Financing Ukrainian startups during the war: where to look for investments

In a column for AIN.Capital Alexandra Balkova, Partner and Portfolio Manager at Startup Wise Guys, speaks about how Ukrainian startups attracting capital in wartime conditions, when opportunities are extremely limited.

Financing Ukrainian startups during the war -2
Alexandra Balkova

Ukrainian business continues to work despite eight months of full-scale war, constant missile strikes, kamikaze drone attacks, and almost continuous air raids. Moreover, nearly 150 thousand brave entrepreneurs have launched new projects since the Russian invasion. IT business and technology startups have become the main driver of the Ukrainian economy and investment activity in wartime. During the nine months of 2022, the industry showed an increase of 13%, and the market volume amounted to almost $5.5 billion.

It is titanic work to keep your business afloat and grow it during the war. To survive such difficult conditions, more and more Ukrainian entrepreneurs look to international markets and search for consumers and investors. According to the Mastercard SME Index, 28% of Ukrainian SMEs have already expanded their activities to foreign consumers, and another 21% plan to do so in the future. The main barriers to entering foreign markets are a lack of financial resources and specialised knowledge.

The Ukrainian startup ecosystem emerged about ten years ago and is still in its infancy. The primary source of its funding is bootstrapping, that is, entrepreneurs’ funds and the income they receive. In January 2022, 84% of founders surveyed by the Polish-Ukrainian Startup Bridge project indicated this source as the main one. By the way, it is not something extraordinary. On average, in Europe, self-financing is typical for two-thirds of startups, according to a survey conducted in 2019 by PricewaterhouseCoopers. However, the war, the destruction of logistics links, the reduction of consumer opportunities and other equally unpleasant factors have significantly reduced both the profits of startups and the founders’ savings. 99% of them said they needed financial support. 

Despite a large number of statements about the desire to support the Ukrainian startup community from international investors and foreign companies, the search for funding remains a rather challenging journey. Therefore, I propose to consider the opportunities for attracting investments open to Ukrainian startups during the war and assess their advantages and disadvantages.

The state finances mainly military tech

In addition to own funds, state funding was the second most important source of investment in Ukrainian startups before the war. According to the Polish-Ukrainian Startup Bridge, 31% of Ukrainian teams received development grants from the Ukrainian Startup Fund (USF). This state fund, launched in 2020, has funded over 200 projects for almost $6.3 million in its two years of operation.

During the war, the USF, together with the government, focused on supporting dual-use projects to improve the country’s defence capabilities and post-war reconstruction. The special support program provides grants of $35,000 for startups in the fields of defence, construction, cybersecurity, medicine, mental health support, and education. These are undoubtedly the most critical areas for our country today. Some technology startups are quickly reorienting to new products to help the state and the Armed Forces of Ukraine in our struggle. But there are also those startups that simply cannot physically do this because they worked, for example, in sustainable development or fintech verticals. At the beginning of the war, the five most popular industries among startups were as follows: SaaS (software as a service), medical technology and healthcare, AI (artificial intelligence), energy, and agriculture. 

Another option for funding from the state is the “eRobota” program, which was launched in July and provided non-refundable grants of up to UAH 250,000 (approximately $6500). However, they are offered only to those just planning to start a business, and the review of applications takes several months. As the Ministry of Economy reported in October, more than 13,000 Ukrainians applied for this program, and only 2,000 of them will receive funds for business development. Other businesses have to look for funding elsewhere. 

One-time grants from foreign companies

One of the options where Ukrainian startups can get help is through individual grant programs from global IT companies. Many international businesses announced their desire to help Ukrainians at the beginning of the war. However, in practice, such support is provided mainly in the form of free use of the services of these companies and is limited both in time and in the number of startups that can participate. 

For example, Amazon Web Services (AWS) announced the allocation of loans (in fact, grants) to Ukrainians for the use of the company’s services in the amount of up to $100k, and Google launched a $5 million fund for 50 Ukrainian startups founded during 2022. Meta (Facebook), in partnership with the Ukrainian company Genesis, offered an international educational program for founders and top managers of startups. There are also programs focused on specific sectors and areas. Thus, Mastercard announced the Start Path Ukraine program, within which it will provide grants of $10,000 for 5 Ukrainian startups specialising in fintech.  

Projects to support Ukrainian startups were also announced by the U.S. Department of State (the project “Business Incubation: Ukraine” – the enrollment is already closed) and the European Union, which launched a program to support Ukrainian startups worth 20 million euros. The peculiarity of all these programs is that this is one-time funding, and it can become for startups more of an additional support and financial “safety cushion” for some time rather than contribute to the full development and scaling.

