Read our full report: Business Angels & Reconstructing Ukraine 2023
Can European business angels already play a role in reconstructing Ukraine today?
Can business angels contribute to Ukraine‘s recovery? For answering this question, members of BACB e.V. and Gigahertz Ventures travelled to Ukraine to meet multiple stakeholders of the early-stage startup ecosystem. Our report summarizes valuable key findings of 40+ in-person meetings in Lviv, Kyiv, Kharkiv, and Odesa from May to December 2023.
You can find our key findings below, or download your own full copy of the report.
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Key Findings of our Ukraimpulse Report "Business Angels and Reconstructing Ukraine"
We asked ourselves: Can business angels contribute to Ukraine‘s recovery? For answering this question, members of BACB e.V. and Gigahertz Ventures travelled to Ukraine to meet multiple stakeholders of the early-stage startup ecosystem. Our report summarizes valuable key findings of 40+ in-person meetings in Lviv, Kyiv, Kharkiv, and Odesa from May to December 2023. Here's our key findings, as a summary. You can download the full report below.
Read the full report now:
Key Findings of our report
"Business Angels and Reconstructing Ukraine"
1. Impact of the war
In 2022, Ukraine suffered a substantial GDP loss, estimated at one-third, but implemented measures to stabilize its economy. The war heavily impacts housing, energy infrastructure, industry, and businesses in general, which need reconstruction in many regions.
2. Economic recovery prospects
The NRC Recovery Plan earmarks $825 billion from 2022 to 2032 for Ukraine‘s recovery, with a focus on sectors like construction, green economy, and health. Integration into Western markets - especially the EU - promises growth. Recent conferences raised significant funds, to contribute to that cause. Ukraine‘s IT sector plays a crucial role in innovation, while defense and GovTech are pivotal for its resurgence.
3. Goodwill & Sustainability
Attracting foreign investment is vital for Ukraine‘s recovery and integration into the European community. Investing in Ukrainian startups not only yields economic benefits but also contributes to social and humanitarian progress, aligning with sustainable development goals.
4. Outsourcing legacy & talents
The Ukrainian IT industry, with its significant contribution to the economy and talent pool, plays a crucial role in resilience and innovation, despite many Ukrainian IT firms moving their headquarters abroad in recent years. The nation boasts a well-educated, English-speaking, and motivated young population, though many talents have left due to martial law, particularly women who are unlikely to return soon.
5. Verticals today
Economic sectors gaining momentum during wartime in Ukraine include defense and dual-use, health, govtech, construction/utilities, logistics, digitalization, green economy, and social services. Ukraine is poised to become a key player in high-tech defense, although ethical concerns exist. Some investors recognize dual-use potential for civilian benefits and are open to investments in defense innovations.
6. Resilience & agility
The Ukrainian business community and startups have responded to the war by relocating operations to Western Ukraine, bolstering infrastructure resilience, adopting agile management measures, implementing social support measures, and fostering strong values-driven corporate cultures, aided by the IT industry and the Ministry of Digital Transformation‘s efforts.
7. FDI today and tomorrow
War and geopolitics have shaped Ukraine‘s FDI, with post-war growth expected, supported by international aid, specific sectors, and the active Ukrainian diaspora‘s role. Following the war, the country might experience an investment hype. Timing matters.
8. Innovation ecosystem
Ukraine‘s innovation journey spans 30 years, starting with incubators and international backing in the 1990s. The 2000s introduced technology parks, but many faded due to funding as well as compliance issues. In the 2010s, private investments and global programs like StartupWeekend thrived, especially in cities with strong software outsourcing industries. Key developments include Unit.City, the Ukrainian Startup Fund (USF), and recent post-2022 initiatives due to the war.
