Building a startup nation is a new Ukrainian dream

Two months ago I welcomed a delegation of European investors and tech entrepreneurs for an informal 3-day WEF/YGL/GS Ukraine Discovery Tour in Kyiv. I had met them at the World Economic Forum in Davos in January, and invited them to Ukraine despite skeptical views on the “country in war.”

These views weren’t surprising because Russian propaganda considerably amplified the perception of this war with the purpose of scaring off all business people and investors.

“So how is it in Ukraine? What’s going on with businesses? What was it like before the war?” – these were the first questions I was attacked with. So I spoke frankly and factually.

Despite the EuroMaidan Revolution, the annexation of Crimea and the start of the war last year in two regions in the East of the country, the Ukrainian IT and startup community managed to get 60 venture deals. So far this year we have had over 20 deals signed.

The delegates couldn’t believe it first. “What deals are you talking about? Who were these investors? Were they nuts? Ukraine is at war!”

They wanted figures and names. I told them Torben Majgaard, the founder of Ciklum, Digital Future, SMRK, Almaz Capital, Fison, the Sikorsky Challenge innovation park and other investors who made the list of 10 new investors that entered Ukrainian market in 2014.

There is a kind of analogy with Israel, whose difficult geopolitical environment and ongoing war threat doesn’t prevent the startup ecosystem to develop.

Another point of analogy with Israel is the fact that Ukraine has a limited internal software market. This is why over 90% of its software product companies target the global market.

Ukraine has over 2,000 startups, about 100 global R&D centers, more than 500 outsourcing firms and 100 e-commerce companies. All of them brings the industry’s volume to more than $5 billion as of late 2014. The figure could be higher if it wasn’t for the economic downturn.

Creating an enterprise software startup with a team of 20 people working during at least 2 years requires at least $10 million in the U.S. In Ukraine, the same team for the same time span will cost 10 times less. Just think about it. It is possible to raise $1 million in the U.S., develop the product here and then return with the developed product to sell it in the U.S.

Last week I had two guys from Europe asking for my help in finding CTOs. One of the delegates was also interested in finding a co-founder with a background in tech.

Despite the stereotypes, Ukraine is actually the place to find a co-founder, not just a beautiful bride. There are successful cases of such cooperation and one of the examples is Paymentwall, a payment platform for games, virtual goods, and web services available in 200 countries with $2 billion in revenues. It started out from a cooperation of American Honor Gunday and Ukrainian Vladimir Kovalyov. Now it has IPO prospects within 3-5 years.

Another trend I bump into quite often is corporate sector employees leaving their high-paying jobs to create tech startups.

They choose technology because it promises a faster return on investment, fewer entry barriers and fewer roll-out costs.

The nature of Ukrainians is that they are hard-working people. When they see opportunities, they are not afraid to spend the capital they have to develop own business.

With such tendencies combined, I predict that Ukraine will have around 5,000 startups in several years.

And I’m not the only one who sees such prospects. When Sir Richard Branson visited Kyiv in April for the Forum One conference, he expressed his strong belief in the Ukrainian tech industry.

When asked if he would co-invest with a local VC, he said that his investment team has been already looking at deals and his main investment people will be visiting Ukraine now every month.

Such trends make a firm soil for investors and a chance for Ukraine to become a “startup nation.” Ukrainian young generation, however, will become a “startup nation” in the sense that everyone will be doing startups. It will become a Ukrainian dream.

Our youth gets inspired by Jan Koum, the founder of WhatsApp, and Max Levchin, the co-founder of PayPal and Yelp. They both have Ukrainian origins and were selected to the rating of Europe’s top 50 tech entrepreneurs of 2015 by Financial Times. They are YGL of WEF too.

There are more than 50 Ukrainian companies with valuation of $20-100 million that operate globally.

All of them came out of the blue They bootstrapped and worked hard. This is all about the Ukrainian spirit and entrepreneur culture.

The community of investors and people in government form a strong team to advance the business climate and implement long-term development strategies too. By my initiative with Natalie Jaresko, Finance Minister and the former CEO of Horizon Capital, for instance, last year the Ukrainian Venture Capital and Private Equity Association (UVCA) was founded and 37 members teamed up (planning to reach 50 members this year) with the total assets of $23 billion.

UVCA has already come up with the road map, introduced to the government, on how to build the investment climate in Ukraine and to fight the corruption.

The EuroMaidan Revolution ended over a year ago, and now Ukraine is a dynamic country. The spirit of freedom is carried by talented and educated people, who were being robbed for too long. Now, when opportunities are scarce, they are ready to create opportunities themselves.

By the way, one of the YGL Marc Turell has already visited Ukraine for the third time since the event. Impressed by the first visit, he’s now building a new tech company with Ukrainian team. It`s just a beginning of success and an example for many new entrepreneurs, inspired and excited to work on their business network and found global companies here. Together we build a new Ukrainian dream and a “New Ukraine” to become a startup nation.

This story, which first appeared in The Kyiv Post, is reprinted with the author’s permission.

  • Andrey Kolodyuk is an entrepreneur and venture capital investor born in Ukraine. At the age of 21, he moved to the USA to study ‘how to build business’ before founding his first startup at the age of 23. Since he came back to Ukraine in 1995, he has founded and invested more than 10 companies in IT, media, Internet, Telecom, etc. Kolodyuk has also participated actively in the building of the Ukrainian entrepreneurial community since the 1990s. In 2008 he was nominated for his efforts as a Young Global Leaders by the World Economic Forum.
Topics: Analysis & opinion, Finance, People, Startups, Venture/Private equity
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