St Petersburg is Europe’s fourth largest city, with 5.3 million inhabitants. It dwarfs other continental hubs like Berlin, Barcelona, Lisbon and Stockholm. But one of the three that outweighs it is Moscow. And that has made a huge difference to its tech fortunes.
Russia’s startup scene has suffered a lack of finance in recent years, as a plunging currency, economic meltdown and western sanctions have erased much of the country’s VC landscape. What remains has focused on the capital – such as the Skolkovo Innovation Center, built an hour outside Moscow in 2009.
There have been plans to build an arm of Skolkovo near St Petersburg of late. The city already has its own coworking spaces and incubators, the most illustrious of which is its 43,000 sq m Technpark Pulkovo, near the city’s airport, whose residents have amassed almost $25m in funding since opening in 2008.
The Northern Capital has an impressive track record of developing some of Russia’s leading tech brands. Mail.ru, DataArt and Reksoft were all founded in the city in the 1990s. Later, eccentric founder Pavel Durov created Facebook facsimile VKontakte, which now has around 447m registered users.
But Durov left amid claims of Kremlin interference in 2014. He has left a significant hole in St Petersburg’s tech scene, whose energetic new generation are soldiering on amid diminishing investment options.
Alex Paperno is one of them. He is co-founder and CEO of insurance tech company Teambrella, considered one of St Petersburg’s brightest startups. His team has raised a little over $800,000 in seed investment but bemoans a lack of “VCs interested in early-stage startups” as the city’s biggest drawback. “A lot of VCs have contacted us,” he adds. “Not one of them was from Russia.”
Many agree with him. A handful of well known tech companies, like hotel booker Oktogo, have remained attractive to investors. Oktogo, founded in 2009, has won $33m. Younger firms have had to survive on relative morsels.
But surviving they are. And despite the economic downturn St Petersburg is home to a strikingly diverse crowd of companies. Firms including Lead Cooker, a mass mailing platform, advanced email firm MailBurn and learning management specialist Cornucopia are proving that bootstrapping can take you a long way.
Certainly, it can do a lot more than in Moscow, where rents and the general cost of living is much higher than in St Petersburg. It is “not so crazy,” as the capital, says Vitaly Kitaev, co-founder and CEO of Oriense, an electronic guide for blind and visually impaired people, adding that the city has plenty of ties with its close neighbors in Finland.
Residents of St Petersburg have access to visa programs with neighbors in Finland, whose VC landscape remains strong, adds Kitaev. The local government also offers a range of subsidies. The local VC network isn’t good enough yet, he says – “But it’s not only St Petersburg’s problem.”
Kitaev believes that St Petersburg will soon be a major tech hub. “We have good incubators and accelerators but it still not a strong system and community as in Moscow,” he says. “But step by step it goes to it.”
Anna Pisareva is chief product officer at Robot Vera, an AI hiring platform that claims to interview a thousand job applicants across Russia every five minutes. The advent of incubators shows the city’s commitment to tech, she says, adding: “There are local incubators and platforms at almost each technical university for stimulation of creation of startups and doing business among students and graduates.”
The St Petersburg Technopark, opened in 2008, provides significant support to local startups. Its residents have amassed almost $25m in funding.
St Petersburg has an impressive academic pedigree. ITMO University, Peter the Great Polytechnic and St Petersburg State Institute of Technology offer the local economy a large number of highly-trained graduates each year. That has encouraged multinationals like Google, IBM and Motorola to establish dev centers in the city.
The imperial capital of Russia since its 1703 foundation, St Petersburg was the scene of the beginning of the Russian Revolution in 1917, when Bolsheviks stormed the Winter Palace of Tsar Nicholas II at what was then known as Petrograd. Subsequently renamed Leningrad, the city retained its place as a center of art and culture.
The Hermitage Museum, founded in 1764, is one of the world’s most renowned art museums. But it is only one of a staggering 200 museums in St Petersburg. The city also boasts 2,000 libraries, 62 cinemas and 80 theaters. Its architecture and winding canals are an international treasure. Nightlife is booming.
There is even a small but exciting tech events calendar, which includes Harvest and SPB Startup Day. But it is not translating to better funding options. And some feel the local scene is stagnating. “There are a lot of talented software engineers here,” says Paperno. “But there is no startup culture here and practically nobody knows about stock rewards or options.”
Many large firms have a presence in Moscow but very little in St Petersburg. The recent advent of the high-speed Sapsan train, which ferries passengers in luxury (and WiFi connection) between the two cities, has helped relations to be forged: where once the trip took over nine hours, today it is just five, and costs $25.
But all round Russia, access to capital is scarce. Even Skolkovo’s own fiscal woes have come into sharp focus of late. Now the Russian government wants to breathe life into the project with a new private sector fund. The new company, Skolkovo Ventures, aims to raise $500m by 2020, which would make it one of Russia’s biggest investment vehicles.
There have been some wins, however: In May this year Mail.ru bought food delivery company ZakaZaka for $20m. But the overwhelming opinion of entrepreneurs is that St Petersburg’s bureaucracy could do better to win investment away from Moscow. “If I were mayor, I would initiate creation of tax privileges for residents of science and technology park of St Petersburg as it is realized in Skolkovo,” says Pisarev.
As Europe’s fourth largest city, St Petersburg may be pound-for-pound the worst performing tech hub on the continent. Should life be breathed into Russia’s economy on a macro level, it would surely not be long before it thrived again – as it did so in the 1990s and early 2000s. Then the city could compound its reputation as a place of revolution to create the next generation of tech innovations.