(Editor’s note: Yuri Ammosov is a senior policy officer of the Russian Government in charge of the venture capital and high tech development programs. In this piece, he introduces the new Russian sponsored venture capital program. It opened in March, but has just made its first commitments. Also, see BusinessWeek’s pieces about Russian and Eastern European VC for more context.)

What do you do if there is no venture capital in you country? Well, one way is to go out and buy some.

We in Russia just bought our three first venture funds.

People in places like the Valley seem to take availability of angel and venture capital for granted, but every tech economy has a jump-start before it becomes self-sustaining. Pioneering Silicon Valley venture capitalists, for example, got help from the U.S. government’s SBIC program in early 1960s. Other geographies were less lucky. In the last 20 years, other countries began catching up – Britain, Taiwan, India, Israel, China – but not Russia.

A few years ago, it became obvious that Russia’s tech economy was not going to start by itself. Not that the Russians aren’t able entrepreneurs when placed in a proper environment (Brin and Levchin, to name a couple), but in the absence of venture capital, who would build a startup knowing it might consume millions of dollars before even reaching the hope of breaking even?

Lack of success stories in tech and startup culture, coupled with Russia’s booming domestic market sucked all the capital into bricks-and-mortar businesses.

So a vicious circle had to be broken. Last year, Russian government set up a $600 million (RUB 15 billion to be exact) fund of venture funds. Russian Venture Company, as the fund is officially called (for legal reasons, it was structured as a business development company) promised to provide 49 percent of capital to venture firms that meet its criteria and which raise the remaining 51% of their funds from private sources. This money came with a few strings attached: A firm could capitalize only one fund from the government; funds were supposed to be from $40 million to $110 million in size (again, in Russian currency, RUB 1,2 to 3 billion); funds had to put 80 percent of funds in early stage companies; all funded companies had to be high-tech. And the tastiest bit: all returns made on government money above inflation go to investors and managers (or, if inflation is above five percent, then five percent is cap, and the fund keeps returns above that).

Effectively, it means almost double the return for funds – and for fund managers, the windfall is simply enormous.

Previously, such a fund of funds program worked well in Israel. Russian government took note and took a short-cut – hiring Yigal Erlich, the former leader of Yozma program, to serve on the board of Russian Venture Company. Another prominent international board member is Esko Aho, former prime minister of Finland and current chief of innovations policy European Union. Complete with these board members, Russian Venture Company just held its first round of funds selection on May 11.

As a result, Russia now has three venture funds with a combined capital of almost $300 million. Of those funds, only one originated from Russia.

VTB Asset Management was organized by a leading national banking group that hired a team of several fund managers who previously worked for other private equity groups. Two other funds are joint ventures between Russian and international partners. A smaller one was founded by Finance Trust, a small private equity group in Russian, and Tamir Fishman, a leading investment bank from Israel with 15+ years of venture experience. The third fund, Bioprocess Ventures, was established by a biotech group Bioprocess and Silicon Valley veteran VC Pitch Johnson who set up his first fund in Silicon Valley with Bill Draper in 1962, over 40 years ago.

Not bad for a start. In fall 2007 we plan to place another 11 billion RUB. What would that be in US dollars? Around 400 million? Probably more, as dollar is sliding relative to ruble. That means 8-10 venture funds in addition to three we already got; and enough capital to fund 150-200 startups for Rounds A and B. Interestingly, people in Israel are already getting anxious: “If Russia takes our venture funds, what happens to our high tech economy?”.

I wonder if US readers will feel this way now – or when more US funds will show at the door of Russian Venture Company in September 2007.

Because, trust me, there are plenty of LPs around but very few of them give money away with a 5 percent cap. And there is just one major geographical area left where there is plenty of tech talent, booming tech products market – and no abundance of startups yet.

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