You're reading: Shymkiv on Ukraine IT future: ‘Next year we need to continue destroying Soviet standards’

The information technology industry in Ukraine has arguably suffered the least in the current crisis and is still attracting investment.

Industry estimates show that it now accounts for a rising share of Ukraine’s gross domestic product some 3 percent and could rise to 15 percent by 2020.

But there is turbulence.

The tech industry lost the largest number of investors in any sector, according to Denis Dovgopoliy, managing partner of GrowthUp. “Many investors left Ukraine during the year,” Dovgopoliy told the Kyiv Post. “Some could not put up with the risks within the industry, some were frightened by war or economic recession, while some reordered their priorities.”

Talented tech professionals who are difficult to replace also left the country, said Jaanika Merilo, advisor to Lviv Mayor Andriy Sadovy and co-founder of Ukrainian Venture Capital and Private Equity Association.

“About 5,000 IT specialists – the best ones, those who can hardly be replaced – left Ukraine for other countries,” Merilo told the Kyiv Post. “It is easy for tech companies to move abroad – they are not tied to one place. That simplifies moving out to other countries for our IT guys. And it is difficult to bring them back after that.”

Searches

Another reason why people moved their business to other countries, according to entrepreneur and venture capital investor Andrey Kolodyuk, was the unexpected surge in searches of IT offices in the second half of the year.

“Unfortunately, the searching of IT companies became a trend in 2015,” Kolodyuk told the Kyiv Post. “Since July alone, there were more than 30 searches, with the confiscation of servers, and both personal equipment and office equipment. That is paralyzing companies and harming their reputation.”

Searches of IT offices

A screen shot from the CCTV video that shows the way law-enforcement authorities conduct the search of AdvancedHosters.com office on Jan. 20, 2015. (Courtesy)

Despite the fact that some companies managed to recover equipment through the courts and prove the actions of law enforcement to be illegal, the searches continue.

“Every week we hear not only about a successful deal, but also yet another search,” Kolodyuk said. “To stop the searches today means to save the IT sector, and in turn the investment attractiveness of Ukraine.”

Merilo thinks searches of IT offices by law enforcement investigating possible tax evasion and hackers scared away potential investors. Additionally, police were accused of seizing IT equipment for extorting bribes.

Government

Dmytro Shymkiv, the deputy head of the Presidential Administration, said that despite the problems, many positive developments happened in 2015, including the setting up third-generation mobile service in the country and establishing governmental online services.

“Of course, searches and seizures of equipment by law enforcement are in the news by the end of the year,” Shymkiv told the Kyiv Post. Despite the market slowdown, “Ukrainian IT companies managed to fulfill their potential in working with Western clients,” Shymkiv said.

Deputy Head of Presidential Administration Dmytro Shymkiv talks to representatives of Ukrainian IT industry during Fireside Chat moderated by Denis Dovgopoly, the managing partner at the GrowthUP Group, on Oct. 21 in Kyiv.

Deputy Head of Presidential Administration Dmytro Shymkiv (R) talks to representatives of Ukrainian IT industry during Fireside Chat moderated by Denis Dovgopoliy, the managing partner at the GrowthUP Group, on Oct. 21 in Kyiv. (Volodymyr Petrov)

Ukrainians witnessed the launch of numerous tech projects in the government sector, such as open registers, online petitions, the e-data portal of public finances, and volunteer-run website iGov.

“The year of 2015 continued to lay the foundation for a swift break in the sphere of high technologies in Ukraine’s economy,” Shymkiv said. “Next year we need to continue destroying Soviet standards, introducing modern world trends of electronic governance – from electronic cards to e-services, transparent procurement, cloud technologies.”

Good trends

The tech industry beat the record of investments this year.

Ukrainian startups gained from $60 million to $100 million in funding, including $4 million from the European Bank of Reconstruction and Development for Depositphotos, $5 million for the Ukrainian-Polish real estate startup Prof.Estate from UK investment company Forum Capital, and the acquisition of stakes of Ukraine’s biggest online retailer Rozetka by Horizon Capital.

However, the most significant events for the IT industry include the acquisition of the startup with Ukrainian roots Looksery by U.S. video messaging application Snapchat – for a reported $150 million – and investment in Ukrainian software developer Ciklum made by U.S. billionaire George Soros, experts say.

“Odesa-developed startup Looksery beat the record sales. The $150 million for Looksery from Snapchat was the maximum price for Ukraine’s development company,” Dovgopoliy of GrowthUp said.

Julie Krasnienko, the marketing and business development head at Looksery (C), delivers her speech at the Kyiv Post 20th Anniversary Charity Gala in Hilton Kyiv after winning one of fi ve awards for Best Ukraine-produced Mobile Application in Kyiv on Sept

Julie Krasnienko, the marketing and business development head at Looksery (C), delivers her speech at the Kyiv Post 20th Anniversary Charity Gala in Hilton Kyiv after winning one of fi ve awards for Best Ukraine-produced Mobile Application in Kyiv on Sept. 19. (Kostyantyn Chernichkin)

And according to Kolodyuk, the investment from Soros is a sign for the entire world that “you can and should invest in Ukraine’s tech industry.”

“The investment in Ciklum by Soros is undoubtedly the main deal of the year,” Kolodyuk said. “I think this is a turning point for Ukraine: new investors will come and people will look at us not only in the context of political scandals and military actions.”

In total, at least six companies with Ukrainian roots were sold, according to Dovgopoliy.

“The year of 2015 was eventful, a breakthrough, yet it was the hardest one. We are looking at 2016 with muted optimism,” he said.

Kyiv Post staff writer Denys Krasnikov can be reached at [email protected]. The Kyiv Post’s IT coverage is sponsored by Looksery, Ciklum, Steltec Capital and SoftServe. The content is independent of the donors.

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