“Drones are sexy, but logistics, medical care, software, and communications are crucial.” Interview with Mathias Eklöf, investor in Ukraine’s startups

Ukrainian and European defense tech ecosystem is currently on the rise. In the past two years, a lot of great defense or dual-use-oriented startups have sprung up, however, they still lack structure and organization. Furthermore, the ecosystem right now is more focused on hardware rather than software like logistics, medical care, and communications. In the interview with Mathias Eklöf, one of the active investors in Ukrainian tech startups, the editor of AIN.Capital discussed the importance of defense tech in Ukraine, its shortcomings, as well as ways for improvement.

What do you do in general? What is your expertise?

I’m a full-time investor since 2019. But before this, I was a full-time entrepreneur for 15 years. I also spent three years in the Swedish armed forces. After the military, I studied economics and finance in Stockholm. I started my first company as a student. I moved to Kyiv full-time in 2019 and started investing as a business angel in early-stage companies.

But the first investment we made in Ukraine was already in 2014-2015. So we have been investing in Ukraine, like Ukrainian tech startups, for almost 10 years. Back when Russia attacked Ukraine in 2014, almost nobody was investing in Ukrainian tech companies.

Overall, we have invested in a number of Ukrainian startups including YouScan, Awesomic, Cargofy, Allset, Let’s Enhance, Competera, Legal Nodes, and Datrics. Last year, we also acquired shares in Beetroot, a Swedish-Ukrainian IT company which is having a big impact in Ukraine, including through Beetroot Academy, which has trained more than 10,000 Ukrainian IT professionals. On the topic of education, in 2023 we also helped launch Pareto Business School, which offers an online mini-MBA program. We have several Ukrainian Pareto MBA alumni already.

You’re the founder of the investment company Hype Ventures. Tell me more about it.

It started with just me making early-stage angel investments. But then we took all these different investments, put them into one company, and got more shareholders on board. So it’s been a very organic process. 

Hype Ventures is not a fund. If you are an investor, basically there are two options. Either you can invest through a fund, or you have an investment company. With a fund, you are investing mainly other people’s money. If you have an investment company, you can say it’s like a small family office. 

You basically invest your own money or the money from a small group of people who decided to invest together. It’s more flexible in terms of what you can invest in. You can invest small checks, big checks. For example, the smallest check that we did was $25,000. And the biggest check we’ve done is like $700,000. There’s a big difference, and that’s a bit untypical.

This flexibility is good, because in the last 12 months, we started investing in defense tech startups, making our first investment this year. Now we’re actually actively looking for defense tech startups. I’ve been here maybe 10 times since the full scale invasion and I’m seeing a lot of activity in the defense tech space.

What is the first defense tech startup that you invested in?

The company is called HighCat. They have their R&D in Germany, but they also work with Ukraine. We were the first investors in this company. D3, the defense tech fund based in Kyiv, invested in them after us.

This year, in November-December, we hope to make two more defense tech investments. It’s a very interesting area due to several reasons. The first thing is: you can help Ukraine win the war faster. And the second thing is: you can also make money. And if you can make money out of it, it means it’s more long-term. You can take this earned money and reinvest into more, and more, and more startups in the same space. That’s the idea.

It’s good for defense, because Ukraine is defending Europe directly. Furthermore, some technology developed here can also be used in, for example, Sweden or Finland, also boosting defense there. So, if you invest in defense tech, you are helping Ukraine win. And, at the same time, you’re helping the rest of Europe.

I think you’re very correct. Defense tech is a lot more promising than other industries right now, especially in Ukraine. Now, other than defense tech, what does Hype invest in?

Well, we started with AI, big data, and cloud startups. That’s when we saw that there were a lot of cool companies in Ukraine. One example is Awesomic, a cloud-based design service. It has just amazing founders. And another company called Cargofy is doing logistics and is also doing very impressive work.

So one thing that we’ve also invested a lot of time and effort in this year is Pareto Business School. Pareto offers a mini-MBA at a price that full-time MBA programs can’t match. Usually, MBA programs take one or two years and cost a lot of money. But this one provides a very concentrated, summarized, and practical-oriented course. It takes around five hours per week. It’s based in Stockholm, Sweden, but it’s online, so you can get this Nordic-style business education anywhere, including in Ukraine. Already, we’ve graduated two cohorts of 15-20 people each. I’m also one of the guides on the program.

So, we’re very active, as you can hear. But the main thing is, we’re an investment company, investing in defense tech in Ukraine.

And why did you decide to come here and invest in Ukraine?

In 2019, I was still in Sweden doing some other stuff there. Then I broke up with my girlfriend and started thinking about what to do next, where to spend time and so on. In 2019, we had already made investments in Ukraine, for example, in YouScan. And I had a lot of friends here. So I just decided I’m going to come here and see what the startup scene is like in more detail.

