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04.03.2015

Ilya Kenigshtein: When you’re at the bottom, the only way is up

Continuation of the talk with the entrepreneur and civil activist

The creator of Hybrid Capital venture fund Ilya Kenigshtein is one of the people who returned to Ukraine after living a large part of his life in Israel. He returned for opportunities. Now Ilya, as an expert and civil activist, is assisting reforms in Ukraine. He believes that during the war and the transformations of the state, Ukrainians could make very good use of the experience of Israel.

In the first part of the interview, Ilya Kenigshtein talked about how he achieved the introduction of the 3G standard in Ukraine. Continuing the conversation, we talked about the possibility of repeating the Israeli economic miracle here.

– What about the second field? The experience of Israel, the innovative economy…

My dream is repeating the phenomenon of Israel in Ukraine. Essentially, until 1993 Israel was practically a banana republic. There were state banks, a state telephone company, high prices on communications, high prices on electricity, high prices on everything.

In any case, besides the export of weaponry (and oranges), there was nothing fundamentally innovative in Israel’s economy. But in the late 1980s-early 1990s the Israeli government passed a number of quite revolutionary programs, one of which was the state program known as Yozma. But it wasn’t the only thing that influenced the launch and establishment of the innovative economy. I consider the main state initiative to be the realization of the science and technology hothouses, “hamamot”. This model has spread all over the world in the form of technological incubators, even if they are at different stages. You had to invent something which did not exist before. And this not only concerned information technologies, it was just that in IT there was always a rather low entry threshold. Additionally, the initiative to support innovative projects was long-term: in science and technology hothouses, teams world for one to one and a half years, received financing, mentorship, legal support etc. And most importantly they received money, enormous sums, even by today’s standards: you could get one to two million back then. In1993 this was a lot more than it is now.

Before the Aliyah of the 1990s, the population of Israel was around 4.5 million. There were many first-class specialists from the former Soviet Union: doctors, engineers, physicists, nuclear specialists and so on. The Internet did not exist back then, so the evolutionary growth of the economy was not so fast. You could teach a person the language in half a year and harmonize their qualification with an existing one on the market. And as a result, you got a high-class specialist, prepared to work for a small salary. A lot of people may argue with me, but I believe that the establishment of the high-tech sphere in Israel was to a large degree influence by Aliyah from the USSR.

As a result, in 2014 alone Israeli hi-tech companies issued $14 billion exits. And every year there is a new record. For a small country surrounded by enemies, this is phenomenal. And I’m not even talking about military technology, agriculture, medicine, biotechnology, robotics, microelectronics, nanotechnology etc.

I think that Ukrainians have wanted this all their lives, but the main obstacle is the laziness and corruption of the government, which has practically brought down the state. Now there is no time to wait for our own ecosystem of innovations to be created, which is capable of generating first-class decisions for the market from scratch, we must start to use other’s experience, especially if it is successful. So I want to launch the Israeli scenario for the development of the innovative economy in Ukraine.

– Is this because of the government? And generally, should the government form the strategy? Or is it sufficient to liberalize legislation – and the market will sort itself out?

The market will not be able to sort itself out if it lacks elementary rules for doing business, and all officials work for kickbacks. And don’t have any illusions about the complete lack of regulation of the market by the government. Even in developed countries like the USA and Japan the government regulates many things quite strictly. The desire for deregulation without an understanding of complex process from the government can only be explained as an attempt by officials to create a field once more for new corruption schemes in murky waters. The task of any sensible state is to create a system to attract capital to the country. Guarantees are required that this capital will be untouchable. No raids, complete protection. And then no interference. Don’t try to help, don’t try to create privileges for the IT-sphere – don’t interfere at all. The only thing that the government can and should do is to help startups, preferably with non-material assets. By legal consultation, for example, or providing places for co-working at the level of city administrations.

– I doubt that city authorities are capable of providing consultations for startups. They don’t have the required level of expertise.

Yes, but I would like to believe that this will change sooner or later. It wasn’t for nothing that Moses led the Jews through the desert for 40 years. I’m not saying that we should wait 40 years, but a certain period should go by.

There are many problems here, the country is still terribly divided. The people are one, but only in certain things. The most important thing is to preserve cultural, emotional and patriotic unity. This is what the Israelis had, in this the Israelis are one.

The government so far lacks the will for changes. The government is acting very selectively as far as reforms are concerned – mainly leaving everything as it was. But it ignores one thing: unless there are changes, the government will be removed, like the last one was removed, and this will happen quite soon.

– Is an innovative economy even possible in these conditions?

