The Global Startup Ecosystem Report 2023
Adaptation & Resilience: First-Hand Insights Into the Ukrainian Startup Ecosystem
Pavlo Kartashov, CEO, Ukrainian Startup Fund (Innovation Development Fund), Ihor Markevych, Head of Strategy and Development, Ukrainian Startup Fund (Innovation Development Fund), and Nataly Veremeeva, Director, TechUkraine share their thoughts on the current state of the Ukrainian startup ecosystem.
The Impact of War & Current State of the Ecosystem
Pavlov and Ihor:
The war has changed the Ukrainian startup ecosystem permanently. It will never be the same as before the full-scale war. But still, a surprising number of startups have survived months of Russian attacks and even found ways to grow. Only 12% of all startups fully stopped their activity. 43% of startups expect growth in 2023 based on the results of 2022. In general, we can identify the following key features of the Ukrainian startup ecosystem in times of war:
- Basic needs are a priority. The war in Ukraine is still ongoing. The largest-scale hostilities are taking place in the east of the country at a considerable distance from Kyiv and Lviv, but there are still risks of missile attacks, mobilization, and other consequences of war. That is why startups are prioritizing solutions for basic challenges irrelevant to most others worldwide, such as security, access to the internet, and electricity.
- Attracting investment has become even more difficult. Even before 2022, most investors did not consider Ukraine a priority jurisdiction for investment, but now it has become even worse. Investing in Ukrainian startups has become more risky. If a startup has no sales outside of Ukraine and its core team is in Ukraine, it is almost impossible to raise funding. But more mature startups with proven traction are securing funding. Examples include airSlate, which secured $51.5 million and is now valued at over $1.25 billion, and Preply, which raised $50 million in a Series C round. Finmap and FuelFinance have secured $1 million each.
- Relocation of startups. More than 30% of startups have relocated to different countries worldwide. They start to form different communities and build bridges between the ecosystems of Ukraine and the country of temporary residence. The Ukrainian startup ecosystem has become global.
- Great resilience and bravery. Despite the war, Ukrainian startups are supporting the army while continuing to operate their businesses, implement projects, pay taxes, acquire new customers, and expand globally.
- Top-level publicity. Media attention is focused on the Ukrainian tech ecosystem and startups. All the Ukrainian booths at the major tech events are overcrowded. Ukrainian startups get their chance to talk to the media, present and showcase their projects, and promote the ecosystem.
Nataly:
The war was a shock for the whole Ukrainian nation and the country’s economy. However, the tech sector was among the few that showed impressive resilience. It showed growth of exports of IT services of more than 5% despite all the challenges the sector has faced, raising up to $7.4 billion. The size of investments in Ukrainian startups in 2022 was also considerable. There were dedicated funds and special programs launched by various programs from agencies including USAID, GIZ, Google for startups and others. A lot of work has been done to improve the investment climate in Ukraine and prepare frameworks for post-war recovery. This said, startups are still struggling to attract investment and for the startup ecosystem to show its real strength we need more capital in the country.
TechUkraine is an NGO, the objective of which is to unite and coordinate all ecosystem stakeholders, share information about our ecosystem successes on the TechUkraine.org portal, launch startup-support initiatives and act as a networking hub for matching local and global players.
Changing Focus
N: There was an important shift in terms of the problems that startups are solving. There is more focus on resolving the country’s immediate needs in military technology, logistics, and communication. A big amount of focus from the tech sector is going towards helping Ukraine, both in terms of financing, technology, and educated tech professionals. Over 300,000 people are working in IT and internet armies, that is, working in the area of Cybersecurity and on other tasks.
Our Ministry of Digital Transformation has published a list of verticals that are currently a priority. A really important segment for now is Militarytech, and we have seen a lot of new solutions in this area: drones, navigation systems, autonomous vehicles. These projects were undertaken by established companies, startups, and higher educational institutions. Cybersecurity is another area where there is a high level of activity.
P&I: Defensetech as an industry has become very popular and crucial for Ukraine. There are more than 300 Defensetech startups, the majority of which were founded in 2022–2023. A lot of existing startups have also started to develop products relevant to the war effort, such as demining products, energy saver technologies, and military drones.
At Ukrainian Startup Fund we prioritize the support of startups in five key war- and post-war recovery-related industries: Defensetech, Cybertech, Edtech, Healthtech, and infrastructure. In 2022 we received more then 200 applications and supported almost 30 startups in these industries, starting with demining drones and finishing with VR educational platforms for soldiers.
