In recent years, the rapidly expanding Ukrainian tech sector has played an increasingly important role in the country’s economic development. Ukraine’s first innovation park, UNIT.City in Kyiv, is creating an innovative ecosystem that aims to become the creative nerve center of the Ukrainian digital economy.
The European Investment and Development Bank (EIB) recently extended a EUR 50 million loan to the innovation park to finance its expansion. The funds will cover construction of a new non-profit IT education center and laboratories along with additional offices and co-working areas.
This EIB investment comes on the back of another banner year for the Ukrainian IT industry. Ukrainian digital exports increased by 20% in 2020, despite the negative impact of the Covid-19 pandemic on the global economy. This growth was part of a long-term trend stretching back to the early 2000s that has seen the IT industry emerge as one of Ukraine’s economic engines.
An innovation park might at first glance seem like an ordinary business center, but the underlying concept is fundamentally different. Whereas a business center brings together companies from unrelated industries, an innovation park aims to create an entire ecosystem. The concentration of established tech companies, startups, students, IT professionals, and research facilities creates the conditions for businesses to grow much faster than they would in isolation.
This harnessing of Ukraine’s tech talent holds the key to the country’s future prosperity. In the popular imagination, Ukraine is still typically associated with traditional economic activities such as agriculture, mining, and heavy industry. In all of these areas, it is difficult to compete with far larger and better-resourced players like Germany, China, and the United States.
The same challenges exist in the tech sector, but innovation can help to level the playing field. This is where a strong ecosystem is critical. The basic building block for a successful tech ecosystem is the physical space itself. For example, UNIT.City provides modern facilities featuring interior design based on the MIT campus.
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Funding is critical for startups, especially those that need to attract and retain top talent as they scale up operations. UNIT.City has a number of accelerator programs that allow entrepreneurs and investors to connect. One recent accelerator participant, the Ukrainian startup “Watched”, was able to attract USD 450,000 in funding right after the program finished.
The number of angel investors active in today’s Ukraine remains relatively small, so it is vital to assist startups in locating alternative sources of funding such as the European Development Bank and the Ukrainian Startup Fund. In many cases, startups receive funding through a variety of small investments from multiple investors, which makes the kind of networks provided by innovation parks crucial to future success.
Ukrainian startups necessarily dream big, with many hoping to become the first Ukraine-based unicorn. Earlier flagship success stories with Ukrainian roots such as Grammarly relocated much of their operations to the US before reaching the landmark USD 1 billion valuation.
While Ukraine’s already strong IT reputation would benefit from new unicorns, it should not be viewed as a failure when Ukrainian founders move abroad and scale up their operations elsewhere. Tech entrepreneurs from Ukraine invariably hire Ukrainian developers and other specialists to support the operations of the front office abroad. These back and front offices grow in tandem, generating jobs and tax revenues. Meanwhile, the high salaries of Ukrainian software developers translate into local spending, stimulating growth beyond the IT sector.
Education and mentorship are also essential ingredients of a successful innovation ecosystem. Mentorship allows startup founders to learn from experienced professionals who have already built and scaled up operations before making successful exits. This may take the form of organic relationships within an innovation ecosystem or via formalized programs and platforms.
The benefits of innovation park networking extend well beyond access to mentors. The dense concentration of innovative companies in a single space often creates efficiencies and enables companies to form mutually beneficial business relationships. To boost educational opportunities, UNIT.City has a dedicated campus.
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Developing the next generation of IT specialists is vital. It will ensure that Ukrainian startups continue to have access to the top talent they need in order to thrive in a rapidly growing sector. Ukraine is already one of the most competitive IT industry players in the region and is poised to consolidate its position further.
At present, Ukraine is becoming an increasingly attractive destination for IT specialists from elsewhere in Eastern Europe who are chafing at the restrictions and limitations they face in their home countries. For example, according to some estimates, as many as 13,000 IT professionals from Belarus have recently relocated to Ukraine.
This influx is timely. The Ukrainian IT industry is expanding at such a pace that Ukrainian recruiters are currently struggling to fill vacancies.
During discussions over the future of the Ukrainian tech sector, many industry analysts argue that Ukraine should be looking to move away from outsourcing and become a “startup nation.” In reality, there is no need to choose one or the other. Ukraine has a thriving IT industry requiring further investment. Startups are an indispensable part of this, but so is outsourcing.
In a sense, excessive focus on startups misses the point. Ukraine does not need to specialize. The country has strong schools and universities. The task now is not to specialize but rather to create the conditions for specialization.
With Ukraine’s world-beating tech talent and growing international reputation for IT excellence, the country has solid foundations to build on. The challenge is to keep on building.
Constantine Yevtushenko is Managing Partner at UNIT.City.
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