Ukraine’s Startups Get A $17 Million Seed Fund Of Taxpayer Money

Ukraine’s government kicked off a $17 million fund for startups struggling to get early stage funding. The fund is part of a new strategy to develop a future technological ecosystem. 

“We need to support young teams with ideas,” Prime Minister Oleksiy Honcharuk said at a briefing on December 2, presenting the new facility. But the end goal is “to create Ukrainian unicorns,” he said.

Local entrepreneurs have created three unicorns to date, but none of them are incorporated in the country.  The latest addition to the unicorn family is Grammarly, a writing and grammar application based on AI. It raised a $90 million round in October, which tipped its evaluation over $1 billion. 

But the company, like many other Ukrainian-born ones, is incorporated in the U.S. because of a poor legal framework for the protection of intellectual property and venture investment at home. 

Mykhailo Fedorov, the deputy prime minister for digital transformation, said that the government is aware of this problem, and is drafting new laws to solve it.

Ukraine’s IT industry provides jobs to 172,000 employees and accounts for 4% of the GDP in 2019, according to the Economy Ministry data.

The industry shows the highest productivity growth rate, says Oksana Markarova, Ukraine’s finance minister. 

The government is trying to give it a boost by providing  seed and pre-seed stage investment through the new Ukrainian Startup Fund (USF). The fund  has a rolling call for applications, and started receiving applications on December 2. 

It expects to extend grants in the range of $25,000-75,000. There are few limitations on the type of ideas it’s ready to support. Those include illicit activities, gambling and military technology.

The fund was created as an independent entity with a supervisory board of seven people, with only two delegated by the state.

There is also an expert panel of 41 players from the venture industry who will pick projects to support. They must be ambitious, commercial and scalable to qualify, says Olesya Sevruk, head of USF’s Supervisory Board. 

But industry representatives say the scale of the fund is not big enough to compete with other countries. “The essence of seed investment at the state level is to seed on mass scale,” says Stepan Veselovskyi, head of the Lviv IT cluster in western Ukraine.

He says the fund will be able to support roughly 320 startups per year, which is less than a third of the current need.

“So, this fund doesn’t solve the problem. We will just use the budget money to catapult Ukrainian companies to Delaware,” he says. “But you have to start somewhere.”

Markarova, the finance minister, said Ukraine studied best practices from Israel and France before creating a pilot project for the fund in 2018.

Ukraine’s modest new facility has a long way to go to catch up with its role models. France’s La French Tech, for example, is a massive ecosystem of 13 French Tech capitals, 38 French Tech communities in France and 48 French Tech communities based in 100 cities all over the world. Its goal is not just providing capital, but bringing together startups, investors, policymakers and community builders for launch and growth of tech companies.

Denis Dovgopoliy, head of GrowthUP venture fund and a serial entrepreneur, says that he is cautious to assess the initiative yet.

“Devil’s in the detail. We need to see, I am not ready to make any judgements now,” he said. 

He is planning to apply for some cash for a new project, however.

Follow me on Twitter or LinkedIn.

I am an award-winning Ukrainian journalist and media manager with more than 25 years of professional experience. My bylines have appeared in the Guardian, the Wall Stre

...