Dmitry Pimkin, Deputy Chairman of the Management Board of RUSNANO Management Company, talks about how to help startup and early growth companies in developing technologies, which industries in the economy have the potential for investment, what you should pay attention to if you decide to invest in an interesting project, and how top managers manage to combine career and hobbies.

VIDEO [Russian; Translation Support]

Coherent exposition of the interview

1. Introduction of the Speaker. At the beginning of the interview, Dmitry Pimkin, is introduced as the Head of the key investment division and Deputy Chairman of the Management Board of “RUSNANO” group. The expert emphasizes that the company is run not only by its Chairman but also by a strong team of like-minded professionals.

2. Scope of Activities. Dmitry Pimkin explains that the group is a complex structure. It encompasses not only an investment arm (a series of direct and venture investment funds) but also the Fund for Infrastructure and Educational Programs, which focuses on promoting nanotechnology, certification, and standardization.

3. Example of a Successful Project. As a specific case study, the speaker cites the project of construction of a plant for producing magnesium oxide and hydroxide in Volgograd. This project was implemented as a brownfield investment in partnership with other entities and was subsequently successfully exited, generating a profit.

4. Scientific and Technological Expertise. The speaker details the applications of this plant’s products: as flame retardants for plastics and additives for transformer steel. Dmitry Pimkin notes that the project was approved by the group’s Scientific and Technical Council, which includes academicians, confirming its compliance with nanotechnology criteria.

5. “Smart Money” Concept. The expert elaborates on the advantages the group offers its portfolio companies. He states that the key value proposition is providing “smart money”: investment and industry expertise, assistance in strategic planning, operational management, and in securing state support programs.

6. Priority Sectors for Investment. Mr. Pimkin outlines the group’s key investment clusters: the chemical industry, renewable energy (specifically wind power), pharmaceuticals, and medicine, including both manufacturing and high-tech medical services.

7. Clarification of Medical Projects. Using the “PET-Technology” project as an example, Dmitry Pimkin illustrates the group’s contribution to medicine. He explains that the established network of positron emission tomography (PET) centers enables the detection of oncological diseases at early stages, enhancing the quality of medical care in Russia.

8. Deal Sourcing Process. According to the speaker, identifying investment targets is a blend of analytical work and skill. The process starts with in-depth research into promising industries, followed by active outreach and communication with companies, as well as leveraging an established network of contacts.

9. Key Selection Criterion is the Team. Dmitry Pimkin asserts that the primary factor in assessing investment attractiveness is the project’s operational team. He believes that even the most advanced technology is doomed without strong management, whereas a capable team can lead an average project to success.

10. Role of Inventors in a Company. The expert clarifies his view on the role of talented inventors. In his opinion, such individuals are necessary, but their place is not in top executive roles; rather, they belong in R&D, while management should handle finance, marketing, and operations.

11. Exit Strategy. The speaker explains the logic behind divesting stakes in companies. Rusnano, as a fund with a limited lifespan, plans exits within a horizon of up to 10 years. The optimal moment is considered to be after the phase of explosive growth, when the company transitions to moderate, organic development.

12. Buyers of High-Tech Businesses. Dmitry Pimkin shares the company’s experience: approximately one-third of projects are bought out by business partners, another portion is sold to strategic investors from Russia or abroad. He notes that transactions with non-residents have become more difficult under current conditions but are still possible.

13. Example of a Complex Exit. The expert cites the sale of a company manufacturing high-strength springs. The project faced difficulties but, after finding its niche, was sold to the “United Wagon Company“. The speaker emphasizes the complexity of the one-year process, which required aligning the interests of all co-owners.

14. Portfolio Approach to Risk Management. Dmitry Pimkin discusses how the group deals with unsuccessful investments. The key method is a portfolio principle, where losses from several failed projects are offset by returns from successful ones. He acknowledges that some failures are inevitable due to external market factors.

15. Example of a Failed Investment – Quantum Dots. As a case study, the speaker describes an investment in colloidal quantum dot technology. The project failed to gain traction in medicine, security printing, or television displays, encountering technological barriers, high development costs, and market unreadiness for innovation.

16. Value of Internal Team. Responding to a question about his new appointment, Dmitry Pimkin states that his primary resource is his own team. He highly values the professionalism, engagement, and shared values of his colleagues, without which, in his view, achieving results would be impossible.

17. Social Mission as Part of the Philosophy. The expert explicitly states that the group is not solely about financial returns but also about national development. He gives the example of medical projects that, while not the highest-yielding, are maintained due to their significant social benefit for the population.

18. Concluding Philosophy. In summary, the speaker concludes that beyond the technical investment work, three groups of people hold immeasurable value for him: the group’s team, project partners, and the end beneficiaries of the group’s socially significant initiatives. Mr. Pimkin considers this aspect the key takeaway from the discussion.

