Ukraine’s IT industry makes progress in 2014 despite war

Ukraine’s IT industry, over $5 billion in value, has over 500 outsourcing companies, over 100 global R&D centers, over 100 e-commerce companies and more than 2000 startups. More than 50,000 engineers are employed by the Ukrainian IT firms.

While the amount spent on each project generally decreased, the number of deals struck continued to grow, including market development initiatives, investor associations, angel investments, industry conferences and globally oriented projects.

The country’s IT industry new venture deals volume growth was worth roughly $40 million this year, dropping from $80 million in 2013 back to its 2012 level. Despite the slump in value, analysts say the sector is still making progress, taking into account the hryvnya’s rapid devaluation and the fact that five years ago it didn’t even exist as a market.

Yevgen Sysoyev, founding and managing partner at AVentures Capital says the situation is far from critical: “If we draw an exponential function graph for the IT industry in 2013-2014, we do see exponential growth. I expect growth in 2015 too, but the question is – how close to 90 degrees will the exponential curve be? If the current situation in the country stays the same, I expect a flatter exponential line, few deals and slow growth. This is not totally bad, but I would love to see much better results.”

With many international investors intimidated by the media’s portrayal of war-torn Ukraine, Russian venture funds and Ukrainian venture market players appear to have propped up the market in 2014 with pre-seed, seed and series A investments.

Sysoyev is one of the co-authors of Ukraine’s 2014 IT dealbook, published this month, and highlights how international perception of Ukraine as devastated by war has impacted the market, scaring some international investors away. “They can’t see that only 20 percent of the country is occupied with war and the other 80 continues to live at the usual pace. The image which the investor from San Francisco sees in the news has a scaring effect, while the real situation is different,” Sysoyev explains.

As a result, Starwind, Gillbus and Zakaz.ua enjoyed a total influx of almost $9 million – mostly from Russian Almaz Capital, ABRT, InVenture Partners, FinSight
Ventures,
Ukrainian AVentures Capital and Chernovetskyi Investment Group (CIG), although international investment group Intel Capital also contributed.

There was international interest in companies oriented for the global market however, as Japan, US and France-based companies bought up slice.com,  Semantria and podorozhniki.com respectively.

The most promising developments for Ukraine’s IT sector in 2014 came not in the form of deals closed though, but in changes to the political and business environment.

In May Ukraine’s first hardware startup accelerator – an investment fund that trains and mentors startups in exchange for equity – was launched.  The accelerator, called Carrot, sparked a flurry of interest in Ukrainian hardware startups. iBlazr, one of Carrot’s startup companies , was able to raise over $150,000 in 2013 through crowdfunding platform Kickstarter and has been actively shipping its smartphone accessory products throughout 2014. Another Ukrainian success story, Petcube, started shipping its advanced pet entertainment system this fall, attracting still more attention to Ukraine’ s hardware potential. Other crowdfunding success stories include data tracking device LaMetric , real-time facial tracking technology by Looksery and household heating energy saving hardware  eCozy.

Ukrainian representatives even had the chance to present at Silicon Valley for the first time with the launch of UTGem in San Francisco– a conference showcasing for Ukraine’s IT talent sponsored by Happy Farm Business Incubator in partnership with EPAM, European
Business Association
and U.S.-Ukraine Business Council.

For the first time articles on the development of Ukraine’s IT industry were featured in Forbes, BBC and Daily Mail, attracting worldwide interest like never before.

On the political side, there have never been so many investment and IT specialists in power before – Ukraine’s new Finance Minister Natalie Jaresko is the former CEO of Horizon Capital, former Microsoft Ukraine CEO Dmytro Shymkiv now heads the Presidential Administration and Aivaras Abromavicius, a Lithuanian with over six years experience of investment banking in Ukraine, has been appointed the Minister of Economic Development and Trade.

Ukraine’s parliament has now introduced a bill regulating e-commerce and its author, Olha Belkova, a member of the governing coalition bloc and a former managing partner at East
Labs Business Accelerator, plans to work hard for its final passage in 2015.

There are other IT representatives now in parliament too, with Vlad Voskresensky from InvisibleCRM, Oleksandr Danchenko from Data Group, Oleksiy Skrypnyk from Eleks
Software and Viktor Halasyuk from Bionic Hill, all taking seats in the Verkhovna Rada after the October elections with the intention of creating a more favorable investment climate.

They will be aided in their task by the establishment in September of the Ukrainian
Venture Capital and Private Equity Association (UVCA), the initiative of Andriy Kolodyuk, AVentures Capital founder and managing partner, Finance Minister Jaresko and Jaanika Merilo, the Association’s new executive director.

The UVCA will take a two-pronged approach – proposing legislative changes for a better investment climate to the Cabinet of Ministers, and monitoring the enforcement of newly introduced laws.

Another private sector initiative aimed at strengthening the sector was the 2014 launch of the Brain Basket Foundation. Backed by angel investors, venture funds, investment companies and the government, it aims to develop more than 100,000 qualified IT specialists by 2020. One thousand of the registered trainees are refugees from the war in east Ukraine, and the first training was already held in December.

If these measures succeed, Ukraine’s IT industry will be set up for a promising year in 2015.

Kyiv Post staff writer Bozhena Sheremeta can be reached at sheremeta@kyivpost.com. The Kyiv Post’s IT coverage is sponsored by AVentures Capital, Ciklum, FISON and SoftServe.