Some Ukrainian startups see progress in the nation’s business environment, but not enough. Consequently, many entrepreneurs still find more fertile ground in doing business elsewhere – citing Ukraine’s weak rule of law and currency instability, among other drawbacks.
Here are the stories of three startups:
Adtena
In October, Oleksandr Dzyuba, a 27-year-old former Wi-Fi network engineer, co-founded with Oleksandr Trush internet advertisement platform Adtena.
The company has five employees and operates in the Ukrainian market, but registered abroad to attract investors. Ukraine still does not have a business-friendly legal environment to attract foreign investments into Ukrainian startups, says Dzyuba.
Adtena’s parent company is registered in the British Virgin Islands, a popular tax haven, while a Ukrainian subsidiary is going through registration.
The $60,000 syndicate investment that Adtena received from foreign and local companies went to its parent company, where the currency is stable and investors have stronger legal protection.
“Investors do not want to work with companies registered in Ukraine,” says Dzyuba.
Adtena’s service enables companies to advertise via Wi-Fi networks. Once in a Wi-Fi zone, the user might come across an advertisement pop-up such as a banner, game or a video paid by the advertiser.
Advertisers can choose a Wi-Fi location on the map, the type of establishment and other precisions to target the consumer. Adtena receives up to 30 percent of the fee the advertiser pays to the Wi-Fi network owner. In five months, the business has grown to 120 Wi-Fi locations in Ukraine from a humble start of only two in Kyiv.
Sovtes
Sovtes, another Ukrainian startup, performs well in Ukraine, but considers the West to be the main investment pool.
“In Ukraine there are many startups but you can attract investments only if a company is registered, for example, in European countries because the process is more transparent there,” says Maksym Sevostianov, Sovtes’ business development manager.
The company provides logistics services for shippers and carriers. It has more than 250 carriers and more than 23,000 vehicles. Shippers have the opportunity to quickly register their requests via Sovtes and receive a response from a carrier within an hour. The efficient system saves substantial time and money for the client.
The 10-person company has two offices in Ukraine and Russia but wants to expand.
The idea of the service came from 34-year-old Oleh Rudkovskiy, who co-founded the company with Serhiy Stepanenko and Denis Berh. The team invested more than $60,000 of their personal savings to launch in 2012.
The first sales were made in 2013, when Rinat Akhmetov’s mining and steel giant Metinvest started using Sovtes. Other major Ukrainian companies like Interpipe, Global Spirits and Tri Medvedya soon became clients too.
On a good day, the company gets 185 contracts worth more than $50,000 and its share is 1 percent of the gross amount.
Rudkovskiy believes the economic crisis is spurring innovation and efficiency. “They look for solutions that would decrease their costs,” he says.
Ukraine’s corruption and bureaucracy remain impediments to attracting foreign investment.
Chooos
Chooos, an online service that helps businesses promote and sell products via Facebook, emerged last summer. The startup’s legal entity was registered in the U.S. state of Delaware, a hub for Ukrainian startups that want to register offshore.
The team of Adtena startup works in the firm’s office in Kyiv on May 15.
“Ukraine needs adequate procedures for company registration and a fair culture of doing business,” says 23-year-old Pavlo Matvienko, chief executive officer at Chooos. “In Ukraine, in order to register a company you have to wait in long queues for weeks.”
Closing a business can take even more than a year for the same reasons, says the young entrepreneur.
In the beginning of 2014, the firm received $350,000 from Imperious Group, a venture capital fund.
To use Chooos, a company must upload a product catalogue, which will then be integrated into the business’s Facebook page. The page’s visitors will see items from the catalogue as independent Facebook posts with a picture and short description of each individual product.
The cost of using Chooos for those who link their PayPal account is $10 per month. Those who choose alternative payment options can use Chooos for free.
Ukrainian clients make up just 30 percent of Chooos’s more than 1,000 clients worldwide. Half of the sales come from the U.S., European Union, Australia, Brazil and India. Only 20 percent comes from post-Soviet countries for technical reasons. For example, PayPal does not operate on Ukrainian territory, says Matvienko.
“I wish the Ukrainian government cared about tech startups more and created more favorable laws and overall conditions. That way startups wouldn’t have to seek foreign countries for doing business there,” Matvienko says.
But Yuriy Nechayev, an attorney with Avellum law firm, sees the legal situation developing favorably. Law enforcement is being reformed step-by-step, which affects all companies.
The corrupt court system posed a major challenge for foreigners who considered investing into Ukraine. “Businesses were afraid that they would be raided, audited by state authorities and not be able to protect their interests in courts,” says Nechayev.
Olyana Gordiyenko, a corporate lawyer at Baker and McKenzie law firm, agrees. “Significant changes have been made,” she says. One example is the cancellation of the the minimal capital requirement for a limited liability company. As for registration, one does not have “to go separately to the state registry, then to the tax authority, then to social funds,” says Gordiyenko. It’s all done almost in one visit.
But an offshore company still generally provides more security, investment and stability and these are the reasons why IT companies still take their business outside of Ukraine, Gordiyenko says.
Kyiv Post staff writer Bozhena Sheremeta can be reached at [email protected]. The Kyiv Post’s IT coverage is sponsored by AVentures Capital, Ciklum, FISON and SoftServe.
