Home Startups Why invest in Ukrainian startups today? • businessroundups.org

Why invest in Ukrainian startups today? • businessroundups.org

by Ana Lopez
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The EU will invest €13.5 billion in research and innovation for 2023-2024 as part of the Horizon Europe programme. For the first time in the history of the programme, it includes targeted support to Ukraine. This is one of the first real steps towards Ukraine’s integration into the EU and I couldn’t be happier that we are becoming part of European business and scientific communities.

Why is this an important sign? Ukraine has been defending itself against Russia for 11 months now. Uncertain times make investors think twice before putting their money on the line. So when such an organization scales back its rhetoric with action, it can influence wavering minds.

And if that’s not convincing enough, I’m going to give a few more reasons why the prospects for the Ukrainian tech sector are not as bleak as they appear from the outside.

The Ukrainian technology sector is flexible and export-oriented

The Ukrainian IT sector derives most of its revenue from Europe and the United States. While it also serves domestic needs, most of the industry’s revenue comes from exports.

Over the past six years, the export volume grew at an annual rate of 26.8%. According to the National Bank of Ukraine, exports will reach $6.9 billion in 2021, exceeding the forecast by $100 million. While it is undeniable that the war shook up the country’s economy, the IT sector has weathered better than most.

Another factor contributing to the sector’s resilience is its ability to adapt to new challenges. Hybrid and remote work is a local staple and has been refined over the years. So when nearly three-quarters of IT companies had to move because of the invasion, they quickly got back to business at peak efficiency.

Because of this experience in managing distributed teams, Ukrainian IT also has no problems with expansions. In 2022, Ukrainian companies started to go global. They opened offices in Poland, the Czech Republic, Germany and other EU countries. This not only allowed them to bring the product closer to the customers, but also further protected the industry from the aftershocks of the war.

According to the statistics for the first 10 months of 2022, exports of IT services in Ukraine grew 9.9% from a year earlier and brought in more than $6 billion in revenue, generated more than $542 million in revenue in 2021. Exports of IT services remain one of the few areas that continue to thrive despite war, according to Lviv IT Cluster research.

The experts predict that the Ukrainian economy will recover and the investment made today will pay dividends for years to come.

Another study conducted by the Polish-Ukrainian Startup Bridge team in collaboration with the Warsaw Stock Exchange and the Ukrainian Startup Fund, it appears that more than two-thirds of the startups still operating in Ukraine base their business on the global market. About 12% of the companies surveyed ceased operations after the Russian invasion.

In combination, these factors protect Ukrainian IT from the biggest war problems. The loss of local markets and centralized office space only slightly dent the health of the sector.

Ukrainian startups are the horse to bet on

The Ukrainian startup ecosystem has developed rapidly in recent years. Until 2018, there was not a single unicorn from Ukraine. Today, there are at least six $1 billion Ukrainian startups:

  • GitLab
  • Grammatically
  • Genesis
  • Bitfuria
  • People.ai
  • Firefly space travel

Grammar is a highlight here. In 2021, dubbed the year of the decacorns ($10+ billion valuation), Grammarly became the first Ukrainian startup to join the club.

If one unicorn is a lucky chance and two a coincidence, then Ukraine’s ability to nurture six startups worth up to $1 billion each in three years is certainly a trend – one that shows the untapped potential of the Ukrainian IT sector that the war has not managed to slow down.

Need more convincing? What about the fact that these startups have been looking at international markets from the start.

According to the Ukrainian startup ecosystem report, say two-thirds of startups operate in the global market; 12% are not active at all in Ukraine; and 80% plan to be competitive in foreign markets.

In short, these figures suggest that Ukrainian IT wants to have a strong presence in Western markets, not by relying on luck, but by planning for the long term. They don’t want to be tied to fluctuations in domestic markets. Investing in such startups is only a bad plan if you try to hedge that the EU and US are no longer lucrative markets.

Ukrainian tech talent has a strong base and experience

Ukraine is a major center for the development of IT. The talent pool approaches a total of 200,000 software developers. In 2022, a record number of students enrolled in IT-adjacent majors.

The secret of success is a historical foundation fueled by modern sensibilities.

On the one hand, you have Ukraine’s strong technical and academic background. The technical universities of Kiev, Lviv and Kharkiv have been at the forefront of technological development for centuries. On the other hand, you have IT companies that set up boot camps at said universities, scout talent and support students with equipment and internships.

As a result, Ukrainian alumni are well versed not only in software engineering theory. They study ready to code thanks to a sophisticated mix of theory and practice.

If you need statistics to back up my claims that Ukraine’s talent is quality, let’s look at international awards (N-iX report):

  • Ukraine is in the top 20 of the AT Kearney Services Location Index.
  • GSA calls it the ‘Offshoring Destination of the Year’.
  • Many Ukrainian companies are included in IAOP’s Global Outsourcing 100 and Software 500, Inc.

With the ever-growing demand for exceptional software engineers, Ukrainian academia and IT are ready to deliver. Thanks to our expertise and ever-sophisticated talent pipelines, the Ukrainian talent pool will only grow.

The indomitable spirit of the Ukrainian people

We tend to think of ourselves as rational and believe only in things we can quantify. I disagree with that statement. The ever-elusive human factor can often tell you more than spreadsheets.

Recall that on February 24, 2022, all foreign experts predicted that Ukraine would soon fall. The numbers suggested that the Russian army was better equipped and had more people. But after 11 months, Ukraine is not only guarding what it can do, but also fighting back.

What does this have to do with the economy and investment prospects?

The figures predicted that the Ukrainian economy would decline by 32%-33% in 2022. But because of the country’s ability to adapt and overcome, these stark predictions were quickly overshadowed.

Logic dictates that a mass exodus would have triggered a demographic and economic crisis. Do IT like research in Ukraine has shown that 81.5% of IT companies that have moved abroad still intend to return to Ukraine, and 5.6% of them are already in the process of returning. Some Ukrainians have already done so. According to OpenDataBot statistics (Ukrainian Registration Data Monitoring Service, which provides complete information about any person or company in Ukraine), nearly 9.3 million Ukrainians have crossed the border since February, about 7.4 million have returned, and more are on their way back.

These people show that they are willing to work hard to rebuild their country.

So when the EU included Ukraine in the Horizon programme, it wasn’t just charity. The experts predict that the Ukrainian economy will recover and the investment made today will pay dividends for years to come.

Ukraine just needs a helping hand to bring about that post-war recovery, so investors will find plenty of opportunities to invest and reap the rewards.

History is unfolding before our very eyes – let’s be a part of it!

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