"To a Ukrainian, it is now easier to download an application and invest in a foreign company than in a domestic startup": Internal investors are gradually coming alive
And what programmes help entrepreneurs not to withdraw money abroad but to reinvest it in Ukrainian business
Over the past five quarters, Ukrainian startups have received over $881 million in investments. 95% of the total amount comes from Western funds. Domestic investors have been involved in a large number of deals, but the amounts are insignificant compared to their foreign counterparts. Is it possible to stimulate Ukrainians to invest more money in our technological companies? What influences the confidence of internal investors, and what boosts it? Besides the military-tech sector, which other industries are currently thriving? Speakers at the recent IT Ukraine Legal Conference 2023 discussed these and many other topics. Mind has noted the most interesting insights.
Kostiantyn Magaletsky,
Vice President for International Cooperation at IT Ukraine Association, ex-partner at Horizon Capital, an investor in EdTech startups:
– I recall an old undisclosed investment. A well-known Ukrainian company raised a significant amount of money in February 2014, precisely during the Maidan protests. It was a highly successful deal for the investors; they achieved impressive results. This serves as an example that we shouldn't hesitate on the economic investment front.
If we analyse investments during times of major conflict, we can see that the largest round was in Preply. This educational startup raised $50 million in March 2022 when hundreds of employees (the majority of the workforce) were in Ukraine. Thus, investors were not afraid to take risks during those turbulent times. And now the situation seems more stable. We observe that the interest in investing in global and regional educational projects remains high. Our country has improved the situation in private online education. Online universities are being launched, for example, the startup GoIT has introduced the first online master's programme in Ukraine with an international diploma. Other companies are creating similar projects. The potential and investors are present, and there will be results. These are the best times for investment. It will be much more expensive later.
How can we encourage Ukrainians to invest in technology companies? For individuals, the simplest way of investing is through angel clubs. For example, IClub by Viktoriya Tigipko, which invested in Liki24 and other well-known startups. A similar project was recently launched by Igor Shoifot, Taras Kyrychenko, and Petro Chernyshov. This means that there is demand for such financing, there are proposals, there are startups, and there are investors. Therefore, I believe it is a very good path for ma.
Many IT entrepreneurs have left the country. In the short term, it is a negative factor for the country. But in the long run, I believe it will have a very positive impact, and it is already happening. Previously, many entrepreneurs only focused on the Ukrainian market with their startups, and for various reasons, they didn't expand globally. Now they are starting to orient their startups towards the global market. However, they mainly hire programmers in Ukraine. The motivation of Ukrainian professionals is currently the best in the world. Many, including myself, have employees both in Poland and Ukraine, for example. In Poland, people work from 9 a.m. to 5 p.m. Ukrainian professionals, on the other hand, can work on weekends and overtime. They are highly motivated when it comes to money. Although in Ukraine, people like to complain about the tax legislation, in reality, our taxes are lower and more flexible.
Dmytro Paliushchenko,
Head of Business Law Department at Juscutum:
– Business in Ukraine is picking up, and investments are gradually unfreezing. However, currently, Ukrainian domestic investors are putting more money into foreign projects than into domestic ones. Due to the lack of an actual stock market, the average Ukrainian finds it easier to download an app and invest in foreign companies or funds like the S&P 500, rather than invest in domestic startups..
To stimulate the domestic market, there needs to be a foundation beyond just military factors. Currently, political aspects, currency restrictions, and unjustified searches, like the one on MacPaw, hinder the process. As a result, both Ukrainians and foreign investors have limited opportunities to invest.
How can technology companies contribute to investment and the recovery of Ukraine? This can encompass any industry, from manufacturing to agriculture. Currently, every enterprise has infrastructure and equipment. When we talk about development, it involves acquiring new equipment with new software and capabilities. This includes factories, the agricultural sector (which is currently the most IT-savvy), green energy (programmes for modulating power distribution in Ukraine), UAV development, and the equipment for them (drones can currently perform various functions such as aerial reconnaissance for valuable minerals, gas, demining, etc.). There are many initiatives; it all depends on which ones IT companies choose to pursue.
Kyrylo Bondar,
Partner, CFO of UNIT.City Innovation Park:
– Currently, in Ukraine, there are limited opportunities for investing. We have been a country for 30 years, but we do not have a stock market for various reasons. However, it is the most common, powerful, and capital-intensive form of investment. It exists in every country, even in communist China. Therefore, it is very difficult to invest and trust someone with your money. Typically, this is done through the stock market. Right now, choosing between investing somewhere or starting your own business, I would probably choose the latter.
Also, now is a good time to invest in your own education. With war, global recession, high interest rates in the US, expensive mortgages… in such times, one should focus on learning, investing in their own education and that of their children, building a network… And invest we can later.
Olesya Zaluska,
Chief of Party at USAID Competitive Economy Programme Ukraine:
– Over the past five years, we have been investing in Ukrainian startups and the IT business. In previous years, we allocated approximately 10% of our previous funding, which amounts to almost $4 million. Within the next 2 years, we plan to double the funding for the IT sector. Recently, we expanded our program by $48 million, which will enable us to carry out even more trading functions, establish more export alliances, and so on. Our indicators include jobs and sales. The IT sector, which has tripled its workforce in recent years and is growing in exports, is clearly one of our priorities.
Currently, we have several open programmes where one can apply. For example, we provide grants for the creation of export alliances for enterprises that aim to jointly promote their products in international markets (total funding volume is $1.5 million, with 15 grants ranging from $35,000 to $150,000 to be awarded, accepting applications until September 30, 2023. – Mind). Another open program is grants for small and medium-sized women-led and family-owned businesses (approximately 100 grants ranging from $10,000 to $35,000 are planned to be awarded, accepting applications until July 24 – Mind).
We will soon launch a programme for innovative processors, and many Ukrainian companies are planning to apply for this project. We also support incubation programs. We will announce one of such programmes, which one can apply soon.
We observe that in each of our projects, there is co-financing. This means that business owners do not take their profits abroad but reinvest in development, purchase equipment, invest in marketing strategies, promotions, and so on. We see many such companies, even during the past year, despite the full-scale invasion.
Andriy Remizov,
Director of the state Entrepreneurship and Export Promotion Office:
– Our organisation invests a lot of resources to help companies enter foreign markets. The IT sector is one of our priorities. For many years, we have been organising national pavilions at international exhibitions. IT companies willingly participate in them. For example, we recently completed the largest exhibition on the Scandinavian market, Stockholm Tech Show, in collaboration with IT Ukraine and Open Trade Gate Sweden. Ten Ukrainian companies were represented there, and they found partners in foreign markets.
We do not consider large events such as Web Summit because they cost a fortune. We focus on targeted markets and help IT companies enter them. In the autumn, we plan to organise the world's largest exhibition for IT and startups in Japan. We will soon announce this opportunity, and participants will be able to take part in the competition and go there. Then, depending on donor support, we will continue to focus on the Scandinavian and British markets. Our regular analysis suggests that these markets are the most promising for IT.