Yes. As paradoxical as it may sound, it’s possible. During times of changes, when there is nothing else you can count on, you are prepared to make sacrificing, and even do something crazy. And I primarily count on various civic initiatives, which are very effective, because they create the right tools and speak about things the way they are. Not in diplomatic language.

Even the most cautious analysts say that if there are no changes in the next three months, then we can say that this government is like the last one. I don’t think that three months is too much for them, so they need to be put in their place today.

– All right then, but “where’s the money”? Where can money for innovations come from if there is none in the country, and foreign investors are afraid to come here?

Who said there isn’t any money in the country? The country has fields, rivers, minerals and factories that generate a huge amount of money. We exist somehow. On the other hand, there are large sums which we now receive from our startups, and new partners. Americans and Europeans.

It’s another matter that the state is not capable of correctly and rationally spending this money. Officials waste it on all kinds of rubbish, completely ignoring the people who gave them the opportunity of coming to power in the first place, and then use this money. Officials waste money quite pointlessly – spending enormous sums on a walking excavator, for example.

In order to find money, you don’t even have to appeal to the diaspora. The diaspora in Ukraine, incidentally, is very large, from 10-15 million people. And perhaps not everyone in the diaspora feels sentiments to Ukraine, but if you take at least 10,000people with a capital of 10 million, and ask them to help the country’s economy in some way, the results will be staggering.

– So the president and the prime minister really do make some efforts?

I’ll say a few words in defense of Pyotr Poroshenko. He is probably still the best president Ukraine has had so far. And he’s probably one of the best in the entire post-Soviet region. I don’t know and can’t talk about the Baltic States, because I didn’t pay much attention to what happened there before they joined the EU. And I don’t know about the Georgians, I don’t have an opinion about Saakashvili. I think that Saakashvili says what people want to hear, and that’s all.

But I am looking at Poroshenko at the moment with great enthusiasm – he is quite a value-conscious person, and in fact he is trying to change something. I think that he is constantly fighting an internal battle, because he is a person of the old era. He must understand that his time will soon be over, and that he will be replaced by a completely different leader, who will see the world quite differently. But evidently society needs a “transitional” person like this at the moment. If you ask me who would be a better president at the moment, to be honest I can’t see anyone. So it seems to me that he has a chance.

The Prime Minister is another matter. This really is a very difficult case. From the standpoint of behavior and PR, I think Yatsenyuk is coping brilliantly. He is good at speaking – no one has ever spoken so professionally in the entire history of the country. He has a brilliant grasp of rhetoric, he makes the right pauses between words, he makes you believe him when he talks.

And damn it, I still believe that he has some core inside him, that he really wants to change something. But unfortunately, facts prove the opposite. I really want to see this disproven.

– Can we expect a minister in Ukraine from Israel in the near future? 

Israelis will not give up their citizenship, and that’s the main thing. Advisors will, but ministers or their deputies probably won’t. The Israelis have something to offer. In the context of knowledge, technology, practice. The mentality is very close.

But the task of the Ukrainian government is to know what they want, and to come and take it. Everything’s ready, practically all industries may quite easily become an object of cooperation between the two countries. The Israelis know how this is done, they are ready to help. Quite sincerely.

Yes, no one is an altruist, everyone understands that in the end they can earn money from this in the future. But they can earn money on a completely different level. Not to steal, not to takeover, not to privatize things for a few kopecks, but to earn money. Together. These are the basic principles of doing business.

– What good things do you believe Ukraine can offer?

A lot of things. Some very talented people live in Ukraine, and there is something about modern-day Ukrainians that makes them special. The Ukrainians are a people with enormous potential, which may drastically change Europe, to make it better, brighter, and rejuvenate it with their energy and initiative. In Ukraine there is a colossal amount of brains, especially in the hi-tech sphere.

– Incidentally, many “brains” are leaving now. To Europe, or to Israel. But you returned. Where do you think there are more opportunities to earn money?

In Ukraine, of course. Europe doesn’t like outsiders. Israel is over-crowded, the competition is high. And you’re competing with people who were born there, studied there, and have a huge number of connections. Israel is a country of connections, this is a very important factor. In Israel there are a great deal of complexes connected with the Russian-speaking Aliyah. Some people like this daily battle for a place in the sun, taking into account the additional sectoral factor, but I don’t. I tried to find myself for a long time, and I even created a successful project in Israel. But despite my respect for that time, and also for my numerous Israeli friends, this is far from the ideal that I expect from life. As the wonderful Mikhail Kazakov said: “I like Israel very much, but I don’t like myself in it very much.” So I’m not sure that leaving the country is a good idea.

As for business, I would advise people to wait until the Ukrainian economy reaches the bottom – believe me, it’s not far off. Because when you’re at the bottom, the only way is up.

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