The Ukrainian internet technology startup industry is not going to have a successful year, market participants foresee. After receiving $50 to $70 million of investments last year, this market will definitely not receive that much in 2014.
Political instability, related to pro-Russian separatism in southeastern region, pushed several investors to freeze a number of projects in Ukraine, according to Egor Anchishkin, founder of Zakaz.ua food products delivery service.
Meanwhile, European Union’s startup market attracted as much as $5 billion of venture investments last year, according to European Private Equity & Venture Capital Association.
“We expect that in a short-term prospect some international investors will take a break with the investments in Ukrainian startups,” says Pavlo Bogdanov, general partner at Almaz Capital.
Evgen Sysoev, managing partner of AVentures Capital, says investors’ activity will reach last year’s level after stabilization of the situation in the country. As for now, there are more IT-projects in Ukraine than there is venture money.
Igor Semenov, partner at TA Venture fund, foresees two scenarios for the market. Best case scenario implies end of the conflict with Russia which will lead to a flow of investments at approximately $30-50 million, 30-40 percent down from the previous year. Worst case scenario, that will take place if tension goes on, could end up with no investments at all.
Receiving financial support from the International Monetary Fund, government’s reforms program and signing the business part of the association agreement with the European Union, which is expected to take place later this year, contribute substantially for the more optimistic scenario to occur. According to experts’ consensus, Ukrainian startups could receive as much as $200-400 million of investments in the short-term perspective if country succeeds in fighting separatism.
Some institutional investors are still willing to pour their capital in Ukraine-based IT startups. AVentures Capital, ABRT Venture and Almaz Capital funds, which have offices in the U.S., Russia and Ukraine, invested $3.25 million in Ukraine’s StarWind software company in April.
Andriy Kolodyuk, founder of AVentures Capital, told the Kyiv Post that he expects 40 percent return on his investments.
Moreover, VOX audio player and AugmentedPixels received money from AVentures and Torben Majgaard, co-owner of Ciklum, global IT-oursourcing company which does business in Ukraine. “I believe in Ukraine and not afraid to demonstrate this to others, hoping that they will do the same thing – invest in Ukrainian startups,” said Majgaard.
Nevertheless, he admits that not too many investors are interested in Ukrainian information technology market, because it is too small. But qualified workers are the strong point that local market has.
Ukrainian startup market attracted South African Republic’s Naspers venture fund that has invested around $100 million in Ukrainian startups since 2007. It acquired Allegro internet holding which controls such websites as Prom.ua, Aukro.ua and Emarket.ua. In 2011 Naspers paid $29 million for Slando.ua, Ukraine’s popular free classifieds website.
Since 2011, some 180 IT-projects from Ukraine received international funding and have been quite successful for providing services on the U.S., European Union and Asian markets.
Poland’s BGK and PKO banks are going to launch a new venture fund in the nearest future managing some $100 million. Its strategy will include investing in Ukrainian startups, according to AVentures Capital’s Sysoev.
