Ukraine unrest does not deter technology start-ups in efforts to reform economy

Ambitious Ukrainian entrepreneurs are endeavouring to move their ailing, crisis-torn economy towards a high-tech one, far removed from the traditional government-subsidised smokestack industries that are controlled by a handful of oligarchs.

Most western start-ups would not encounter the same challenges. Alex Podopryhora, who runs M2Epro in the eastern city of Dnipropetrovsk with his brother, says the conflict with Russia has been unnerving at times.

The company’s initial projects included developing electronic platforms for foreign exchange trading and warehouse management systems for western investors. When Russian-backed separatists staged a rebellion in the nearby Donbass region at the beginning of 2014, the fallout threatened to destabilise Dnipropetrovsk.

“The war was just 90 kilometres away, there was a lot of unrest and gangs of thugs were beating up pro-Ukrainian students,” recalls Mr Podopryhora, who is also an investment banker at Grupo Santander.

“Our main backer and client, eBay, was concerned about its investment.”

So worried was Mr Podopryhora that he almost moved 11 programmers and their equipment to eastern Poland, but fortunately the situation calmed down.

The company has since worked with eBay to develop e-commerce products, and has developed software that lets sellers trade simultaneously on online market places, including Amazon, eBay and Rakuten for a fee.

M2Epro, which is moving into profit for the first time in its eight-year history, is part of a wave of businesses hoping to move Ukraine from an old-fashioned to a high-tech economy. Some feel this transformation is too slow. Last year, during the Yalta European Strategy summit in Kyiv, former Israeli President Shimon Peres urged Ukraine’s businesses to prepare for a high-tech future as a means of freeing the country from its troubles. Others agree.

“Information technology is not an oligarchical business like coal, steel or metallurgy and needs western investors to help it thrive,” says former Ukrainian presidential adviser Vadym Karasyov.

He adds that the Donbass conflict needs to be resolved and the economy reformed to create better conditions and opportunities for small and medium-sized businesses.

But even without these changes, the country’s 2,000 IT start-ups will increase to more than 5,000 within three years, says Andrey Kolodyuk, founder and chairman of investment firm AVentures Capital, who divides his time between Kyiv and Silicon Valley.

More than $100m of private equity was pumped into Ukraine start-ups in 2015 alone, says Mr Kolodyuk, citing the success of Viktor Shaburov, who founded the Looksery mobile application for enhancing pictures in 2013. He sold it two years later to Snapchat for $150m.

Like many companies launched by Ukrainians, Looksery is based in San Francisco. Most start-ups employ programmers in Ukraine, but register companies in Europe or the US, with a marketing office in London, to satisfy western clients.

“The London office is a big selling point for us,” says Anton Mishchenko, chief executive of YouTeam, which employs four staff in London and four in the Ukrainian city Lviv, and helps other start-ups launch internationally.

Creating an international audience for its products is one of the tasks facing Oksana Borysenko, chief executive of Enable Talk, which has developed sensor-equipped gloves that translate sign language into text on a mobile phone, easing communication between deaf and hearing people.

Ms Borysenko advises the minister of economic development and trade and is head of the Digital Ukraine trade association.

She works with IT hubs in Kyiv, Lviv, Kharkiv and Odessa as well as training tech entrepreneurs in business techniques including sales, marketing and registering and protecting their ideas.

Ms Borysenko’s main concern is the brain-drain, with foreign investors taking Ukrainian IT teams to Poland, Slovakia and Slovenia, for greater safety.

“Start-ups in Ukraine have the possibility to revolutionise the economy, but only if there is no war,” she says.

Vitali Klitschko, Kyiv’s mayor, is trying to resurrect the mothballed Bionic Hill IT business park. He is also helping develop the Seed Forum Ukraine project, with Norwegian government backing. The forum is a global network that aims to marry would-be entrepreneurs with investors.

Despite the conflict with Russia, the mood in the IT sector is buoyant. Venture capitalist Mr Kolodyuk says Ukraine is now specialising in the internet of things, blockchain and bitcoin. The first $1bn tech start-up is within reach. “There will be unicorns in five years with founders of Ukrainian origin,” he says.

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