9. VC & Angel Funding
Ukraine‘s startup ecosystem features a few active business angels, mainly from tech, with initiatives starting in 2014. There are few venture funds and accelerators that contribute positively. Most programs and initiatives focus on Kyiv. The western part of Ukraine, and especially Lviv, is experiencing a strong upswing due to the war. Partnerships between Ukrainian and European business angels can help to create a trustful and professional environment for business angels to activate more angel investors locally.
10. Legal System
Ukraine introduced investor-friendly changes in 2019, making it more appealing, but navigating the legal landscape and enforcing decisions can be complex, with established hubs like Poland, Estonia, or Delaware offering a straightforward path for exploration.
Barriers and Risks
War
Ukraine is in the middle of a full-scale war. No one knows when and how this war will end. The only safe thing is that it will end one day. Investors must bear that situation in mind and do their own political analysis on the variety of outcomes of this war to assess the development of the Ukrainian economy and their individual investments. We believe that most scenarios will provide a supporting environment for those investments.
In the context of the current war as well as beyond, cyber warfare is going to become an increasingly relevant risk with an impact on intellectual property protection as well as on overall operations. Yet, we expect the relevance of this field not to be limited to Ukraine.
Corruption
In 2022, Ukraine was ranked 116th of 180 countries on the Transparency International Corruption Index. Corruption and lack of transparency are still issues daily in Ukraine. On the positive side, these issues are tackled and are changing for the better - slowly but steadily. Local teams have to deal with these factors but are also used to sort their way through these issues.
When engaging in collaborations and investments in research-heavy and highly sensitive deep tech fields, such as those involving intellectual property, it is essential to consider the potential impact of corruption. This includes the potential for leaks in the direction of the Russian Federation and China (PRC).
Legal
Many Ukrainian startups are registering their legal base outside of Ukraine, in places like Estonia or Delaware. The Ukrainian legal system now does not provide the comfort of the legal systems in the EU or elsewhere, especially regarding protection or law enforcement. The ongoing and future integration into the European markets must solve these limitations.
Reliability of Information
A positive image of Ukraine in Western Media is obviously part of the Ukrainian war efforts. Some of these images might be distorted, biased, or inaccurate. Therefore, it is necessary for any investments in Ukraine to have a clear and first-hand picture of the situation and to have reliable partners needed for this clarity. These partners will be a key resource for a
beneficial interaction.
Recommendations
Brain Drain
Our peers in Ukraine are very sensitive about the issue of taking talent out of the country. Any impact and interaction should keep this in mind and understand that brain drain wouldn‘t be helpful for Ukrainian society at all. We expect that any initiative that supports Ukrainian teams to stay and develop in Ukraine will get much more political backing and
will be the more sustainable approach.
We also understand that for the time being, it might be necessary to move towards that aim step by step and consider the given circumstances to find practical solutions. An individual investor might insist on registering the company outside of Ukraine, but the team will nevertheless be based in Ukraine.
Dual-use Investments
Investments in defense and dual-use require a special set of instruments. We do not want to evaluate ethical aspects that speak for or against such investments at this point. There is significant promise in the dual-use industry that does not require implicit participation in creating and manufacturing weapons.
This encompasses healthcare technology, demining, and defensive constructions designed to safeguard civilians.
Hype Cycle and Timing
The various phases during as well as after the war will have to be taken into consideration. Following the war, the country might experience an investment hype. Timing matters!
Business Angel Development
We would recommend supporting the Business Angels community in Ukraine with different tools. The community needs to grow in numbers and depth to allow the start-up ecosystem to thrive and stabilize. Ukraimpulse Ventures can provide training in various forms to local Business Angels and will continue networking as well.
Pilots & Learning
Ukraimpulse Ventures is dedicated to starting with a Pilot Fund in 2024 to gain more direct and relevant experience in investments in Ukrainian startups. We anticipate using these lessons learned to set up a regular fund later in 2024. Wherever possible, we recommend using and looking for local co-investments for any investments planned. These co-investors will secure a strong local link to the teams and talents supported.
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