Survey: 12% of Ukrainian startups shut down, 30% moved abroad at least partially during the war

Survey: 12% of Ukrainian startups shut down, 30% moved abroad at least partially during the war
The war in Ukraine has hit the IT sector, one of the country's mainstays, but startups are still appearing. / bne IntelliNews
By East West Digital News in Kyiv January 2, 2023

Much has been said about the “resilience” of the Ukrainian tech sector amid the war (example), but what do entrepreneurs themselves say about the challenges they have faced since February 2022? 

Teaming up with the Ukrainian Startup Fund, the Polish-Ukrainian Startup Bridge conducted a survey about these “challenges that no entrepreneur can predict and which can undermine the foundations of even the most promising ventures,” reports East West Digital News.

Answers from 84 Ukrainian startup founders were received and analysed in a report that has just been released.

In addition to understanding the impact of the war on startups, the study also aimed to indicate what kind of support Ukrainian innovators actually need.

Key findings

·       The outbreak of the war significantly slowed down startup development in Ukraine. Only a handful of respondents founded their company after the war started, while 68% did so in the three preceding years (2019-2021). Almost all respondents noticed a definitely negative impact of warfare on the possibility of running their business. 

·       The majority of Ukrainian startups operate both on the Ukrainian market and globally. For many of them, foreign customers were their chance to survive amid Ukraine’s difficult situation. 

·       12% of the surveyed companies stopped their operations after the Russian invasion. This was due mainly to the decrease in sales of products and services on the Ukrainian market, the inability to do business trips outside the country, and the loss of financial resources. 

·       While only 35% of the surveyed companies laid off some employees, nearly half (48%) had to significantly reduce their level of remuneration.

·       After the outbreak of the war, almost 40% of startups did not make any attempt to obtain financing for their operations and development. In one third of the cases, companies did try to raise funds, but without success.

·       Almost one entrepreneur in three (30%) had to relocate their business, at least partially, outside the country. The majority of the respondents (61%) did not need to change the location of the company’s headquarters after the outbreak of the war. 

Emerging trends

Commenting on the industry’s future, Elena Malitskaya, founder and CEO at ISE Corporate Accelerator, has identified emerging trends which “will eventually lead to the recovery of the Ukrainian startup ecosystem and build the basis for future success.” 

·       Veteran founders will drive Ukrainian tech to new heights, assert the authors, referring to the US and Israeli example: such founders are highly valued by VCs in the world and tend to be more successful, “due to the many psychological features and discipline they develop in the army.” Such founders are “able to lead their teams to work in a high-stress context” while demonstrating “a very special attitude toward leadership as they understand they are responsible for people’s lives.”

·       As many men are serving in the army, women are asserting their leadership. “Female founders and top managers are taking on a more active role in running businesses, including startups.” They began actively representing the Ukrainian tech ecosystem abroad.

·       Specific segments will boom, including military tech, drones, energy storage and production in relation to Ukraine’s post-war reconstruction needs as well as global trends.

·       As the war has raised Ukraine’s profile on the global scene, international investments are likely to follow, including in the field of technology, believes Malitskaya.

How to support Ukrainian startups

The last section of the report is about how Ukrainian startups can be supported. 

First of all, the surveyed startup founders need financial support in the form of grants (74%) or introductions to investors (61%). They also need to be assisted in customer acquisition (44%) and establishing a presence in new countries through legal support (39%), acceleration (25%) or co-working (19%).

Asked about the skills their teams lacked the most, respondents mentioned competencies in sales (44%), marketing (33%) and fundraising (33%). Some startups are lacking of business relationship building and language skills.

Calling to support Ukrainian startups, Łukasz Wawak, who manages Polish-Ukrainian Startup Bridge, writes: “We encourage you to use Ukrainian entrepreneurs’ products, solutions and intellectual property around the world. Every euro spent on the Ukrainian products is one small step towards Ukraine’s victory.”

Wawak also drew attention to the risk of “draining Ukraine of its greatest talents.” Ukrainian IP achievements should be respected, “the society’s struggle for freedom” should be supported through help in reconstruction while ensuring that “as much capital as possible flows back to Ukraine.”

This article first appeared in East-West Digital News (EWDN), a bne IntelliNews partner publication.