies that can be attracted, but also to experts who can come to Russia and help build the entire chain necessary for the commercialization of a biomedical product."

According to Zaitsev, to create a powerful biopharmaceutical industry in our country, there is the main thing – people who are engaged in science and are already included in global science. Biotech venture funds are emerging, there is an opportunity to buy any hardware and create very well-equipped laboratories. According to Zaitsev, there are not enough small people – people who can create the necessary infrastructure and manage it: "In Russia, as well as in other countries, bigpharma conducts numerous clinical trials. But all the test tubes with the results are sent from the country, because there is not a single certified central laboratory here that would satisfy both the customer and those bodies that will then give the go-ahead for a new pill." There are no high-quality certified laboratories for preclinics, there are practically no centers for screening and testing substances, there are no other small services that surround biotech in large numbers in the USA. "The company BiPar Sciences, which I told you about, had about twenty such small co–executors in the process of developing the drug," says Evgeny. – After all, it makes no sense for small biotech companies to create all services for one drug. If there were more of these services in Russia, then there would also be more biotech startups. Moreover, these services must necessarily be focused on the global market, since no one is interested in local companies and local products. And to create such serious services, professionals in the field of commercialization of high-tech products are needed. There are none in Russia yet, but they can be attracted, including from among Russian specialists working in the West."

Evgeny has permanent and close ties with Russia. He was one of the founders in Silicon Valley of the association uniting the Russian scientific diaspora (AMBAR), the founder and president of the conference "Open Doors to Silicon Valley", one of the leaders of the Russian-American Symposium at Stanford University. "We bring Russian entrepreneurs, managers, lawyers, officials here all the time, we create educational programs for them," Zaitsev says. – We travel to Russia with investors. I left in 2001, when no one in Russia needed innovations. Over these seven or eight years, I think Russia has made serious steps in the field of innovation policy. Funds began to appear, albeit not optimally structured, but they exist and work, there is a state request for innovation, and there is a great chance that Russian science and business will integrate into the global innovation process faster and faster." Zaitsev does not think that he is too optimistic, his profession does not allow him to fall into euphoria.

Portal "Eternal youth" http://vechnayamolodost.ru18.10.2010