VCs are increasingly looking towards Ukraine, but with caution 

Restricted government programs during the war and short-term grants made more and more Ukrainian founders look for funding outside Ukraine. Before the war, up to 20% of Ukrainian startups managed to attract foreign investment. Thus, in the study above, only 8.9% of founders indicated that their startups were funded by foreign venture capital. Another 6.3% reported investments from foreign accelerators and 5.1% – from foreign business angels.  

Fewer domestic startups cooperated with Ukrainian ventures and accelerators (3.2% each) than foreign ones. Now Ukrainian VCs are just overcoming the crisis, increasingly looking to foreign markets to diversify their portfolio. At the same time, there is an activity in the Ukrainian venture capital market. Among the quite active investors with Ukrainian managing partners are SMRK VC Fund, TA Ventures, Digital Future, GEEK Ventures, SID Venture Partners Fund, Flyer One Ventures, Hypra, new funds Angel One and hi5 Ventures and others. In addition, at the end of September, the list of the most active players in the Ukrainian ecosystem was updated, which can also become an inspiration for Ukrainian funders.

Foreign venture capital, inspired by the enthusiasm and courage of Ukrainians, continues to pay more and more attention to the Ukrainian startup ecosystem and Central and Eastern Europe as a whole. As calculated by Sifted, in the first half of this year, venture fund investments in the region increased from $1.4 billion to $3.2 billion compared to the first half of 2021. If, in the spring, Ukrainian startups managed to raise relatively small funds – up to $1 million, then more significant deals began to close in the summer. In particular, significant amounts were raised by Ukrainian startups Preply – $50 million, AirSlate (formerly PDFfiller) – $51.5 million, and Unstoppable Domains – $65 million. 

Accelerators welcome Ukrainian startups 

The amounts of funding that can be obtained in accelerator programs on average range from $20k to $200k, but it can be higher. Startup Wise Guys, for example, offers up to €400k, including participation in the next round. The advantage of the accelerator is that the participants of the programs have the opportunity to get advice from experts on scaling the business and clearly understand their next steps and goals for the future. In addition, for most investors, the accelerator is a sign that the team is well-trained and knows what to do. 

At the same time, as a representative of one of the largest European B2B accelerators, and even though I believe that acceleration is beneficial for every startup, I must honestly admit that not all funders are ready for it and should go through it. Not everyone will withstand the pressure of the program or be open to criticism and learning. Many founders only seek financial support and do not see the point in the international community of entrepreneurs and experts. As a rule, accelerators mainly look for small, newly established companies with no investors but great potential for rapid growth. It is more challenging to get into such programs than it seems. For example, the acceptance rate of applications to the American Y Combinator, through which Ukrainian GitLab,, and Petcube passed, ranges from 1% to 3%. In Startup Wise Guys this year, we have selected about 100 startups from more than 3000 applications.

Accelerators may have different selection strategies, so I will explain how it works on the example of our team. The selection stage of the program usually takes 2-4 months, and on average, more than 300 startups are evaluated in one program. To get to us, the first step is to fill out an application, which the scouting department checks for compliance with the selection criteria. At the next stage, startups that meet the criteria participate in pitch days, where internal and external experts evaluate their technological product, investment attractiveness and compliance with the values of the accelerator. Shortlisted startups undergo even deeper Due Diligence and participate in the final stage – Selection Bootcamp. While potential and other business metrics are evaluated, SWG focuses on the founders’ personalities, team dynamics and alignment with our values.  

When choosing an accelerator, pay attention to experience in your target market and industry. It is the fastest access to the right expertise and partnerships. Each accelerator offers its program and selects experts working with business development, operational management, marketing, PR, sales, team building and growth, etc. The community of program graduates is also essential. You can find the subsequent investors and potential customers in the accelerator network. Thus, the SWG community has more than 700 alumni founders from more than 50 countries, from America to Australia. It means you can get insights about almost any market just by talking to entrepreneurs.

Universal advice to Ukrainian startup founders

Of course, the funding options for startups are not limited to the above possibilities. There are also alternative solutions, such as crowdfunding platforms and revenue-based financial companies. But it is important to remember that the best funding source for your business is always customers, not external investments. Too many startup founders make the mistake of putting all their efforts into product development and investor search rather than sales and customer base development. A business will be successful if your customers pay a reasonable price for the product and the number of such customers is growing. To do this, you need to find your product-market fit through experimentation and customer sprints, allowing the company to be sure that they have solid ground under their feet, not quicksand.

Author: Alexandra Balkova, Partner and Portfolio Manager at Startup Wise Guys