The Deep Tech industry is also developing because of access to E.U. funding and supporting programs. A lot of European institutions are cooperating with Ukrainian ones (EIT, EIC, COST, and others) and integrating them into the E.U. tech ecosystem. There was a specific EIC call for €20 million to support Ukrainian startups, which has boosted the creation and formalization of Deep Tech startups, as well as respective supportive organizations. In May 2023, the EIC announced a pan-European network that will implement a €20 million action supporting Ukraine’s innovation community called Seeds of Bravery. We are grateful for these new partnerships because our startups have a lot to offer the world.
Brain Drain & Talent Retention
P&I: Digital technology has allowed founders to continue operations. COVID prepared startups to work remotely and the skills gained during quarantine restrictions significantly help startups to survive during the war. Nevertheless, Ukraine has a critical brain-drain problem. With every month of the war, more and more talent leaves the country. However, many founders remain in Ukraine for patriotic reasons, continuing to develop their products and work for victory. We continue to work with all Ukrainian founders regardless of their temporary location. We continue to provide grants and other types of support to Ukrainian startups, and are also actively developing international partnerships, creating joint programs specifically for Ukrainian entrepreneurs.
Of course, we will do everything to bring as many Ukrainians home as possible. To do this, we need to create the most convenient and comfortable startup environment in Ukraine. We already have one of the best tax regimes for tech companies in DiiaCity — a legal and tax regime that creates favorable conditions for the development of IT business as well as introduces a set of incentives for Ukraine to become a high-tech digital state. We are working to improve legislation to unlock investment mechanisms and working closely with startups and other stakeholders to define their needs and verify approaches.
N: Women are currently our ambassadors, including in tech. They have ties in the country, husbands, partners, parents, and others still here. A lot of them are waiting for the war to finish and also travel back and forth to visit their family members, so the connections are maintained naturally.
Ukraine also still offers very good conditions for doing business: it is comparatively inexpensive and has a very qualified workforce, so even if founders and some parts of the team moved abroad, people are still interested in growing a team in Ukraine because of the quality and pricing of human capital, apart from the emotional part.
Maintaining a Strong Ukrainian Startup Community
N: Communities have a common goal of staying connected. We all want our country to win in this war and even if a person’s location has changed, their heart and thoughts are still in the country. There is a big difference between emigration out of choice and changing location because of the war. With technology, it is comparatively easy to stay in touch. COVID taught us to work remotely on a regular basis. With the beginning of the war we just went on doing it, using digital tools and habits that were already in place.
Apart from that, a large amount of Ukrainian public services had already moved online, so it is also easy to interact with the state, even from a distant location. Another aspect is the Diia app, which offers a wide variety of public services and additional options, like questionnaires from the state to know public opinion and even military-focused services, like sharing the enemy location or for people notify that they have just seen a rocket fly over, thus helping our air-defense systems locate and extinguish the attack.
P&I: It is important that cooperation is coordinated by a number of institutionally strong organizations. On the part of the state these are the Ministry of Digital Transformation of Ukraine and the Ukrainian Startup Fund, and on the part of business, these are IT clusters, IT associations, etc. Moreover, the Ukrainian startup ecosystem is naturally connected with the key goal to gain victory in this war. A lot of founders and team members are involved in the IT army initiative, PR army, Army of Drones, and other defense initiatives.
Startups continue to thrive even in these difficult circumstances. Zeely recently made it to the Forbes 30 under 30 Europe list in the Media and Marketing category, and last year it was among the top three finalists among 1,200 competitors at the Slush tech conference in Finland. It also secured $1 million in April 2023. Fintech startup Finmap raised a €1 million round in February, with one of its founders defending Ukraine in the Armed Forces. Cleantech startup Releaf Paper has developed a unique technology for producing paper from fallen leaves and won the EIC Accelerator 2022 program from the European Commission. The team has entered the French market and intends to build its own factory worth €3.5 million, of which €2.5 million will be funded by a grant from the European Commission.
The Ukrainian Startup Fund runs several regular ecosystem community initiatives including Ecosystem Meetup (monthly offline meetups to align the activities of key stakeholders), an online communication platform, and a lot of different events. Ukrainian Startup Fund has become an entry and connection point for the Ukrainian ecosystem, where you can find almost everything you need, or at least information about everything you need. We are planning to launch Tech Rammstein — a communication platform to unite global startup agencies and investors with the key goal to help Ukrainian startups.
It is important for us to create as many opportunities for Ukrainian startups as possible, but not to turn these opportunities into brain-drain tools. We are incredibly interested in cooperation, not just relocation. We are open to any joint projects that will create additional opportunities for Ukrainian startups, from finance to knowledge. We are not asking just for donations — we have a lot to offer.
Ukraine's startup ecosystem is going through the most difficult times in its history, but it is still growing. We will be grateful for any help, but most importantly, we urge you to accept Ukrainian startups as equals and provide them with equal access to opportunities. You should not refuse to invest, nor buy just because the startup is a Ukrainian one. Use Ukrainian products because they are not only high quality, but also brave.