Ukraine looks to tech to rebuild economy after Russia invasion 

An attendee walks past the Ukraine stand at the Web Summit 2022 tech conference in Lisbon, Portugal.

Patricia De Melo Moreira | Afp | Getty Images

LISBON, PORTUGAL – As the war in Ukraine continues, the country’s tech entrepreneurs are trying to stay positive.

“I don’t think there’s anything in the world that can kill our ability to win and ability to do work or anything,” Valery Krasovsky, CEO and co-founder of Sigma Software, told CNBC on the sidelines of the Web Summit tech conference in Lisbon.

Sigma, which has 2,000 employees based in Ukraine, has equipped its offices with diesel generators and Starlink internet terminals to allow employees to continue working amid Russia’s attack on critical energy infrastructure.

“Nothing is going to stop us from delivering the business, even in these circumstances,” he added.

Sigma was one of 59 Ukrainian start-ups that attended the event last week. Ukraine had a prominent presence at the Web Summit, where it sought support from the global tech community to strengthen its fight against Russia.

In 2021, Ukraine will have a small booth at the Web Summit, Krasovsky said. This year, it has a bigger stand, lit up in yellow and blue. It was surrounded by floods of visitors, with Ukraine’s first lady Olena Zelenska – escorted by armed guards as she made her way through the venue – among them.

Deputy Prime Minister of Ukraine Mykhailo Fedorov (right) and First Lady Olena Zelenska (center) attend Ukraine’s booth at Web Summit 2022.

Rita Franca | Nurphoto | Getty Images

On the opening night, Zelenska made a passionate speech calling on tech entrepreneurs and investors to help her country.

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“You are the force that moves the world,” Zelenska, the wife of Ukrainian President Volodymyr Zelenskyy, told a packed audience on Tuesday.

While Russia uses technology for “terror,” the international community has “technologies that help, not destroy,” he added.

Russia called its invasion a “special military operation.” For Ukraine, however, this is an unprovoked land grab aimed at undermining its sovereignty.

Rebuilding with technology

Ukraina officials and businessmen said technology could be key to helping the country rebuild after the Russian invasion.

Moscow launched its invasion of Ukraine in February and the war has devastated the country’s economy. Its gross domestic product has declined by 30% so far this year, according to figures from the economy ministry.

The World Bank estimates that Ukraine’s gross domestic product will contract by 45% throughout 2022.

“People inside Kyiv and other cities, they’re building, doing business, they’re even exporting,” Dima Shvets, CEO and co-founder of Ukrainian social media startup Reface, told CNBC.

Shvets runs Reface remotely from London, where he lives with his wife and their four-year-old daughter. About half of his nearly 200-person team continues to work in Ukraine. When the bombing started, people used the basement of the Reface outpost in Ukraine as a shelter to hide.

Reface has rented a hotel for 50 people in the Western part of Ukraine with separate infrastructure for electricity so they can continue to work safely, Shvets said. It is trying to “organically” move workers to Portugal, he added – but it will be difficult to convince them to leave.

“People have houses, families in Ukraine,” he said.

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In an interview with Karen Tso of CNBC, the first lady of Ukraine said that it is “impossible to underestimate” the role of technology in Ukraine.

Watch the full CNBC interview with Ukrainian first lady Olena Zelenska

“In this situation, it is difficult to talk about sustainability, technology, development, because we are just trying to continue and live as normal as possible,” Zelenska said. “However, we have many startups, and I hope that all the ideas presented at this summit will push us to victory.”

As winter approaches, however, Ukraine will need more than just IT investment to see it through the tough months ahead.

There were reports of widespread power outages that lasted for several hours across the country. About 40% of Ukraine’s energy system has been destroyed, according to the government.

“Ukraine needs more weapons, more military aid,” Zelenska said, specifically calling for air defense missiles.

Capital will come

Ukraine’s IT industry brought in $2 billion in revenue in the first quarter of 2022, according to the National Bank of Ukraine, an increase of 28% year-on-year despite the devastation caused by the Russian invasion.

The war displaced millions of Ukrainians, including technology professionals. Many have joined roles abroad. Once the fighting is over, those workers are expected to return.

Some companies are ramping up hiring in Ukraine in a bet that the country’s tech industry will emerge stronger after the war.

Two months ago, Lithuanian VPN software firm Nord Security opened an office in the western Ukrainian city of Lviv. The company plans to hire 100 people there, according to CEO Tom Okman.

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“We think it’s time to rebuild Ukraine and we think the talent there is great,” Okman told CNBC.

He noted that Ukraine is home to thousands of skilled software programmers and engineers. “Just think how many American companies have IT outsourcing” to Ukraine, he said.

Several founders of the billion-dollar “unicorn” are from Ukraine, including Grammarly’s Max Lytvyn and Alex Shevchenko and Dmitriy Zaporozhets of GitLab. Google, Samsung and Amazon there are also research and development centers in the country.

But there are challenges beyond war that Ukraine’s tech ecosystem faces. The country’s venture scene is still evolving. Startups in the country have attracted just $22 million so far this year, according to Dealroom data.

“There aren’t a lot of capital inflows to support what we’re doing,” says Reface’s Shvets. “What we need to do right now is to show more examples of entrepreneurship.”

Shvets said that the Ukrainian government should look to help the country’s local entrepreneurs with tax incentives and other pro-business initiatives.

There are signs that sentiment from technology investors toward Ukraine is improving, however. Last month, Horizon Capital, a Kyiv-based VC firm, raised $125 million for a startup fund aimed at supporting founders in Ukraine.

SID Venture Partners, a venture fund set up by Sigma and fellow Ukrainian tech firms Ideasoft and Datrics, has currently invested in 10 startups with Ukrainian founders, Krasovsky said.

It plans to raise an additional $50 to $60 million from institutional investors after raising the initial $15 million in December 2021. “There is a lot of interest,” Krasovsky said.


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