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Tuesday, April 16, 2024

Ukraine’s Startups Kept Innovating Through 1 Year of War

Oleksandr Kosovan remembers vividly the morning he left his home to go to work and didn’t know if it would still be there when he returned. He was jolted awake at 4 am by the sound of rockets striking Kyiv, and his immediate thought was, “I’ll probably never come back to my home. Mentally, I said goodbye to all of my belongings. And then I went to the office.” It was February 25, 2022, the day after Russian forces launched a large-scale invasion of Ukraine, escalating a conflict that had simmered since Russia’s 2014 annexation of Crimea.

Kosovan made his way into Kyiv’s center, near the Olympic National Sports Complex. He was headed to the office of his 15-year-old software company MacPaw, which makes applications for Macs and iPhones. As CEO, he had urged some of his 500 staff to flee the city when the threat of war escalated. But hundreds had opted to stay. His first task that day was to convert the office into a temporary shelter for MacPaw employees.

“I didn’t think my body was even capable of lasting four or five days without sleep and real food, but it was running on adrenaline and pure rage,” he says of those first days of the war. A year later, MacPaw has kept the lights on, and Kosovan’s home still stands. The company’s staffers have been more unified than scattered by the war’s steep challenges and have even managed to maintain a sense of normalcy, exchanging Ukrainian memes via Twitter and Telegram and still keeping in high spirits. 

Kosovan is far from the only Ukrainian startup founder with tales of resilience and unexpected wartime productivity over the past year. Even as coders and entrepreneurs worked from underground bomb shelters and through rolling electrical blackouts, many managed to ship software updates. But Ukraine’s future is still unclear, adding to the risks that already come with keeping a technology startup alive. 

Hacking in the Dark

I first met Julia Petryk by chance last June, after she had traveled 15 hours by train from Kyiv to Poland and then taken an international flight to attend Apple’s WWDC conference in Cupertino, California. We spoke outside Apple’s sleek, glass-walled coffee shop, standing in glaring sunlight, the idyllic scene a stark contrast from the war-torn parts of Ukraine. Since then I’ve kept in touch with Petryk and recently spoke to or corresponded with half a dozen tech founders and workers from Ukrainian companies, asking about life in Ukraine’s startup scene over the past year. 

Petryk runs communications at MacPaw and is a cofounder of the Ukrainian PR Army, an ad hoc group of Ukrainian PR and marketing professionals trying to combat Russian propaganda by sending out pro-Ukranian missives to journalists and governments. She describes a year of severe disruption, and not the kind that Silicon Valley founders typically laud. She has worked from bomb shelters and coffee shops with backup generators, and has walked home through Kyiv in pitch-black darkness, decked in reflective gear. 

“When you have all this news trickling in every day, it can be a bit depressing. But people keep adapting,” Petryk says. “There’s no way out except to work for the future and fight for the future.” 

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On October 10, Petryk emailed me from a bomb shelter in Kyiv: “Russians hit dozens of missiles at Ukraine this morning. Civilians killed again.” 

Prior to this, she and I had been chatting about a Slack plugin that MacPaw engineers had built called TogetherApp, which enables quick check-ins and location drops between colleagues. The pings flew among the MacPaw team that day.

Thousands of Ukrainian tech workers ended up relocating to neighboring Poland or to Portugal, which granted temporary protection permits to Ukrainian refugees in the early days of the war. Many more stayed behind.

In the days following the invasion, Alyona Mysko, the founder and chief executive of an accounting startup called Fuelfinance, temporarily relocated her company’s home base from Kyiv to a bomb shelter in the western Ukrainian city of Lviv, some 500 kilometers away, and encouraged remote work. But many did not want to leave Ukraine. “We all have this understanding that when you stay in this country, you support the economy,” she says. “And a lot of our team members have families and homes here.”

By October, Fuelfinance had eschewed remote work and pivoted back to office life, toiling from a coworking space in Kyiv called LIFT99. Mysko had made the same journey Petryk had back in June—traveling 15 hours by train to Poland before flying to a tech conference in California—when news broke that Russia had unleashed a massive attack on Ukraine’s power grid, resulting in widespread blackouts.

“It was impossible to connect with my family,” Mysko says. “But in the office we had alternative sources of energy, and we had Starlink, so we were still able to connect for work. It made us realize how important it was to have backup generators, which really sped up the end of remote work for us,” she says with a wry laugh. 

Backup generators and SpaceX’s Starlink satellite internet service—every founder who spoke to WIRED said they were now critical to their operations. Some had the foresight to purchase generators before the invasion. 

