When we think about Ukrainians in tech, the bright and the brilliant come to mind. We also think of the engineers who can build the geekiest tech-solutions in the world, win Google and Facebook computer science competitions, and get talent-based visas to the US on a whim!
Despite the social and political upheaval that has pock-marked Ukraine’s past, the Ukrainian technology industry currently offers the global technology sector a mature IT-identity, as evidenced by its ever-expanding list of new ventures and laudable accomplishments. The phrase “Ukrainians in technology” now calls to mind some of the industry’s best and brightest, such as Bogdan Suchyk, founder of the Mobalytics start-up and winner of the prestigious “Start-up Battlefield” award at Techcrunch Disrupt. Ukrainian start-ups are also seeing a surge in venture capital (VC) seed funding, as demonstrated by recent fundings for companies such as the dining app AllSet ($2.35 million), and the content creation automator PromoRepublic, which just received 0.5 million euros.
To promote the Ukrainian technology industry’s ongoing development, U.S.-based members of the Ukrainian technology community met in Manhattan on November 17, 2016, for the “Razom IT Technology Ecosystem Summit.” This event brought notable names in Ukrainian technology together with representatives from U.S. and Ukraine-based accelerators and incubators for an evening of intellectually invigorating discussion. Razom IT speaker series chair, Anastasiya Rab, described the event thusly: “This yearly summit creates synergies and fosters relationships between Ukrainian and U.S. technology communities. The event allows for a valuable exchange of experience and ideas.”
Several key lessons can be taken from the Razom IT event about the status of Ukrainian technology in today’s modern IT landscape.
Ukrainian technology solutions can successfully fight corruption in Ukraine.
In his keynote address, “Real Change in Ukraine is Happening: Civic Technology Against Corruption,” Oleksandr Starodubtsev shared his experience as part of the team that built ProZorro, an online Ukrainian public procurement service. The development of ProZorro precipitated a significant reform of Ukraine’s historically corrupt and bureaucratic public procurement system by allowing Ukrainian companies to apply for government tenders online. The direct access afforded by this process eliminated off-the-books payouts to the “bribe-men” once required to gather procurement documentation and shuttle it to the proper government agencies.
Venture Capitalists do not invest in Ukraine, they invest in Ukrainians.
It is not surprising given Ukraine’s recent, tumultuous past (including two political revolutions in the last 15 years and the current armed conflict with Russia) that the country is not considered a hot spot for international VC investment. Venture capitalists still recognize, however, that Ukrainians represent a significant talent pool within the technology market and are putting their money behind them. As Eveline Buchatskiy, Director at Techstars in Boston, explained, “Ukrainians are extremely hard-working, smart, technologically capable, and nimble.” She noted as an example the Ukrainian online tutoring platform Preply, describing the start-up’s engineers as having resilience and perseverance like that from “no other nation.”
The startup scene in Ukraine represents a tight-knit and trustworthy community.
Alex Bornyakov, the Managing Partner at Odessa-based seed fund Wannabiz, said that since his company’s inception in 2012 it has closed 18 funding deals with Ukrainian technology companies. Denying the stereotypical view that Ukrainian business is corrupt, he explained: “I cannot name one deal where we were cheated. Some people failed, but it wasn’t [usually] their fault. I think the Ukrainian start-up ecosystem is trustworthy and people within it are not trying to steal or cheat. It is a focused, devoted community, unlike that found here in the U.S., where you can encounter a bunch of idiots.”
Scaling for Ukrainian start-ups is easier once they enter the U.S. market.
According to Ekaterina Dorozhkina, Managing Partner at the Moscow-based seed fund Starta Capital, Ukrainian technology tends to be more mature and more efficient at developing engineering solutions than that of other European markets. Dorozhkina has worked with several Central European start-ups and founders through Starta’s accelerators, and considers them, “really strong compared with those of other countries.” Dorozhkina further explained that, “If you compare Ukrainian and French start-up technology, you are not comparing apples to apples. For the same funding, a Ukrainian team can build a product with a faster traction.”