Here, I started going to a lot of startup events. And just met a lot of people. It was actually very good timing: 2019, 2020, and even 2021. It was a boom time for tech companies in Ukraine. And it was just a lot of fun. It’s a very different vibe here. People are more straightforward here. If they don’t like something, they will tell you that they don’t like it.

Ukraine is also similar to Sweden in that Sweden is a country with a small internal market. So, Swedish startups usually go to the United States. For example, Spotify, which started in Sweden, expanded very quickly to the US. And it’s the same with Ukrainian startups. They test the product in Ukraine. But then they go to the US to become big global companies. This is a big benefit for investors like me.

You talked about investing in two more defense tech companies this year. Tell me more about that.

We have looked at tens of different tech startups in Ukraine. There are some areas which are really, really interesting. I spent a few years in the Swedish military and I can talk about defense tech for hours. Of course, drones are really interesting. In Ukraine, as you know, after the full scale invasion, people were improvising a lot. There were and still are hundreds of different teams building different things. It’s still quite fragmented.

But what we’re seeing now is that these startups get more and more structured and organized. It’s also important to standardize things. Because war is about mass production and standardization. That’s how you can really get the cost down and how you can win the war. If somebody hasn’t been in the army, or maybe seen how real industries work, it’s really hard to understand how complex this is.

So these kinds of drone startups are doing a very important job. But it’s important to keep in mind other things that also need some innovation in the military world, such as logistics. The question is: “How can you make logistics more efficient?” Anybody who has studied military history knows that if you can win like the logistics war, then you can win the whole war. And if you cannot feed your soldiers or give them ammunition, then you’re done.

Drones are very sexy, and very cool, but things like logistics, medical care, software and communications are crucial. In the past, war was very hardware-oriented. Now war is becoming more and more software even though the killing is mostly done by artillery. There’s lots of electronic warfare going on, and the Russians are good at some of those things. When you fly in Ukraine, it’s a kind of GPS denied environment. You cannot trust satellite navigation. This is why you have different startups who are doing alternative navigation solutions for drones. This is very important. It’s not an easy task from a software point of view, so this is where software startups can be very helpful.

Another thing which is extremely, extremely important, which, I think, doesn’t get enough attention, is training. Training is, probably, the most important thing in war, in addition to morale and fighting spirit. I would like to see more startups that are trying to improve the training of soldiers. If somebody heard of something like this please send it to me, because I’ve only seen one or two pitches that are connected to military training.

What piece of advice would you give to these aspiring defense tech startups?

I would advise them to go outside. It’s actually the same thing as with normal startups. It’s about leaving the building. The idea is: you have somebody who’s a programmer, and they sit and develop the most amazing product in the world. And then they go outside, and they try to sell it. But nobody’s buying it. This is a classic case. 

So the piece of advice to everybody who is an entrepreneur is: leave the building, go out, and talk to your customers.

Who are your customers? Well, they are the soldiers. So go out and talk with the soldiers, even go to the frontline if you can. To be fair, many entrepreneurs do this in Ukraine. Get a friend who’s in the armed forces and just talk about what those guys need. What’s their biggest problem? Ask yourself how you can help them solve this problem. Of course, they can talk about the war and killing, but a lot of the problems are very domestic and practical. You know, like, how can I keep in touch with my family? What do I eat? How and where do I sleep and wash myself? How do I rotate? And if we think it’s going to be a long war, which I think it’s going to be, then you have to think about these things long-term.

In conclusion, what would you like to say about defense tech in Ukraine?

I don’t claim to be a big authority on this, but I think many people don’t understand military stuff and this is a real problem. Ukraine changed a lot in the last ten years. The military is getting rid of the general feel of the Soviet military, as a low-status and bureaucratic thing. Back then, including during the post-Soviet years, if you were a smart person, you would not go to the military. Since very few people wanted to go to the military, because of corruption and other problems, there is now a whole generation which is not very familiar with military things.

Since the full scale invasion, and even after the start of the war in 2014, this has been changing in Ukraine. In countries like Finland and Israel most young people receive military training. So they know something about the military. It brings new talent and new ideas, which can both help to develop the military and contribute to a general startup culture in society.

In Ukraine, there’s still a lot of work to be done, regarding the defense tech industry. But you’re on the right track.

Lastly, people think that you’re either outside NATO or you’re in. Actually, it’s more of a scale. So, Sweden is not yet in NATO formally, but in reality Sweden is 90% in NATO, and Ukraine, I would say, is like 25% in NATO already. So it’s a spectrum and you’re already on the way.