Ukrainian defensetech is the first thing that springs to mind. “Europe is set to significantly increase its defense spending in the years to come, and Ukraine is taking up a huge part of that,” says Lola Onipko of Invest in Bravery, a Czechia-based organization that aims to foster investment in Ukraine.
“If you’re not in Kyiv, you have no chance”
Because of the increase in spending, says Onipko, the more adventurous VCs in the Czech Republic are flocking to Ukraine. One of them is Tichomír Jenkut, who used to work for Presto Tech Horizons, one of the few funds to invest in single-use technologies as well as the more common dual-use.
For Jenkut, the choice to travel to Ukraine was easily made: “If you’re not in Kyiv, you have no chance; defensetech coming from the rest of Europe and the United States is inferior to what’s built in Ukraine.”
This is largely due to the immediacy of Ukraine’s predicament, he says: “Ukrainians need to solve for problems that exist right now.” This is in sharp contrast to its European partners, for whom war with Russia is still only a possibility. As Onipko puts it, Ukraine offers “speed of innovation in real time.”
For one example, read our report on Caslog, a Swiss-Ukrainian startup that’s scaling rapidly.
This, and the technological advantage, made him look eastward. “I would love to see more Czech defensetech startups, but if you want to invest in defense, Kyiv is the place to be,” he says.
“An amazing ecosystem”
Defensetech isn’t Ukraine’s only industry, of course, and plenty of investors are drawn to other tech sectors. Jan Korous of Tilia Impact Ventures, which focuses on technology for solving meaningful planetary and societal challenges (including Ukrainian startup LetsData), came back impressed from his latest trip to the country, emphasising the “resilient and dynamic ecosystem.”
“Visiting was a dose of reality, how people work in those conditions is inspiring,” says Korous, however, the flipside is that “talent either flows abroad or toward defensetech,” which leaves other sectors undersized. As a result, he says, “we have to find our own ways to invest in Ukraine.”
“Fragmented startup scene”
This sentiment is shared by Ondřej Homola of N1 Ventures, who says that “the Ukrainian startup scene is fragmented around the world thanks to the diaspora.” This has led to N1’s second fund to invest in Ukrainian founders who live abroad, like Competera, which creates AI-driven pricing solutions for enterprise retail, and healthcare marketplace Liki24.
Homola, however, does point out some great opportunities: “VC in Ukraine is very young, and many Ukrainian VCs are more like family offices.” This leaves a lot of room for growth for new players coming in. “The VC and startup ecosystem is evolving rapidly, and some Ukrainian VCs are becoming significant players,” says Homola.
“An active war means an active war risk”
Naturally, there are hurdles associated with investing in Ukraine. Invest in Bravery’s Onipko is the most blunt: “An active war means an active war risk: you can invest, and that company can be bombed the next day. Founders can be conscripted unless they have an exemption [for military service].”
These aren’t the only issues, Onipko continues: “Ukraine is not yet in the EU, so its legal and regulatory frameworks are still different from the rest of Europe.” While this is – slowly – changing, one major stumbling block she has come across concerns issues with tech transfer, particularly when it comes to exporting intellectual property.
Under Ukrainian law, says Onipko, “a soldier in an R&D unit’s IP belongs to the state.” Many civilians work with military units, but even then they will fall under Ukrainian export controls. Currently, there are laws in the works that should make licensing easier, but progress has been slow.
Corruption
Another issue that all investors bring up is corruption, though few want to give concrete examples besides saying that investors need to tread carefully. Homola comes with a very practical example, saying that anybody looking to put money into a company “has to do due diligence on anybody’s former investors” as otherwise you may find some unpleasant surprises down the road.
Immediate ROI
Because of all this, says Jenkut, it can be “difficult for VCs to determine value: as an investor you want to invest in companies that will still be there in five or 10 years.” However, none of the investors seem particularly scared off from investing in Ukraine.
For Onipko, it’s about the Czechs’ history with Russian occupation, while Homola and Korous simply seem to want to help. Jenkut puts it in the clearest terms: “You get an immediate return on investment in that you can see how many lives are saved by the tech you backed.”
As for the future, nobody seems particularly worried. Jenkut seems to speak for all of them when he expresses confidence in victory. “The people of Ukraine are relentless,” he says with a smile.