Dorozhkina does believe that the technology ecosystem in Ukraine and Russia has an issue with poor market liquidity. Starta Capital has thus partnered with local accelerators in New York to provide its start-up partners with access to U.S. and global markets, leading to significant opportunities for scaling and growth. Starta Capital helps remove bottlenecks associated with the insularity of Ukraine and Russia’s technology landscape and provides Ukrainian, Russian, Belarusian, and Moldavian start-up teams with faster access to international markets.
Ukrainian founders need to work on becoming more open to feedback, and focus more deeply on sales and marketing strategy.
Since engineering talent is their forté, many players in the Ukrainian technology landscape remain lackadaisical when it comes to sales and marketing. As Ekaterina Dorozhkina admits, Ukrainian technology founders “have cool products and PH.Ds, but really suck at sales.” She and other panelists at Razom IT described Ukrainian technology founders as being somewhat weak when it comes to selling their platforms and building lucrative business partnerships.
In a similar vein, another Razom IT panelist mentioned that Eastern European technology teams should become more open to soliciting feedback. Hearing such feedback and incorporating it into growth strategies for their companies could allow Ukrainian start-ups to make quicker progress with their solutions.
Ukrainian founders do move abroad, but that is a positive trend.
According to Yevgen Sysoyev, a managing partner at AVentures Capital, when founders from AVentures’ start-ups move abroad, they typically leave about 80 to 90 percent of their staff members in the U.S. Alex Bornyakov of Wannabiz further explains that moving abroad can contribute to job creation in Ukraine, and is not worried when “the best and the brightest minds are forced to leave.” He in fact encourages Wannabiz investors to “kick our start-up founders in the butts to get them out of the country.”
Bornyakov also believes that Israel is a model for his philosophy, as a country in which start-ups frequently operate with one founder in the U.S. and another in Israel overseeing the core engineering team. Having one founder in the US allows a start-up to understand and build relationships in the country where the largest target market often resides.
The Ukrainian government’s support for the Ukraine technology sector is not effective.
Myron Rabij, a Global Partner with the Dentons law firm, explained at Razom IT that, while legislation is being pushed through in Ukraine that could support start-ups, the government there is not currently very helpful. As Rabij wittingly observed, “It is easy to build a business in a bureaucracy, but difficult to make any money. That is an odd juxtaposition and the origin of the lack of investment in Ukraine.” He then added that building a technology business in Ukraine is difficult because “The margins of real income are very low. You need to have an extremely competitive product and price it properly.”
Prohibitive bureaucracy is not the only complicating factor facing those wishing to invest in Ukrainian technology. As Yevgen Sysoyev explained, due to Ukraine’s conflict with Russia, any physical business (such as retail) also suffers. He believes that Ukraine could facilitate an easier business flow within the country if it could replicate the model of a country like Ireland, where the government matches every $250K in investment funding without taking equity.
Razom IT’s technology conference provided the U.S. technology industry with an inside look into the success stories behind many Ukrainian technology start-ups, as well as some of the challenges facing the sector. It also introduced U.S. and Ukrainian investors to an array of U.S.-based accelerators and incubators actively seeking to work with Ukrainian companies, including Techstars, Starta Capital, Wannabiz, AVentures, and Happy Farm.
A key take-away from the conference was that if you are a VC investor, it could be unsound to immediately place a Ukrainian start-up pitch into your “do not fund” pile simply due to fears about political instability in Ukraine. It might serve your firm well to take a chance on a Ukrainian start-up if its business model objectively meets all of your criteria!
Razom is a 501(c)3 non-profit organization dedicated to building a prosperous and democratic Ukraine by strengthening civil society in Ukraine and amplifying the voices of Ukrainian citizens in conversations around the globe. Razom was established in 2014 to support the people of Ukraine in their continued quest for democracy, justice and human rights. Learn more at RazomForUkraine.org
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This event was made possible with the support of individual donors, sponsors, and the time, energy and drive of dedicated volunteers.
Big thanks to Razom volunteers that made this event happen – Alexander Gorbachov, Anya Sobolevs’ka, Dora Chomiak, Mariya Soroka, Yulia Paslavska, Dasha Ozimko, Nastia Rab, Vlada Reznikova, Tetiana Sydoruk, Oleksiy Varfolomiyev and Olya Yarychkivska.
Article by Lesya Pishchevskaya