Last month, the Ukrainian Venture Capital and Private Equity Association (UVCA) achieved a significant milestone in establishing a fund-of-funds to support Ukrainian startup entrepreneurship.
The “Ukrainian Fund of Funds” is now formally established with a legal entity registered in Luxembourg. The vehicle is managed by an experienced fund-of-funds manager, Ertan Can.
“We are now starting the active fundraising phase,” UVCA chairman Andrey Kolodyuk said in an exchange with Ukraine Digital News.
Initiated in 2016, this project received a first commitment from the Ukrainian government in late 2021 as part of the country’s 2030 development strategy. The committed amount, 300 million hryvnias, was equivalent to $11 million at the time but is now only $7.4 million due to recent hryvnia depreciation.
The fund-of-funds has a way more ambitious target — $300 million — to invest in approximately 25 funds that support Ukrainian companies or founders.
“While Ukrainian-managed funds are the primary target, the fund-of-funds could also back other funds with a broader focus on Central and Eastern Europe, but including Ukrainian entrepreneurs,” Kolodyuk explained.
These are “dozens of potential targets for the fund-of-funds, and even more if you consider the 300 international funds that have invested in Ukrainian startups over the past ten years.”
The Ukrainian funds referred to by Kolodyuk include AVentures Capital, Digital Future, FfVC, Flashpoint, Flyer One Ventures, Freedom One VC, Green Flag Ventures, ICU Ventures, Network VC, One Way Ventures, Rada Capital, SID Venture Partners, Ukrainian Phoenix, ZAZ Ventures, 3X Capital, and 1991 Ventures.
Boosting the ecosystem
“It is currently very challenging for these funds to raise capital,” Kolodyuk noted, partly because institutional investors typically do not invest less than $50 million in funds, which exceeds the absorption capacity of Ukrainian funds.
“The Ukrainian tech ecosystem emerged around 20 years ago, producing seven unicorns with only private money. A fund-of-funds is the ideal tool to attract institutional capital and further boost the ecosystem, as seen in other countries,” Kolodyuk emphasized.
The Ukrainian Fund of Funds will act as the first anchor investor in funds, providing 30% of the required capital. Eligible funds must invest in Ukrainian companies or founders, with a requirement that at least 20% of their staff be employed in Ukraine (adjusted from the initial 50%, due to war conditions) “and that value creation, particularly in terms of R&D, take place in Ukraine.”
Kolodyuk is confident that the fund-of-funds will receive support from international and development finance institutions — potentially those that backed Horizon Capital’s latest fund — as well as other private or public institutions.
