Ukrainian start-up scene still alive despite crisis

Although Ukraine has been ravaged by its domestic political and economic crisis, the country continues to demonstrate resilience in its blossoming tech start-up market. A new generation of globally-oriented startups, the entry of new types of investors and growth in tech community initiatives are aiding the digital sector during the current difficult period. Business transfer agents have also been kept busy by Ukraine’s growing scene, with a number of Ukranian start-ups aquired by global majors in 2014. If the country can overcome its present obstacles, a more liberal and Western-looking government could spell good news for the country’s tech future.

The technology business is primarily about talented people, and Ukraine has one of the best supplies of graduates in computer science across the Central and East European region: over 15,000 per annum. The maturity of local IT outsourcing businesses is a major driver – from Ciklum, to EPAM, to SoftServe, to GlobalLogic and Luxoft. A pool of some 50,000 software engineers working for these and other companies is a huge asset given the global scarcity of good programmers.

Over the past 10-15 years, Ukraine has transitioned from an outsourcing platform for large global corporations into a much more diverse market that can generate its own innovative technologies. Local entrepreneurs are coming up with solutions that proved competitive not only in the growing domestic market but also abroad. Grammarly, Paymentwall, DepositPhotos, Jelastic and MacPaw are good examples of global companies with “brains” in Ukraine. Today, Ukraine is known not only for its famous entrepreneurs like Max Levchin (ex. PayPal) and Jan Koum (ex. WhatsApp) but also for its rising IT stars. Recently, Ukraine-based Viewdle was bought by Google and Slice was acquired by Rakuten among other examples.

Nonetheless, there are challenges. Many investors remain wary of this market. There are only a handful of VCs actively pursuing post-seed stage opportunities. According to new report “The Deal Book of Ukraine”, released by Ukrainian investment fund AVentures Capital and local news resource Ukraine Digital News, after being virtually non-existent five years ago, the Ukrainian venture market grew extremely fast in 2012-2013, reaching at least $80 million in 2013. However, in 2014, the investment volume decreased by at least twofold. Ukrainian startups are also no longer considering Russia as a potential market, despite the country traditionally being a major source of customers and financing in previous years. They are now forced to look elsewhere, especially Poland, Germany and other European countries with favorable conditions for start-up development.

One may expect a significant leap forward by Ukrainian IT in the next few years. Given the background of steady growth in its IT services, there will be more product-oriented startups. The question is whether many of these will be strong enough to become leaders in certain tech segments, successfully securing resources for business development and building prominent companies.

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