Since the late 1990s, Russia has struggled to develop its innovation or "knowledge-based" economic sector. Several problems being faced by the Russian innovation sector are explored in this paper. The author examines the correlation between the present situation with innovation activities in Russia and the country's current dependence on natural resources. The paper addresses innovation policies in place and examines whether foreign investors are contributing to the development of indigenous R&D in Russia.The author argues that pursuing innovation reform requires a proactive approach by the Russian government. Available legal arrangements which allow for cooperation between the public and private sectors in this regard are analysed, including investment (venture) funds and a contractual form - the Russian "joint venture contract" (which is similar to Canadian limited partnership arrangement). The paper argues that the contractual form is the more cost-efficient and suitable investment tool for addressing country-specific investment risks.