The Ukrainian tech news outlet AIN, the N1 investment fund and the online intelligence agency Molfar have just released an in-depth review of the Ukrainian tech industry in 2022 and H1 2023. Accessible online at no charge, the “Book of Ukrainian Tech” covers a variety of topics, from the service industry to startup investment to game development. It also analyzes the impact of the war and of government policies.
IT outsourcing
IT export revenues, which amounted to $7.3 billion in 2022 (up from $6.9 billion in 2021), could fall in 2023, as suggested by a modest $2.8 billion export volume in the first six months of the year. “The decline is likely to continue,” says the report, even though “there is a new wave of interest in Ukrainian developers” who have demonstrated their “capacity to deliver on time, even amidst blackouts.”
“In 2022-2023, 46 of the top 50 companies opened new development offices outside of Ukraine, employing about 20,000 people in total,” notes the report. Poland, Bulgaria, and Romania, as well as Cyprus, Turkey and Latin American countries are the top locations for these new offices. A small fraction (8.75 %) of all companies completely relocated, closing their Ukrainian office while opening a new one abroad.
The Ukrainian outsourcing industry has been affected by the war to a lesser extent than by the global recession, believes Vitaliy Horoviy, a shareholder of InSoft.Partners. “At the end of 2022, the demand for software development dropped significantly, according to some estimates, by as much as 25%,“ he notes.
IT workforce
About 87% of IT professionals kept their jobs with support from their employers, which explains the “high delivery rates despite massive relocation and blackouts,” according to the report. In 2022, some 21% of these professionals relocated abroad (but just 2% in 2023). That same year, 46% relocated inside Ukraine while 31% did not relocate.
Out of 340,000 people employed in the Ukrainian IT industry, “about 180,000 are liable for military service,” says the study. Almost 2% of them serve in the army, including two thirds of volunteers and one third of drafted men. “Ukraine is losing a lot of people every day in the war, including those who were driving its economy forward,“ notes Nykyta Izmaylov, Managing Partner at N1 Investment Fund.
Developers’ salaries remained unchanged while new non-technical hires became cheaper. The number of vacancies fell twofold.
Countries of destination of relocated Ukrainian IT professionals
Startups and VCs
According to the report, “79% of early-stage startups survived, with 84% of them physically moving out of Ukraine in whole or in part. At the same time, 250 new startups [emerged], not counting defense tech.”
The report offers detailed stats about investment and M&A, as well as crowdfunding and grant funding, since 2009. It suggests that a historical peak in investment was attained in 2021, followed by a dramatic decrease in 2021 and H1 2023. (This negative evolution was previously highlighted in a report by AVentures Capital, while a UVCA study, using another methodology, maintained that the market showed remarkable resilience.)
“Startups suffered the most,” says the “Book of Ukrainian Tech,” drawing attention to the fact that foreign funds began paying less attention to Ukrainian startups while only six of the 18 domestic funds continued to invest amid the war.
The report identifies the Ukrainian funds that “have been operating in Ukraine for more than a year and have continued to invest despite the war” (SMRK, Horizon Capital, U.Ventures, TA Ventures, Flyer One Ventures and N1 Investment Fund); those launched a few months before the invasion (Geek Ventures, SID Venture Partners and NetSolid Investments); and those launched after the invasion (Angel One Fund, Hypra, hi5 Ventures and Vesna Capital.)
Three of the seven oldest Ukrainian funds (AVentures, CIG, and Digital Future) did not make any investments in Ukraine during the war.
Investment in Ukrainian or Ukrainian-founded IT companies
The “Book of Ukrainian Tech” does not specify how it defines an entity as being “Ukrainian” while a growing number of them are headquartered abroad, employing non-Ukrainian employees and executives, and attracting funding from international investors. But Izmaylov makes a just observation: “Local funds and startups operate from different countries, most of them outside Ukraine, which makes them less risky. In other words, a Ukrainian startup is now a startup with Ukrainian founders and a team that can be scattered around the world.”
Methodology
The author, Ilya Boshnyakov, claims to have “reviewed 26 studies of various aspects of Ukrainian IT [published] over the past 7 years,” including surveys from Lviv IT Cluster and IT-Ukraine Association. Datasets from Dealroom, Pitchbook, CBInsights, Clutch DOU, Djinni and others were used.
