In 2019, the venture capital and private equity funding volume for Ukrainian and Ukrainian-founded tech startups reached $544mn (up from $323mn in 2018 and $265mn in 2017), says AVentures Capital’s latest industry report ”DealBook of Ukraine”, reports Adrien Henni of Ukraine Digital News.
The performance was mostly due to a few large rounds involving companies with Ukrainian roots having established their headquartered in the USA. These companies are:
GitLab, whose last round in September 2019 pushed company valuation to some $2.75bn, and, which is planning direct listing for the end of this year 2020
Grammarly, which became a unicorn in October 2019 while securing $90mn in California;
People.ai, which AVentures Capital analysts believe is “on the way to become a unicorn,” following a $60mn round in May 2019.
A series of globally-successful Ukrainian (or Ukrainian-founded) companies attracted the interest of strategic players, international buy-out funds, and generate returns for early backers.
Among the exit deals highlighted in the report are:
The acquisition of AI Factory, a deepfake image and video startup with Ukrainian roots, by Snapchat in late 2019;
The purchase of Murka, a Ukrainian-founded social casino game publisher, by US investment firm Blackstone, in March 2019;
The acquisition of bus ticketing platform Busfor by Blablacar, whcih was completed in December 2019.
Early stage (seed and Series-A deals) accounted for only $46mn, according to the report, which notes that “access to early-stage capital remains a challenge.”
The role of Ukrainian funds remains modest, notes the report. “While most Ukrainian investors get involved only in seed-stage rounds, few participate in Series A deals. Thus, the better part of Series A funding comes from international investors. Ukraine-born companies typically build a physical presence in their target markets (USA/EU) and raise Series A-C there.”
What’s more, Ukrainian funds tended to invest less in 2019 than in previous years,” as most of them were waiting to raise a second fund, having distributed their first one.”
A dual dimension
Thus, last year’s evolutions confirms the dual dimension of the Ukrainian market. On the one hand, Ukraine continues to generate globally-successful tech startups, which manage to raise impressive amounts after moving their main office to their target markets – essentially the USA and Western Europe – while maintaining R&D capacities in their country of origin.
But, on the other hand, investment volumes in purely domestic terms (if excluding Ukrainian startups having moved abroad) remain very low: they range in dozens, not hundreds, of millions of US dollars per year.
This duality does not characterize only Ukraine: it is a challenge in many countries across Central and Eastern Europe (CEE). In spite of recent achievements in terms of ecosystem development, these countries still fail to provide their native startup entrepreneurs with sufficient reasons to stay in their home country once they have reached a certain level of development.
M&As in the software development industry
AVentures Capital’s Dealbook pays due attention to mergers and acquisitions in the field of software development. A series of deals took place in this thriving industry last year, reflecting “a global consolidation trend among software development outsourcing companies,” according to the report.
Notably, in late 2019, a recently created company called InSoft Software bought a controlling stake in Rademade (Kyiv) while increasing its stake in Rozdoum (Kharkiv). Almost simultaneously Beetroot, a Swedish IT company with offices in five Ukrainian cities, acquired two other companies: Ukrainian Onlinico and Swedish Aducera.
Founded in 2012, AVentures Capital a major tech investment fund and M&A advisory from Ukraine. With over 20 companies in its portfolio, AVentures Capital targets tech entrepreneurs from Ukraine and other CEE countries to fuel their global expansion while leveraging on local R&D capacities.
AVentures Capital’s DealBook has been published every year since 2016, with participation from Ukraine Digital News. The report covers only the deals, which were announced publicly.