A Board Talks recipe: Making a country at war attractive to investors
What we all need to learn from venture capital investment
The World Bank recently increased its estimate of Ukraine's recovery and reconstruction needs to at least $411 billion. Foreign investment could be one of the sources of funding for Ukraine's recovery needs, but this is currently a problem because foreign investors are afraid to enter the country during the war.
Mind attended the Board Talks event organised by the Board business community to learn how to make Ukraine more attractive to investors even during the war, about investment platforms and promising investment areas from Andriy Dligach, founder of the Board business community and Advanter Group, and Viktoria Tigipko, founder and managing partner of TA Ventures.
Technology, exports and negotiations: Things Ukraine needs
"There are tools to make Ukraine attractive to investors. And it makes sense: our country is too undervalued, everything we do is undervalued. If it were Poland, it would be worth 3-7 times more: agriculture, construction, etc. We are undercapitalised, so we are interesting to those who seek a conditional ex-tariff within a certain period of time." (Andriy)
"For such investors, the following are attractive:
- instruments for creating special maximum protection zones, such as Diya.City
- taxation to keep IT workers here. The overwhelming majority of clients of Ukrainian IT companies have set requirements: their teams have to be located outside of Ukraine. And at least half of the teams, even the most patriotic ones, are forced to either fire Ukrainians and recruit indicative Filipinos or relocate Ukrainians from here. There is simply no more clientele for this.
- insurance of war risks of investments in Ukraine." (Viktoria)
"This idea was added to the idea of investment nannies, which Ukraine Invest is in charge of. So, in addition to investment nannies, a large investor gets the opportunity to cover war risks through World Bank instruments. The MIGA agency is engaged in insurance, and it has been allocated $30 million to insure Ukrainian risks." (Viktoria)
"What we need now is not only money, but for international investors to start considering Ukraine, looking for projects and negotiating. We need to have a lot of these negotiations, so that, for example, at the time of Ukraine's victory, we have preliminary agreements for 30-50 billion in foreign direct investment. Negotiations need to start now. The second thing Ukraine needs is technology. If you don't want to risk money, invest in Ukraine with technology, equipment, anything, even if not updated. Third are export markets: if you don't want to invest, then let's build a partnership for now. Let's make sure that your opportunities in Africa or Europe are realised, including for a Ukrainian manufacturer. Then, in this way, we will accumulate financial resources in Ukraine, which can actually be your investment: you will not invest money, but provide opportunities through which we will receive funds for investing in Ukraine, which will be your share as well." (Andriy)
"We have a lot of schemes and ideas, but for all of this to run up, there must be a desire at the state level to implement a new economic policy: actions aimed at changing the tax and customs systems, privatisation, deregulation and public procurement. This intention should come from the prime minister and the president – and then it will go up." (Andriy)
"Also, the country receives funds from the West, but to be eligible to distribute them, conditions need to be met – to reduce the level of corruption. The reference point will be the London Donor Forum, which will be held at the end of June. If Ukraine proves its ability to distribute money in a non-corrupt manner by then, we will be able to count on tens of dollars of investment starting in 2024, and starting in 2027, when the new EU budget is adopted, we will be able to count on tens of billions in annual aid and investment from the European Investment Bank and other institutions. Until then, we are working on Fast Recovery – at least $9-10 billion for this year. The government has found UAH 100 billion, and we are waiting for the rest from the world." (Viktoria)
Key factors in selecting startups
"I would say that Inventure Capital is going through a tough time, but in February this year alone, Inventure Capital invested more than 18 billion in global startups. Even though venture capitalists have raised $415 billion in 2022, when they were planning to raise $1 trillion, and we were already growing as a venture capital industry. But this did not happen because of the crisis we are in. However, $18 billion in February is already great. So that you do not think that there is no money in the industry – there is, and a lot of it. As Inventures, we plan to invest in about 50 companies every year. Perhaps this year it's a little less, but we're not going to slow down." (Viktoria)
"In particular, we continue to invest in companies founded by Ukrainians, such as Streamline and Utorg, which have recently been added to our portfolio. The companies we invested in earlier are also growing well despite the macroeconomic challenges. For example, the AI company DeepL has recently been added to the list of unicorns in our portfolio. We also actively raise the next, third fund – we are currently in the process of fundraising and plan to close the first round soon." (Viktoria)
"We review an average of 3000 startups per year. But only about 500 startups a year make it to the face-to-face stage. First, we look at who these people are, where the startups come from. Unfortunately, we don't consider startups that pour in on us and our partners rapidly via email – we look at startups that come to us from a very warm networking. And this, by the way, is a very important factor to consider. There are about 1,000 funds that are significant in the Inventure Capital market, and we work with about 100 funds that we like, trust, have relationships with, and know their partners. It's a kind of Peoples Business, and it's not easy to jump in." (Viktoria)
"Today, it's hightime that all people who are interested in investing made investments and studied this subject on their own. And the better you learn it, the less mistakes you will make. If you are not able to invest in your studies, then it is better not to do it, because there is a lot of scum, fakes. If you don't understand what's going on there, it's better not to get involved. That's why we invest through our warm networking, which we check. 50% of companies come from our funders: we trust them because they recommend the right people." (Viktoria)
"We have also created a platform that allows novice investors to invest in startups with us. This is ICLUB Global, TA Ventures' angel club, whose members get the opportunity to invest in startups that we have already selected, vetted, and will invest in ourselves. Our club has locations in more than 14 countries, and its members have invested in a total of 110+ companies. Anyone interested can join – this is the way, we democratise the venture capital investment class and give ordinary investors the opportunity to invest in startups that are not easy to get into – without decades of experience and connections with top market players."
