Startups in Ukraine: before the take off (part 1)
In the article “Ukraine: The Next Startup Nation” Enis Hulli from 500 Startups names five factors which make Ukraine a promising place where the future tech giants could appear. As a Ukrainian working in VC industry in Poland, I’d like to add some context and additional facts to support his statements and show that it is the right time for foreign VCs to come to Ukraine.
For the last two years I have been working for a VC fund in Poland. Here I have the opportunity to observe amazing teams which are making great products. Black Pearls VC invests mostly in Poland and the Baltic Sea Region. Having such focus we are also observing the startup scenes of other neighboring countries. Ukraine is one of them. Despite the recent economical crisis, many positive changes are happening in the country. That’s why we have recently visited two events in the capital of Ukraine: Seedstars CEE Summit and Kyiv Tech Hub. It was a great opportunity to meet promising startups and people from the community and to better understand what’s going on in the ecosystem.
Part 1: Human capital
Ukraine has currently over 100,000 IT professionals, a number which is expected to double by 2020, according to IT Ukraine report. We will yet see if these predictions are realistic, but we can already be sure that this human capital will fuel the startup scene’s development in the following years.
Ukraine is now experiencing a difficult period. The war on the East hit the economy dramatically and income of majority of people. According to The World Bank, GDP per capita dropped from 4,029 USD in 2013 to 2,185 in 2016 (Poland had 12,564 USD in 2016). The only area of business, where salaries didn’t change much (or even grew) was the IT sector. That’s why the tech specializations become the most popular among students. Ambitious and talented people choose IT as it’s the most obvious way to have a good level of life while staying in the country.
Receiving high salaries compared to other sectors of economy, Ukrainian IT specialists still cost less to hire than their colleagues in neighboring countries. At the same time their qualifications are very high, which is proven by various international rankings (#5 by TopCoder and #11 by HackerRank) as well as the market itself.
That’s why many big international tech giants are opening R&D centers here. Over 100 global tech companies such as Huawei, Oracle, Opera, Ericsson, ABBYY, Ubisoft, Samsung, Wix currently have R&D activities in Ukraine (by IT Ukraine report). But the biggest pat of IT sector in Ukraine is outsourcing services. Majority of over 100 thousand developers in the country are working there. According to “Information Technology Industry in Ukraine” Report, the country is on the 11th place in the world by the total value of IT business process outsourcing contracts with 1.1 bln USD in 2016 (same as Germany and Japan). Ukrainian companies such as Ciklum, ELEKS, Intellians are in the top 5 ranking of the best outsourcing companies in the world (Top IT Outsourcing Companies by Clutch).
Some experienced IT specialists are already leaving those companies to try themselves in the creation of their own products and building their own companies. In the recent poll organized by DOU 21% of 8,000 respondents said they have their own IT-projects besides their daily work. But it’s highly probable that it’s just a beginning as more people in the sector would reach the level where they would not need to worry about the wellbeing of their family and could experiment by starting their own companies. According to the same poll, 9% of respondents said that in 5 years they see themselves as a founder of a startup. Thus many more startups created by experienced teams may be expected in the near future.
Part 2 will be published soon