Plans and realities

2017/12 — … Dmitry Pimkin talked about …, what’s the hardest thing to negotiate, why sometimes it’s worth slowing down company growth, and how to protect technology from theft.

— «What are you talented at?»

I’m good at handling conflicts. Many people want to be nice to everyone, kind and gentle. But in our business, that doesn’t always work out.

— «What does „conflict“ mean to you?»

Let’s call it complex negotiations. If you don’t conduct them at the initial stage and don’t put all the agreements in writing, you’ll run into problems during project implementation and exit stages. When someone is given money, they’re willing to make some concessions. When it comes time to give something back, they’re less inclined to make concessions. During the implementation stage, if things don’t go according to plan, you have to intervene. And usually, things don’t go exactly according to plan.

— Is there anyone whose plan actually works?

Almost never. Nevertheless, we keep planning.

— How many seats at the company’s shareholders’ table does an investor of your level have?

It depends on the project. Usually, out of seven seats, we took three, or out of five — two. Our vote is always a blocking one. And usually, in portfolio companies, the Rosnano representative serves as the chairman of the board of directors or deputy chairman. We handle strategic issues but have little say in selecting counterparties for operational activities.

— What’s impossible to agree on?

It’s hard to negotiate guarantees upon exiting a project. You can guarantee that we’ve reviewed and approved all budgets, and there’s title to the investment, but we can’t guarantee that the management hasn’t made any adjustments. And the buyer always wants guarantees. This is where those most difficult negotiations begin, with a long search for compromises.

— What have 15 years in investments taught you?

Divide the market assessment provided by management by at least four. And when a company that’s been around for five to seven years shows in its business plan that it will triple in size over the next two years — don’t believe it.

— What kind of growth do companies show at this stage of development?

When they grow into a company with revenues of several billion rubles, the business grows by 16–20 percent per year. Essentially, this results in doubling the company in four years. But if a company grows at such a pace, sometimes we try to slow it down.

— Why?

It’s nearly impossible to grow that fast using working capital or net profit — unless you’re selling drugs or weapons. This means the company is growing mainly through loans. And when the debt-to-EBITDA ratio reaches around three to four, we realize that one small mistake could cause everything to collapse like a house of cards.

Startups can grow by hundreds of thousands of percent over several years, but that’s a different type of investment. We try to ensure that the growth of portfolio companies at the Private Equity stage proceeds organically.

— What companies are you currently managing?

An interesting company is «Aquanova Rus», which produces food ingredients: colorants, antioxidants, and flavor additives. Technologically, it’s not a revolution in the food ingredients market, but it’s a fairly significant innovation. We have a joint venture: shareholders include Rosnano, our distributor is the Kima company, and the German Aquanova AG is the technology provider. The investment amount is several hundred million rubles, which isn’t very much for direct investments. But we understand that the company could be worth several times more in a few years. When it enters export markets, revenue growth could be exponential in the first few years. Right now, we’ve just obtained an additional license and are actively entering the Indian market.

— When Rosnano funds were established, did you agree to invest only in Russian projects? Since there’s a certain share of state participation, are there likely some obligations to support domestic producers?

Essentially, «Aquanova» is a purely Russian story. Yes, we licensed foreign technology, but we fully transferred it to Russia and set up new production in Dubna. So, only the license is German — for which we gave a stake in the company — everything else was done here.

— What characterizes an ideal portfolio — number of companies, stability?

It depends on the company’s management structure. A normal portfolio should include several low-risk investments with non-global growth and not too high returns, which will maintain the base. You shouldn’t make portfolios too large. At one point, my historical Rosnano portfolio included 15 projects. And for one portfolio manager at a private equity fund like Rosnano, where we work quite actively with companies, I wouldn’t take on more than 20 projects.

— What constitutes high returns?

If we talk about portfolio IRR (the interest rate that shows investment returns — Ed.’s note), it’s around 15%. We have projects where we earned 8% annually, which is below our borrowing rate if we calculate it based on credit funds. Such projects provide stability — they’re like a capital protection tool, meaning you get your money back. Additionally, around them, there are medium-risk average projects that can yield up to 20–30% annually. And then you diversify the portfolio with small projects that could grow significantly. Two or three companies out of the entire portfolio will inevitably fail, and I’ll have to write them off.

— What happens to a project that’s been «written off»?

The company behind it will most likely go bankrupt. I had such a case in Russian electronics: the company spent the money but didn’t produce a real product. We were going to bankrupt it, but found a buyer who essentially purchased the company just for its equipment.

— And who’s buying now? Has working with foreign buyers become more difficult since 2014?

