Ukraine's tech scene finds creative ways to do business amid a full-scale war

When the Russian invasion of Ukraine began in February, Ukrainian venture capitalist Nathan Kay's priorities shifted overnight.

Kay, who's CEO of crypto-focused VC firm Mempool Ventures, had new problems — instead of growth for his company and his employees, the immediate-term became all about survival.

"Each and every member of our team will never be the same as before," Kay told Yahoo Finance. "Not only did it change how we invested, but how we managed our team."

As the invasion began, Kay, who also serves as a senior partner at blockchain accelerator Applicature, adjusted his companies' HR practices to support a workforce in wartime. Mempool and its portfolio companies moved dozens of employees across the country, from the eastern parts of Ukraine to the safer west. In some cases, Kay's companies even helped employees move abroad.

But the changes couldn't be as simple as relocation. The lives of Ukrainian tech workers were in as much upheaval as the state of their startups. So, Kay began hiring coaches and psychologists to work with employees and encouraged founders to spearhead charity initiatives, including one with a million-dollar buy-in from Ethereum co-founder Gavin Woods.

'Companies need to be rebuilt'

Kay's story is far from the only one of its kind. As the war's gone on for more than six months, Ukrainian tech has pivoted. Today, a once-thriving ecosystem of tech companies, VCs, startups, and workers has gone from growing to surviving.

Pre-war, Ukraine's buzzy tech sector had been expanding rapidly. In 2021, the IT space in Ukraine grew by nearly 36% year-over-year, hitting $6.8 billion in exports, according to a report by IT Ukraine Association.

An image from Sirens Gallery, a charity NFT project built by ZibraAI.
An image from Sirens Gallery, a charity NFT project built by ZibraAI.

Additionally, high-profile names in Big Tech, from Amazon (AMZN) to Samsung, fostered their bustling Ukrainian outposts, as the country's startup scene flourished, producing well-known names like cloud-based typing startup Grammarly and open source leader Gitlab.

However, as the war's gone on, the tech sector's options have narrowed, leading to the emergence of grassroots efforts like the Ukrainian Tech Circle, an alliance of investors and companies helping startups make it through the war.

Innumerable startups have been beaten down by the war, and many haven't survived at all, according to Nina Levchuk, who's a startup and VC lead at Google (GOOG, GOOGL) and Ukrainian Tech Circle co-founder.

“Many startups and companies that were very early-stage unfortunately just didn’t survive,” said Levchuk. “They were forced to shut down, but their talent and their operational teams are still there. Companies need to be rebuilt while getting the resources that connect them to the European markets.”

That connection to European markets has been, and will continue to be, important, as Ukrainian tech finds its future. For now, there's evidence that Ukrainian tech has been resilient. For example, about 77% of Ukrainian tech companies have onboarded new clients during the war, according to data cited by Tufts University.

Nevertheless, as the war drags on, VCs and experts told Yahoo Finance in different ways the same thing: Though many startups and companies have carried on their businesses successfully, the margin for error is shrinking.

Resilience, and what's next

The startups that have made it have in many cases had to evolve substantially, pivoting their business models, especially in highly regulated businesses, Levchuk said.

One such startup that had to shift gears completely when the war set in was ZibraAI, an AI-focused 3D processing company.

Attendees visit the Ukraine booth at the Viva Technology conference dedicated to innovation and startups, in Paris, France June 16, 2022. REUTERS/Benoit Tessier
Attendees visit the Ukraine booth at the Viva Technology conference dedicated to innovation and startups, in Paris, France June 16, 2022. REUTERS/Benoit Tessier (Benoit Tessier / reuters)

"Until the very last moment, we did not believe there could be a full-scale war in Europe in the 21st century," Alex Petrenko, ZibraAI CEO and co-founder, told Yahoo Finance. "Nevertheless, we were preparing for such a possibility. Thanks to that, we successfully evacuated our team to safer regions of the country in the first days of the full-scale Russian invasion."

From there, it was a matter of finding workflows that were operational. Much of ZibraAI's team re-located from Kyiv — though about 8% of the company's workforce stayed behind — and deadlines shifted back as the company adapted. By March, the company had managed to sell a record number of licenses, war be damned.

"Overall, war delayed our plans for a few weeks but did not disrupt them completely," Petrenko said.

We've now hit a new phase, where the war has gone on long enough that communicating with employees about the constantly evolving situation is a challenge of its own. Kay has realized that this long-term informational support is its own task.

"We set a separate tactical group inside our team that is taking care of war-related questions and requests," he told Yahoo Finance.

For Ukrainians, there's been good news recently. This month, Ukraine notched substantial victories in pushing back Russian forces in the eastern and southern parts of the country. Troops have recaptured more than 6,000 square kilometers, or about 2,317 square miles, from Russian forces in recent weeks, Ukrainian President Volodymyr Zelensky said this week. This week, Zelensky even visited the re-claimed city of Izyum, much of which has reportedly been destroyed.

Still, for Ukrainian tech, emergency relief remains key, said Levchuk. She also stressed that Ukraine's considerable tech expertise and resources have and will continue to be valuable across Europe, adding another layer of hope for the future of the country's tech sector.

“It’s still very competitive and challenging in Europe to find the great technical resources that Ukraine has so much of,” she said.

Allie Garfinkle is a Senior Tech Reporter at Yahoo Finance. Follow her on Twitter at @agarfinks.

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