InvestPlatform = place + guarantees
"To work effectively, you need platforms where investors and fund-seekers can meet on a regular basis. There are a lot of them in Ukraine, but their effectiveness is too low. That's why we decided to create Neo.Market not just as a meeting platform, but as a platform that would allow us to tokenise projects so that anyone who believes in them can enter and leave just as easily. That is, to do it in a tokenised exchange format, so that first the members of the Board community (and then the members of other communities) could have:
- a trust system,
- analytics system
- a system of easy entry and exit." (Andriy)
"For example, there is an investment club with hundreds of members that does not have a trust system. Accordingly, a new bandwagon came in and everyone invested in Optik 1st or something similar. We warned them: no, people, there is no maths there, don't go there! But, as Viktoria describes negative examples, what kind of maths can we talk about if it's 'wow, wow, wow'? To prevent this from happening, we are creating a trust system similar to what any stock exchange has, so that someone can buy your share if you want to leave. We are currently working on getting this balance on the Board." (Andriy)
"In particular, we are thinking of using grants to partially fund new projects of Bordeaux residents, and this will be a cushion if there is no funding internally." (Andriy)
"Tokenisation of businesses in Ukraine is in full swing. But it will become massive when the legislation in Ukraine is created and starts working, and this is still on hold. Why? Isn't it because the world doesn't want to see Ukraine as a leader in the recognition of virtual assets?" (Andriy)
About Future foods
"The main focus of my investments is Future foods, because I believe in this area the most. The only problem is that there are no technologies in Ukraine. They are at a very initial level. We have not yet been able to design food that would be tastier than home-cooked or restaurant food." (Andriy)
"I think this is a matter of 2-3 years. But the replacement of traditional proteins with alternative proteins will take place somewhere around 2026-2027, when alternative proteins will have the advantage. This will happen in the US and European markets. Alternative proteins can be based on soya, walnuts, beans or potatoes. In Belgium, potato yields are twice as high per hectare as in Ukraine. By the way, a significant amount of the potatoes we buy in supermarkets are Belgian, not Ukrainian. So far, Ukraine has not come close to being a modern global breadbasket. But we are moving in this direction." (Andriy)
"There are some systemic large companies that invest in deep processing, but this is just the beginning. Even Ukrprominvest, Kernel or Astarta are still at a higher stage of deep processing. So far, "burning everything we haven't sold" and taking something from it in the form of thermal energy is certainly not the right thing to do. For some reason, the Turks buy Ukrainian molasses, even though Ukraine believes that 70 kilometres is the effective shipment interval for it. And the Turks buy it hundreds of kilometres away, they find something in it that we haven't squeezed out." (Andriy)
Construction in Ukraine is Schrödinger's field
"I decided for myself, for example, to approach construction from the point of view of finding key points: what will they be when Ukraine's reconstruction begins and money comes here? There will be a scarcity in people, logistics, construction equipment and building materials. I looked at what I could do – building materials – because if nothing succeeds in Ukraine, I can sell them abroad, which means I need to find the best building materials that are technologically advanced. So I'm looking for such projects and investing in them. The critical point will be the production of windows – it will definitely be a big problem for us, because we don't have our own glass, we need new fittings." (Andriy)
"Construction in Ukraine is a Schrödinger's field: either you enter it and have all the money in the world, or you don't have any at all." (Andriy)
"Ukraine has lost 100,000 houses, and what we came up with was to launch the Ukrainian Wooden Houses Cluster to offer this business idea to both international funds and Ukrainian businesses. We don't know where Ukrainians will live, so we can't build something sustainable. However, we can build modular houses that can be moved around – it will be much easier. Moreover, the state will return the money one day. A modular house for a family can be built right now: as an investor, you can invest in it or make a charitable contribution to a particular family. Then the state will return the money to them, they will buy it back, and the investor can also make money on it." (Andriy)
"This idea is still in its infancy, and we see that the main sales will be made to the West, not to Ukraine. That's why we have a backup business model. And if we focus only on construction in Ukraine, Schrödinger's element is definitely involved: you don't manage anything, you can only wait for the money to come alone, without construction companies from Turkey and Poland, for the money to be given to us for construction." (Andriy)
"100 billion has been allocated to the agency headed by Mustafa Nayyem, but this is mostly infrastructure money. We estimate that about $100 billion will be needed to restore and further modernise the housing and utilities sector." (Viktoria)
"I am convinced that we will all have to learn about venture capital investment. Because no matter how we build our defence system by investing in our own business, in our own competences or in protective assets such as real estate, there comes a time when the new world and new rules will require us to be able to work with the new reality. And in this new reality, it is better to learn together, to try to understand how to live in this gamified world, the world of blockchain, the virtual world, the world where even such traditional human technologies as food and medicine mean something different." (Andriy)
"Accordingly, even in our businesses, we will have to become venture capitalists, test new business models, check whether it is worth buying new companies in the markets. To do this, we need to develop competence in venture capital investments. That's why we have recently launched ICLUB Academy, where every member of our angel club can learn more about venture capital investments and significantly improve their competence." (Viktoria)
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