Of course, it’s become much more difficult. Selling companies to Western investors has become nearly impossible. Although, in my portfolio, there’s the «Novomet» company, which received a purchase offer from the American Halliburton. And they’re specifically interested in our technology.

— What kind of technology is it?

Submersible centrifugal pumps for oil extraction. The company operates worldwide, and it also has operating units in the U.S., but our technology allows making these pumps cheaper and more durable.

— Can the technology be stolen? And how can it be protected?

Of course, it can be stolen. For example, someone could buy a unit, take it apart, and see how it’s constructed. Then they could make a copy.

The main protection is continuous development. To stay in place, you have to keep running.

— Given the intensity and responsibility of your work, how do you manage to recharge, where do you draw your strength from?

I try to periodically apply the technique of changing activities, engaging my brain with something different, switching to theater, art, or sports. I also prefer to travel actively when I have time, while I’m young and free. Mountains, deserts, and simply beautiful nature help me shed negativity and stress, recharge, and dive back into complex negotiations with renewed energy. (12/2017, Snob.ru)

Previous Interview for “Venture News”

Dmitry Pimkin (RUSNANO) gave an interview for “Venture News”.

Which investment funds are currently included in the portfolio of RUSNANO?

“At the present time, RUSNANO has approved the creation of 13 investment funds. They form the financial infrastructure of the nanotechnology market. There are several main types of funds: low-budget project funds, as well as sector-specific and international funds.

Each type of fund addresses its own class of tasks. Overall, through the creation of funds, RUSNANO attracts additional capital from private investors from Russia and abroad into nanotechnology projects, ensures the transfer of advanced international technologies to Russia, and creates additional market mechanisms to support projects at different stages of development.”

In total, RUSNANO has eight investment teams. How many funds are under your management?

“Six funds are currently under the management of my team. One of the newest is a Pre-IPO fund being created with the participation of OAO “Baltic Investment Bank” and several other investors. Its potential size is 1.8 billion rubles, of which 500 million represents the share of RUSNANO. The fund is managed by the company “Baltinvest UK”.

The portfolio of RUSNANO also includes international funds. One of them is the “DFJ-VTB Aurora” fund. It was created jointly with the bank “VTB”. It will be managed by “VTB Capital Asset Management” together with the American firm “Draper Fisher Jurvetson”. The size of the fund is 3.3 billion rubles, half of which is provided by RUSNANO. In addition, RUSNANO is forming a venture fund jointly with the Kazakhstani “Kazyna Capital Management”.”

Can you name the funds that are already making investments?

“At present there are three such funds: “Skolkovo-Nanotech”, “Nanomet”, and “Advanced Nanotechnologies”. The “Skolkovo-Nanotech” fund was created with the participation of the Moscow School of Management “Skolkovo”. Its size is 2 billion rubles, and to date it has invested in one project. Another project is being financed by the sector-specific fund “Nanomet”, which specializes in nanotechnologies in metallurgy. The “Advanced Nanotechnologies” fund has three projects in which funds have already been invested. At this stage, the funds of RUSNANO have allocated approximately 100 million rubles. By the end of the year, the funds “Skolkovo-Nanotech”, “Nanomet”, and “Advanced Nanotechnologies” will invest in three more projects.”

What types of projects do the funds of RUSNANO specialize in?

“Most of our funds do not have a pronounced specialization. We have only two fundamental requirements for projects. First, they must be related to nanotechnologies. Second, production must be located in Russia. We do not impose any special restrictions on industries. Here is a clear example—in the portfolio of the “Skolkovo-Nanotech” fund, two very different projects coexist quite comfortably. One is dedicated to the development of a drug for epilepsy, and the other to the creation of ceramic insulation for power transformers.”

How is project due diligence carried out?

“The review of an application takes place in two stages. At the first stage, experts assess whether the project is related to nanotechnologies. This phase usually takes place with the direct participation of RUSNANO. The second stage is investment due diligence. It is carried out by the management company. After all procedures have been completed, the project is submitted for approval, after which financing begins.”

What difficulties do you encounter when reviewing applications?

“One of the most challenging tasks of due diligence is market analysis. It is necessary to understand the competitive advantages of the new product and determine who will be willing to buy it. It is also necessary to pay close attention to the composition of the project team. It should include not only scientists and authors of original ideas, but also people with business skills. And, of course, the fund’s management team must be ready for active participation in the development of projects, since investment begins at early stages, and this always requires significant effort.”

Do many applicants meet the investment requirements of the funds?

“Very few. That is precisely where the main problem lies. Truly worthwhile and well-prepared projects still have to be found. It gets to the point that our management companies have to compete with each other for the same promising applications.” (07/2011)