Ukraine's turbulent 2014 worsened the investment climate, including in venture capital - which dropped in half to $40 million. It's a big problem for the more than 2,000 Ukrainian startups.
A Kyiv Post survey of 47 startups, from
e-commerce to mobile applications and hardware products, shows bureaucracy and
bribery are key obstacles. Other problems: Russia’s war in the east, general
investor disinterest, weak corporate legislation, low purchasing ability, a
lack of incubators, accelerators and mentors, hryvnia devaluation and poor
intellectual property rights protection.
Petro Bondarevsky, chief executive
officer at Coppertino, a mobile apps developer who participated in the survey,
adds poor financial and entrepreneurial education of young talent to the list.
“The result is low self-esteem, lack
of ambitions, objective to work for ‘salary today’ rather than the ‘greater
good of tomorrow.’ This issue will shift for a better perspective only with new
generations,” Bondarevsky believes.
Kyrylo Bigai, chief executive officer at
Preply, a service for finding local online tutors, adds that most barriers are
rooted in government. Weak corporate legislation, poor intellectual property
rights protection and other barriers force entrepreneurs to flee Ukraine, register
companies and open offices abroad. As a
consequence, government loses income from potential taxpayers.
Companies also face the risks of paying
heavy penalties for investments abroad and opening bank accounts abroad unless
they have a license from the National Bank of Ukraine.
Anton Zinchuk, a corporate law expert,
says poor data exchange in the Ukrainian tax system insulates many Ukrainian
entrepreneurs from financial penalties. “There is a very weak chance that when
a person opens bank account abroad, the government will know about it,” Zinchuk
says.
If a company gets a license and is also registered in Ukrainian tax system, it has to pay taxes both abroad and in
Ukraine.
One of the most active venture funds,
Russian Imperious Group, sees the main problem of Ukrainian startups as their
lack of national roots. “They have teams
based in Ukraine, ideas which started in Ukraine, but almost none of them are
registered in Ukraine,” says Kirill Mazur, investment analyst at Imperious
Group.
Mazur cites corruption in courts, bad
protection of minority investors and bureaucracy.
Hardware startup eCozy is an example of a
startup with a Ukrainian team, but operations and registration in Germany. From
the prospective of Olena Pavlichenko, chief marketing officer at eCozy, the
Ukrainian government provides weak support.
Another problem is the small variety of
Ukraine-based accelerators.
Anton Karpenko, chief technology officer
at Ukrainian business incubator Happy Farm, says mentality is another drawback.
“Ukrainian people do not like the successes of others,” he says.
To progress, startups and investors need
to deepen cooperation. “Startups tend to ask money for living, not their
business development,” Karpenko says. “Investors wait for the
startups to start growing themselves. It’s a ‘lose-lose’ situation.”
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.
