High Tech, Hard Sell

The Virtusphere is like a personal amusement park. Put on the headset and step inside the sphere, and you are projected right into your favorite computer game. All of your motions, including walking and running, are simulated in virtual reality. And if you look over your shoulder, you can “see” what is going on behind you in the game. In addition to game arcades, the virtual sphere can be used to train police and military personnel or to simulate situations for job training.

The Virtusphere represents the technological wizardry of the Latypov brothers, chief executive Nurulla and chief operating officer Nurahmed, both physicists born in Uzbekistan. They have used the same immersive technology to develop an advanced virtual film studio, in which actors don headset and cybersuit to interact in real time with virtual characters and objects in a movie or TV show. The Latypovs are also working on technology that will let viewers interact with virtual characters in the TV studio from their homes with a mouse, computer and fast Internet connection.

The Latypovs have U.S. patents for their virtual sphere and the motion capture system at its heart. The virtual studio is awaiting a patent. Their technology is “awesome,” says Internet doyenne Esther Dyson. So why hasn’t the five-year-old company thrived?

Probably because it is based in Moscow. Nurulla Latypov is the only one in the company with any knowledge of business, and he learned it at a communist-run school. The company (at www.virtusphere.com) has won 15 prizes at international shows, but it has yet to find a backer. Nurahmed, better known as Ray, says: “I am a scientist, not a businessman.”

That pretty much sums up Russia’s predicament. It has a huge pool of scientists and engineers, and the per capita number of patents issued there is nearly three-quarters that of the U.S. Yet Russia’s global share of the high-tech market is around 0.3%; America’s is 130 times higher. Russia has to fix lots of things for that imbalance to change. Among them: its weak enforcement of intellectual property laws, onerous business registration procedures and strict controls on the export of hard currency. Also, Russian entrepreneurs lack the business basics.

Still, Russian tech companies are starting to figure out how to capitalize on their strengths. IBS Group (www.ibs-company.com) is successfully targeting the $2.5 billion domestic IT market. And TerraLink Technologies (www.terralink.ru) sells its software development and engineering services both at home and abroad. There are 5,000 to 8,000 professional programmers in Russia, generating revenues of $60 million to $100 million a year — a number that is growing 40% to 60% annually. Clients include Boeing, Intel, Motorola, Nortel and Sun Microsystems. But very few Russian companies meet international quality standards and even fewer have track records in the West.

So how can Russia develop itself as a technology hub? Israeli venture capitalist Eliezer Manor, a keynote speaker at the Russian Technology Investment Forum in Moscow this month, urged companies to start by partnering with more established counterparts in India and Israel. Thomas Nastas, the forum’s organizer, said European companies should be considered too: “Partnering is the name of the game.” At the Russian Internet Forum, also in March, Andrei Zotov, chief executive of V6 (www.v6.ru), which helps corporations set up business processes on the Web, described how it was expanding its operations with P2P, its French partner. “I don’t believe Russians have an advantage writing code,” says Zotov. “But we do have an advantage in problem-solving, which is exactly what we are trying to bring to the international market.”

Other Russian companies are establishing headquarters in the West. Alexander Galitsky, who honed his technical skills on Russian spy satellites, took his first stab at entrepreneurship in launching Elvis+, a company specializing in wireless computer connectivity. When he created Trustworks Systems (www.trustworks.com), which makes network security solutions, Dyson advised him to set up shop in the West to better access financial markets. Now based in Amsterdam, Trustworks has raised $23 million, most of it Western capital.

George Pachikov, a well-known Russian tech pioneer, has moved the headquarters of his company, ParallelGraphics (www.parallelgraphics.com), to Ireland and hired a local as ceo. The company traces its origins to 1988 and a Russian software start-up called Paragraph. It was among the first to develop handwriting recognition and digital ink technologies, which were licensed by Apple for the Newton and are now used in many new-generation personal digital assistants. Briefly owned by Silicon Graphics, the 3-D business was bought back by Pachikov and relaunched as ParallelGraphics, now one of the top 10 Russian software exporters.

It was Pachikov and several countrymen who gave David Yang, one of Russia’s up-and-coming tech stars, the seed money to launch Cybiko (www.cybiko.com), a hot gadget that is a toy, mobile phone and teen personal digital assistant all in one. Cybiko’s HQ is in Bloomingdale, Illinois, but its 280-strong design and programming team is based in Moscow.

The Latypov brothers hope to follow Cybiko’s model: manufacture in Asia, set up a management team in the U.S. and keep development in Russia. To start, they need $3 million in first-round funding. If they can make the right VC connections, and bring in the right management — and if more Russian scientists follow that example — then the country will have a shot at developing not only world-class technology but world-class technology companies.