A Ukrainian company that creates AI solutions for drones recently secured funding from a consortium of four foreign investors worth almost $3 million. This deal is one of the largest individual investments in the Ukrainian defense tech industry since the beginning of Russia’s full-scale invasion. It is part of a growing trend as investors increasingly recognize the appeal of Ukrainian defense tech innovations. Since the beginning of 2024, the sector has attracted more than $20 million in investment.
International funding is crucial as Ukrainian defense tech manufacturers seek to improve technologies and scale up production. In an environment where the state does not have unlimited resources, attracting private capital to the sector is a no-brainer. It is therefore a strategic priority for the Ukrainian authorities to create the kind of business climate that can appeal to international investors.
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One of the basic requirements for any investor is a transparent marketplace with clear and simple rules. Since the start of the full-scale Russian invasion in February 2022, Ukraine has adopted around twenty significant laws and resolutions aimed at accelerating the development of the domestic defense tech market.
Measures have included tax and customs duty reductions, the relaxation of permit and licensing requirements, and the minimizing of bureaucratic waiting periods. These steps have already had a significant impact on the domestic UAV industry, helping to fuel a hundred-fold increase in annual drone production in 2023. A similar approach is now being adopted toward other segments of the defense sector including electronic warfare, robotics, and ammunition production.
The Ukrainian authorities understand that international investors are primarily driven by a desire to make money. In order to attract investment, Ukrainian defense tech companies must therefore be able to demonstate a credible business plan and a pathway to profitability. To help establish the necessary conditions, we are taking steps to conclude more government procurement contracts with Ukrainian producers. For example, the Ukrainian state has signed agreements to procure more than one million domestically produced drones in 2024, compared to around three hundred thousand drones during the previous year.
Meanwhile, the number of Ukrainian companies able to compete for state contracts is steadily increasing. In 2022, only seven Ukrainian drone producers were eligible for government contracts. Today, the figure has risen to more than eighty companies. To maintain this upward trend, the Ukrainian authorities provide additional support to help domestic companies meet NATO standards.
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Placing more orders with Ukrainian producers is not enough, of course. It is also important to remain agile and concentrate Ukraine’s limited resources on the acquisition of technologies that offer the biggest practical advantages in today’s rapidly evolving military environment. For example, in September 2024, the Ukrainian government launched its first tender for the purchase of ten thousand first person view (FPV) drones equipped with machine vision guidance.
Another key challenge is connecting investors with developers. Ukraine’s defense tech sector offers potentially exciting opportunities for investors, but it is also an inherently difficult environment to navigate without local knowledge. The Ukrainian authorities have sought to address this by establishing the Brave1 cluster, which aims to streamline cooperation between investors, private sector companies, state agencies, and the Ukrainian military. At present, Brave1 is working with more than one hundred and fifty investors from over thirty countries.
Current initiatives include Investor Demo Days, where Ukrainian developers can showcase their products and attempt to attract funding. On October 3-4, Kyiv will host the largest international investment summit of the war so far dedicated to the Ukrainian defense tech industry. This event should provide an indication of the progress since 2022 toward making the country’s defense tech sector attractive to investors.
In order to win the war, Ukraine needs game-changing technologies that can help overcome Russia’s conventional military advantages and shift the battlefield situation in our favor. This cannot realistically be achieved by relying on an improvised ecosystem of defense tech startups operating out of garages and apartments. Instead, Ukraine needs the kind of powerful and well-resourced defense tech industry that is only possible through significant investment and cooperation with international partners. If this goal can be achieved, the Ukrainian military will be able to receive the tools they need to finish the job of defeating Russia.
Mykhailo Fedorov is Ukraine’s Vice Prime Minister for Innovations and Development of Education, Science, and Technologies, and Minister of Digital Transformation.
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The views expressed in UkraineAlert are solely those of the authors and do not necessarily reflect the views of the Atlantic Council, its staff, or its supporters.
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Image: Deputy Director for Strategic Communications Rudolf Akopian holds a model of the Ukrainian FPV drone "General Chereshnya", Zaporizhzhia, southeastern Ukraine (Photo by Ukrinform/Ukrinform/Sipa USA)