Alex Levashov – eCommerce Consultant (Melbourne, Australia)

Surprisingly good outlook on Ukrainian start-up and venture capital scene

Surprisingly good outlook on Ukrainian start-up and venture capital scene

Hero image for post about Ukraine - venture capital

Image credits – Ivan Bandura, CC

Every man and his dog have heard about problems in Ukraine: from  revolution to losing Crimea and civil war with pro-Russian rebels in Donbass to grim outlook on economy in general.

Surprisingly according AVentures and Ukraine Digital News Ukrainian start-up and venture capital scene looks rather positive. Probably there are some vested interests in such attitude, but nevertheless it makes sense to check the report that these organizations prepared  called “The Dealbook of Ukraine. Venture Investment in the Ukrainian IT industry 2012-2014 (PDF)”.

Highlights from the publication that I’ve found most interesting

  • While 2014 wasn’t the best year IT industry went through it with minimal damage;
  • Ukrainian venture capital market grew to $80M in 2013, in 2014 it is expected to have less $$$, but approximately same number of deals;
  • The start-up infrastructure in Ukraine (incubators, accelerators, events, initiatives) develops quite rapidly as well as number of domestic angel investors;
  • 2014 was a better year for global oriented Ukrainian start-ups, they continue to grow, while domestically focused peers slowed down;
  • Several representatives from Ukrainian IT sector (including a founder of start-up I know) were elected in new Ukrainian parliament, so industry voice will be louder now.

My five cents

Since I lived in Ukraine for over 10 years and still involved in IT business with Ukrainian companies and hence have first-hand knowledge and experience, here are several thoughts after reading this report

  • Domestically oriented digital start-ups are in bigger troubles. In addition to scary economic outlook that affects both consumers and business spending, they had to compete for human resources with outsourcing companies (that still hold a lion’s share of Ukrainian IT market). The specific here is that IT outsourcing companies typically link salary of employees with US dollar or Euro, so salary of software developer in national currency (hryvna)  employed by Ukrainian IT outsourcing company has been roughly doubled during last year even if it stays the same in US dollar or Euro. If you are a company that with domestic sources of revenue and getting it in hrivna, it isn’t easy for you to double the salary of your IT personnel and definitely affects your costs in very unpleasant way.
  • On the other hand for start-ups that focus on global markets and have funding in hard currency the situation is quite good from talent sourcing point of view – it will be probably easier to hire good developers if you can afford to link their salary with USD/EUR.
  • There is still certain level of systematic, country risk with Ukraine, if the economy completely collapses or full-scale war starts it affects IT sector harder than it happened in 2014.

So it will be interesting to see how the situation develops. I really hope that Ukraine manages to resolve both political and economical problems and move on to better future for IT industry, start-ups and the country in general.

If you are interested to discuss opportunities of doing business in Ukraine (both for start-up and classical IT outsourcing), you are welcome to contact me.