Not only are foreign investors hard to find in Ukraine. Homegrown business accelerators are scaling back on investments in technology startups.
Investors bankrolled only $40 million in Ukrainian IT projects last year, only half as much as in 2013.
In the beginning of 2014, Eastlabs, one of the country’s four main accelerators, stopped making new investments.
Eveline Buchatskiy, a managing partner at Eastlabs, declined to comment on the firm’s official status and didn’t confirm the suspension in activities. Instead she said early-stage investment money is lacking worldwide, especially for Ukraine due to the war.
“This is not an isolated Eastlabs issue. The vast majority of accelerators in countries other than the U.S., that do not provide incentives either through direct public funding or co-investment with private investors have shut down,” Buchatskiy says.
In 2013, Ukrainian startups could enjoy attention from as few as four business accelerators: GrowthUP, WannaBiz, Happy Farm and Eastlabs.
Founded in 2012, Eastlabs has 12 tech companies in its portfolio. Investment conditions usually were $20,000 in return for 15 percent of equity.
Happy Farm was founded in the same year. It was active throughout 2013, but hasn’t made an investment since spring 2014. It provided money alone or in partnership with venture funds to more than 40 tech startups. No investments were announced this year so far, leaving the industry wondering about the downturn.
“We don’t plan to leave Ukraine, but we are opening new offices in Kazakhstan, Azerbaijan and Tajikistan, where our projects enjoy huge demand,” said Anna Degtereva, Happy Farm’s chief executive officer.
According to Degtereva, Happy Farm is also organizing a tech conference to be held this October in San Francisco.
“Our colleagues just suspended their public relations activities,” said Vadym Rogovsky, managing director at WannaBiz accelerator.
WannaBiz has been on the market for three years, offering mentorship as well as up to $50,000 in return for 5-15 percent of equity.
According to Rogovsky, WannaBiz also acts as an incubator since the majority of startups with which it works only receive mentorship. A business accelerator also provides small amounts of capital in return for equity.
Unlike the other accelerators, WannaBiz staked five deals in 2014-2015 worth $125,000, compared with two deals each worth $50,000 in 2012-2013. Even though the total amount of deals rose, separately the investment amounts were smaller than those before the EuroMaidan Revolution and the economic crisis.
“Currently only a handful of accelerators are left on the Ukrainian market. Among the major ones, GrowthUP and WannaBiz are the most active,” said Denis Dovgopoliy, president of GrowthUP in Kyiv.
The firm was the first IT-oriented accelerator in Ukraine when it appeared 10 years ago. By the end of 2013, more than 350 startups had passed through its company development course. Given its long-term presence on the market and expansive business network, Dovgopoliy said it stands out among other accelerators.
However, GrowthUP did not start directly investing until 2013. Before that, it would cover expenses such as office rent, trips abroad, including to Silicon Valley, in exchange for 5 percent of equity.
Almost 20 startups have received financing since 2013 from the accelerator’s venture capital fund. It invests $25-50,000 for the 5 percent of equity it receives in return.
Dovgopoliy said short-term planning is to blame for the scaling back. Two or three years are not enough for an accelerator to make a profit. In this line of business, it is important to understand that the return on investment comes within 5-10 years at the earliest, otherwise the accelerator might fail soon, GrowthUP’s president said.
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.
