Ukrainian IT is growing rapidly. Ukrainian projects enter the world stage, foreign corporations open their offices and R&D centers in the country, and investors from all over the world are putting their money in Ukrainian startups more and more often.
Sergey Kartashov, the Senior Partner at technology company Roosh, explains how all these aspects impact the investment climate in Ukraine.
Experiments are the key to growth
According to Sergey Kartashov, everything is interconnected. Prominent projects such as Grammarly, Preply, and Reface keep on emerging in Ukraine. They raise investments and foster the launching of new prominent projects that bring new investments in the country. In 2019, Ukrainian IT raised $544 million. This is $199 million more than in 2018. In 2020, despite the pandemic, the figure increased to $571 million in investments.
“This is a chain reaction. The market is ready for experimenting. Everyone is interested in investing, creating new teams, trying, and testing. It is interesting for both local specialists and investors, as well as venture capital funds,” the expert says.
Roosh, according to Kartashov, is also ready for experiments. The venture studio Pawa that implements the most daring ML projects has become a platform for them. In addition, the Roosh structure has its own ecosystem for AI and ML developers—AI House.
“This is a platform that integrates education for novices and collaboration for experienced developers. It is intended to gather the best specialists in the industry, create a powerful community, and new AI and ML projects on the market,” Sergey Kartashov points out.
Education is an important part of the process, Kartashov continues. The explosive growth of the IT industry that we have seen in recent years has predictably resulted in a personnel gap. Despite a large number of specialists and educational institutions that train them, there is a serious staff shortage on the Ukrainian market. In 2020, about 30 percent of vacancies remained unfilled.
Obviously, the state fails to cope with the IT industry demand. That is why now there emerging numerous private educational initiatives promoted by IT businessmen and large IT companies. Because they are, obviously, interested in increasing the number of specialists.
However, these initiatives, according to the expert, differ greatly from classical education. Firstly, they focus on the practical aspect. Secondly, they teach students not only programming but also related disciplines that help launch a startup. For instance, legal and managerial ones—how to register a company, how to properly manage a project, how to distribute finances in a company, how to raise investments, and so on.
This process is natural, Sergey Kartashov believes. There is enough money on the market now waiting to be invested. On the one hand, more and more startups appear every day. But on the other hand, there are still very few of those the investors are ready to invest money in. And this is not always due to bad ideas. The team’s managerial skills can oftentimes be a problem. Many founders simply lack the strength to “pull the project through”, i.e., to properly organize the team’s work, scale it up, and monetize the startup.
“With the development of the IT ecosystem, community, and a competent approach to education, there will be more quality projects. The founders will have more knowledge, confidence, and opportunities to try their own abilities at the stage of formation. To launch new projects and to experiment. Something will work out, some will not. And something can “make a hit” so much that it can become a landmark for Ukraine, like, for example, Reface,” Sergey Kartashov points out.
Western investment culture
But to make this picture come true, one should consider an important condition, the expert adds. There should be a margin for error for startuppers. This culture has long been common in the United States. There, any startupper can obtain funding for as many startups as they want, be it one, five or ten, as long as they are conscientiously going to launch projects and not just fling investors’ money around.
“Americans understand that, according to the laws of economics, it is profitable to invest in as many ideas as possible. So that from, let’s say, a million experiments, there will come off a new Apple, Amazon, or another giant, the one that will become the new key driver of developing entire industries and will recoup all the investments that “did not make a hit.” In Ukraine, this culture is in its infancy yet,” Sergey Kartashov explains.
The Senior Partner at Roosh adds that there are a number of negative factors affecting the investment climate in Ukraine.
“I would point to two main ones. Firstly, these are the fears of external investors to put their money in Ukrainian startups due to a lack of understanding of the local legislation and the negative reputation of a corrupt state. Secondly, the lack of a comfortable tax system for the IT industry that has analogs successfully used by manåy other countries,” Kartashov shares his opinion.
Currently, according to Kartashov, our authorities are trying to solve these aspects by creating Diia City, a special legal and tax regime for IT companies. Firstly, it provides tax preferences for representatives of the IT industry. And secondly, the legislation modernization will significantly simplify and secure the process of entering of foreign investments in Ukrainian companies.