$881mln and nearly 200 deals: The Ukraine venture market doesn't scare off investors despite turbulence

A full-scale war, increasing inflation worldwide and a possible global recession has led investors to be more cautious in deciding where to invest. Despite this, the Ukrainian venture market continues to attract both foreign and Ukrainian players. Most funds continued investing. The most active during the war were Flyer One Ventures, SID Venture Partners, Geek Ventures and hypra and Swedish Hype ventures. However, requirements for startups have been added. Among them is the presence of clients abroad.

The Ukrainian Venture Capital and Private Equity Association (UVCA) together with Mind released a study of the venture and private investment market, which covers the period from the beginning of 2022 to the end of the first quarter of 2023. The editorial team selected the most interesting numbers and facts.

This is the aggregate investment  over the past five quarters. For 2022 alone, the amount is also considerable – $794.8 mln. "Despite the forecasts, the Ukrainian venture capital market has demonstrated amazing resilience and the ability to recover in conditions we have never faced before. Total investment amounts have been growing steadily for the last five years to the least. They increased by 30% compared to the pre-COVID year of 2019 and by 13% compared to 2021. And almost tripled versus 2018," explains Andriy Kolodyuk, founder and managing partner of AVentures Capital.

Western companies led the market by the amount of investments. Their result was $839.3 mln, or more than 95% of the total amount. Though, in terms of numbers, Ukrainian investments were almost no different from Western ones. But Ukrainians demonstrated significant caution in their actions. As a result, their total contribution amounted to 4.8% due to smaller deal values.

As many deals were closed over the last five quarters. Nine out of 10 among them were with a disclosed value. Data on some deals was only partially published. Some investors only indicated the total amount of investments made for the year, not disclosing the list of projects that received funds, or not naming the amounts that each individual startup attracted.

The latter primarily applies to angel investments or grants. Large companies direct them towards supporting young and small projects in Ukraine. "The first place (58 deals) goes to the Google for Startups fund. It has allocated $10 million, which has allowed teams to hire 216 employees," the study says.

This is the total value of the top five deals, accounting for 76.5% of the investment. The leaders in fundraising were startups near ($350 million and $150 million), UnstopPable Domains ($65 million), AirSlate ($51.5 million), and Preply ($50 million). Mind previously provided more details about these teams.

"The Ukrainian ecosystem has already produced seven unicorns. The latest – Unstoppable Domains and Airslate – received such an evaluation after the war started. But we see similar potential in another 50 companies. In 20 years, we have built a very large ecosystem, which provides potential for growing unicorns," Andriy Kolodyuk clarifies.

Such a number of deals were accounted for by seed rounds. And the vast majority of investments (over 53%) are amounts up to $0.9 mln, 34% – $1-9 mln, and only 13% – from $10 mln.

"Investors in IT have not left the market. For example, members of UVCA have not stopped investing. The most active seed funds among ours are Flyer One Ventures, SID Venture Partners, Geek Ventures and Hypra and also the Swedish HypeVentures. New Californian funds have also appeared, which first invested last summer in Spin.ai. These are Blueprint Equity, Blu Venture partners and Santa Barbara partners," Andriy Kolodyuk clarifies the details.

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That is the overall increase in the value of Ukrainian startups over five years (from 2017 to 2022 inclusive). In the COVID years of 2020-2021, the value of domestic startups that received grants or investments tripled relative to the pre-COVID 2019. "The decline in the value of Ukrainian startups over the past year was 14%. But surprisingly, it did not change the overall trend. And this is despite the fact that the number and amounts of deals in Europe consistently decreased throughout 2022," says Dmytro Kuzmenko, Executive Director of UVCA.

This is the estimated value of ten startups that have R&D in Ukraine. "The Ukrainian ecosystem is one of the most promising, it provides opportunities for the development of successful technological and innovative projects and businesses from around the world. A large number of global teams have R&D offices and support in Ukraine. And this number is increasing," explains Dmytro Kuzmenko.

In 2022, Ukraine ranked sixth in terms of venture financing value in the CEE region, receiving 246 mln euros, according to a study by Dealroom. Ahead are Estonia (1.4 bln euros), Czechia (1.1 bln euros), Croatia (865 bln euros), Poland (550 bln euros), and Romania (304 bln euros).

The large difference in the volume of investments is due to the fact that Dealroom's methodology only considers startups that were founded in the country of origin and have (or had) their head offices  there. The Mind and UVCA study covers a larger number of startups with Ukrainian roots – even if their main office is located in another country, and in Ukraine, for example, there is only a development team, as in the case with Near.

Interestingly, according to the same Dealroom data, Ukraine ranks first in terms of the number of jobs created per 1 mln euros of funds raised.