Investment in Ukrainian Startups

According to State Statistics Service of Ukraine, Ukraine has received $392,900,000 of direct investment from countries of the world since early 2017 — so-called stock capital. This fact could be an excellent evidence of Ukraine’s growing popularity as a target for investment, but we still consider the situation in more details.

Investment in Ukraine: statistics

Ukrainian IT startups are one of the most attractive targets for investments of foreign investors. In 2015, Ukraine was at the 71st place in the world by the development of information and communication technologies (Global Information Technology Report 2015 by World Economic Forum), in 2016 — at the 64th place (Global Information Technology Report 2016). In comparison with 2014, this is an increase of more than 15 positions.

According to Ukrainian Venture Capital and Private Equity Association (UVCA), 87 investment agreements were concluded with Ukrainian companies in 2016. This is 31% more than in 2015. Another statistically significant indicator is an increase in the number of so-called startups’ ‘exits’. These are startups that creators resell to investors. In 2016, there were 8 such startups, and this is an extremely high indicator for Ukraine.

The growth in the number of transactions is explained not only by the growth of investment capital but also by the success of Ukrainian IT companies in the market in previous years (for example, Looksery, Kwambio, Ecoisme, and many others). Their investment success is due to the fact that many investors prefer to invest at the initial stage of the company’s development — so-called seed financing. This allows you to keep abreast of a growing startup and give more flexible reaction to changing conditions and trends.

The average amount of investment in one company in the period 2015-2016 was more than $500,000. Growth affected angel investors too: according to UAngel information, the average ticket of one angel in 2016 is ranged from $20,000 to $50,000 and average round — from $150,000 to $300,000.

Experts predict further growth of this indicator and attraction of more capital to startups.

Ukrainian startups: deals

Investors cooperating with the UVCA allocated about 25 projects which were invested with more than $4,500,000 of investment funds in 2016. This amount can be compared with the indicators of 2015: slightly more than $2,000,000 and 20 projects. There is an increase in funding and a decrease in the number of projects. The second indicator can mean both growth of the quality of each individual project and increasing incidence of mergers and acquisitions of companies.

It is not possible to track all transactions because many projects can still be under the NDA. But we picked up several bright examples of the success of Ukrainian startups in the investment market.

Grammarly: spell check service — $110,000,000.

This startup was invested in 2017 already, and the gap with previous years is obvious — in 2016, the amount of all investments for all startups did not exceed $88,000,000! General Catalyst (USA), Spark Capital (USA), and IVP (California, USA) are among investors.

Sixa: service for creating a virtual computer in the cloud — about $4,000,000.

At the first stage in 2016, the startup passed the Y Combinator accelerator program and received $120,000 of investment funds. The second stage is $300,000 for the few seed financing rounds from TMT Investments. And the third stage is $3,500,000 from Tandem Capital (USA, California), Digital Future, and Horizon Capital (Ukraine).

Allset: service for food ordering and restaurants tables reservation — $3,350,000.

Investments were provided by the Andreessen Horowitz (Silicon Valley, California, USA) company and a number of other investors.

Mobalytics: analytical platform for gamers — $2,600,000.

This startup founded by specialists from Ukraine and Lebanon began its ‘career’ with a victory at TechCrunch Disrupt and continued with the investments from Founders Fund, Almaz Capital, GGV Capital, and General Catalyst.

Polyteda Cloud: innovative PV workflow for semiconductor foundries — $1,400,000.

This startup was the first of all Ukrainian companies to become the winner of the European Union’s funding Programme for Research & Innovation Horizon 2020 SME Instrument in 2015.

Another example is the case of the acquisition of startups by large companies: Snapchat acquiesced Looksery for $150,000,000 and European Bank for Reconstruction and Development acquiesced minority stake of Depositphotos for $5,000,000.

Ukraine: attractiveness for investments

There are four main points that outline Ukraine’s attractiveness for investments:

  • High return on investments: Ukraine is a country with high risks. On the one hand, this limits the inflow of investments and the number of back offices created. On the other hand, the profitability of investments and open business in Ukraine is higher than in countries with developed economies — Israel, for example.
  • Growth in the number of startups: and, hence, the expansion of the field for investments. The aforementioned jump in the investment of Grammarly in 2017 is the great illustration.
  • The benefit in mergers and business acquisitions by foreign in Ukraine: the main reasons for such decisions are the need to expand technical expertise or geographical presence. The level of IT companies in Ukraine is high, and the convenient location of the country in terms of time zones, specialists and prices (i.e., an opening office in Ukraine is much cheaper in comparison with the USA) is a uniquely positive moment.
  • IT professionals in Ukraine: Ukraine is in the top 30 countries on the Human Capital Development Index, almost all specialists in the industry speak English and their level of technical skills is high.

Conclusion

Of course, there are shortcomings for business in Ukraine too. First of all, this is corruption, then goes to access to financing and inflation — according to World Economic Forum’s The Global Competitiveness Report 2015. And investments contribute to solving at least two of these three biggest problems. This speaks in favor of such investments. The index of investment attractiveness of Ukraine is 3.15 out of 5 at the moment, and this is the highest figure since 2011 (according to the European Business Association information). Such growth was influenced by the deregulation of business, the introduction of electronic government services, as well as the availability and quality of services provided by companies in the field of IT recruitment, consulting and business processes outsourcing.

Author: Petro Borysov​.