UAH 69 billion are planned to be invested in digitalization of Ukraine. Will it help grow thousands of startups?
To digitize Ukraine by 2025 it is planned to attract and spend UAH 69.2 billion. This is part of the United 24 Ukraine reconstruction plan presented in Lugano. A large part of the funds should be invested in startups, placing the main bet on food companies and military, space, agricultural technologies. This is reported by Forbes.
The Ukrainian IT industry is based on outsourcing. According to the report of the IT Ukraine Association, half of the 5,000 companies work for foreign customers. Ministry of Digital sees the development of the industry in the creation of more product startups.
According to the plan presented in Lugano, there should be 6,000 startups in Ukraine by 2035. Deputy Minister of Digital Transformation Oleksandr Borniakov says that this is a pessimistic forecast. In the best case scenario, 10,000-15,000 food companies will emerge in Ukraine within ten years. Currently there are 1746 of them according to the data of Ministry of Digital Transformation.
How will funds be spent on IT startups
One of the key items of funding is $13 million for the Ukrainian Startup Fund (UFS). The fund should support more than 200 projects in two years. According to Borniakov, these funds should be provided by €20 million European Commission program. €12 million of them will be spent on grants of €60,000. The rest will go to support the startup ecosystem, thematic events, and administrative costs.
UFS has another program worth UAH 1 billion. It should be financed from the budget. In two years, the fund processed more than 4,000 applications, of which 240 received financing – 177 million UAH.
Since the beginning of the war, the fund has been investing in the Armed Forces. Funds from the reserve fund of the state budget will be used to restart the startup support program. The UFS will receive UAH 400 million to provide grants from UAH 0.75 to 3.5 million.
Another 600 million UAH should be provided for the experimental program of convertible loans under the leadership of the Ministry of Economy. Usually, startups receive such loans – convertible notes – without having a market valuation yet. The investor’s money is converted into a share in the company already at the next stage.
An ambitious project that will have to be developed almost from scratch – the Fund of Funds, for which funds will also be sought in Europe. According to the presentation, it will be able to provide $200 million for 10 international players. Usually, such funds are created for 15-25 years, and $200 million for them is a small amount.
Half of the Fund of Funds is usually filled by a government agency. The rest of the funds are contributed by private players. The idea is similar to the Israeli Yozma program launched in 1992. At that time, the state gave the new fund $8 million of the $20 million needed to launch it. The program is considered one of the influential factors of Israel’s economic miracle.
Another program is Matching Grants for $30 million for 30 startups. According to its terms, the state doubles the check of private funds, sharing their risks. For example, a startup can receive $1 million from venture capitalists on market terms and the same amount in the form of a grant.
What is needed for effective implementation
According to the vice-president of the F1V fund Oleksiy Yermolenko, the task of Ukrainian funds is to bring large international funds into portfolio companies. In turn, they will grow projects to more expensive estimates.
It should be taken into account that large technology companies lovecomfortable tax conditions. Also, everything will greatly depend on how quickly Ukraine wins the war.
“In the long term, everything will rest on three things: security, ease of doing business, the rule of law,” says Roman Nikitov, head of ICU Ventures.
According to the words of Bortniakov, even the pessimistic plan of 6,000 startups will be difficult to fulfill if the war lasts 1.5-2 years. However, Fedorov sees an opportunity in this situation as well. This is a chance to test military developments in combat conditions.
“In a year or two, we will have super-powerful products that will protect our territory and be exported to various countries,” says the Minister of Digital Transformation.