Others, like Sofiia Shvets and Vlad Pranskevičius, who jointly founded an AI image editing startup called Let’s Enhance, raced to supply their staffers after the fact, purchasing several large power banks for employees scattered around Ukraine for around €550 (about $580) a piece. Each can supply six to seven hours of power to personal devices, though not enough for home appliances. 

“It’s all very strange sometimes,” says Shvets, who is now based in San Francisco. “We’ll have a video call with one of our product managers who has Starlink internet, so he can join the call, but he’s in total darkness, surrounded by candles, because he doesn’t have electricity. And I’m like, ‘Um, Dennis, how’s it going?’”

Since the spring of 2022, Ukraine has relied heavily on Starlink satellite internet terminals, tens of thousands of which were donated by SpaceX, with some support from the US government. SpaceX CEO Elon Musk said in October that the company would no longer fund Starlink service in Ukraine, and he asked the Pentagon to pick up more of the cost before reversing himself in a tweet.

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“Many people here and across the world were pissed off about some of his posts,” says Pranskevičius, who is based in Kyiv. “But what we’ve seen is that Starlink has continued to work. It’s been invaluable to most individuals and also to people on the front line, where there might be no connectivity at all.” 

An Uncertain Future

Let’s Enhance has continued to grow, despite the challenges its founders and staff face. One colleague left to go fight on the front lines, and another signed up to work on military technology, joining the approximately 7,000 tech professionals who joined the ranks of the Armed Forces of Ukraine. One year ago, the company had 27 employees; now, it says it has more than 40.

But Let’s Enhance is in the minority. According to a 2022 report from TechUkraine, an organization that supports startups in the country, companies are feeling the heat of war. While 43 percent of teams surveyed remained the same size, 37 percent of founders say they’ve had to reduce headcount. And more than 90 percent of Ukrainian startups have indicated they would need more financial support in order to survive the war.

Data from research firm PitchBook shows that early-stage startups in Ukraine raised a collective $17 million in seed or Series A funding in 2022, compared to $14.1 million in 2021. Early-stage funding this year has already surpassed that in the last quarter of 2022, including $1 million recently raised by Fuelfinance.

But despite promising signs, the broader prospects for Ukraine’s businesses are murkier. In September, The Wall Street Journal reported that, while Ukrainian companies in 2021 raised a total of $832 million in venture capital and from private equity, which typically invests larger sums, one analyst has estimated that the number of Ukrainian VC deals was down by at least 50 percent in 2022.

Let’s Enhance’s last fundraising round was for $3 million in October 2021, and its founders planned to stretch that throughout 2022 as they focused on a new product. They may try to raise more funding this year, taking on macroeconomic headwinds, in addition to the instability of war, that have slowed startup investment.

Still, Shvets is optimistic about fundraising. Several funds have cropped up in support of Ukrainian tech companies, both in the private sector and from governments. Last year the European Commission pledged €20 million (about $21 million) in support of tech companies in Ukraine. Some private investors are bolstered by the fact that many Ukrainian startups sell their software in the US.

“I would say the narrative has definitely changed since last year. When the war started, we were all in shock, and so were our investors,” Shvets says. “They were asking, ‘What’s going to happen with Ukraine?’ But we haven’t had any production issues, and right now I actually feel like we have a lot of support.”  

Dmitry Dontov, the chief executive and founder of data protection company Spin Technology, also says investors seem comfortable to keep working with startups with a heavy Ukrainian presence. Shortly after the invasion, Dontov, a Moldovan based in Silicon Valley, supplied his Ukrainian research and development team with generators and set up a safe house for them in the village of Koncha-Zaspa, about 33 kilometers from Kyiv. He relocated a third of the staff to an office in Portugal. 

“Initially, investors were worried. They were asking, ‘How many lines of code have been written last month?’” Dontov says. “But over time, I think investors saw that we were taking all the actions necessary to maintain performance.”

Not all startups have fared so well. Oleksandr Kosovan, the MacPaw cofounder, also invests in other startups through a fund called SMRK. It invested $1.5 million in a Ukrainian robotics startup just this week. But Kosovan says that at least two of the fund’s portfolio companies shut down within the past year. 

One of them was Seadora Seafood, a Kyiv-based fish delivery startup founded in 2019. The company transported some of its cargo by air and could no longer operate within Ukrainian air space. Another startup selling casual clothing is still operating but is struggling; as soon as the war began, Kosovan says, “the demand for such things was reduced to almost zero.”

In the context of war, necessities come into sharper focus. So do borders, and bonds with coworkers, and glimpses of the future, even if they appear in the form of a candlelit Zoom call or a flash of reflective clothing on a dark city street.

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