“Made in Ukraine” is not a phrase usually associated with technology product companies and start-ups. And yet, outsourcing of software development projects to Ukrainian consultants has been a global practice for years. But now the business landscape is changing as more technology product companies and start-ups from Ukraine try to make their mark in the EU and beyond.
Two key reports on the technology industry in Ukraine
In 2016, two reports were published about Ukraine’s technology industry environment and business scene. The authors were Ukraine Digital News, an online website focused on the Ukrainian digital and IT industries since 2014, and AVentures Capital, a prominent early stage venture firm focused on nurturing businesses in Ukraine and Central and Eastern Europe. The “IT Ukraine” report (http://www.uadn.net/files/ua_hightech.pdf) points out that Ukraine has 90,000 IT professionals, which makes it number one in Central and Eastern Europe. And in terms of export activity, “ … Ukraine’s software development and IT services reached at least $2.5 billion in 2015, showing double-digit growth year after year. The U.S. market is the main destination with an estimated 80 percent volume of exported services…,” according to this report. The other report, “The Dealbook of Ukraine” (http://uadn.net/files/ua_dealbook.pdf), describes how an increased volume of venture funds is being committed to Ukrainian technology product start-ups.
Traditionally there has been a question in the minds of some Ukrainian tech professionals regarding whether the outsourcing software development business is hindering the growth of start-ups. However, in 2015 after a period of steep investment contraction due to the uncertain political and economic climate brought on by the 2014 Maidan Revolution, venture funds for start-ups increased to a record $132 million. And, more than 40 percent of the deals were made or directed by foreign investors.
While the internal business market in Ukraine for start-ups has been challenging due to weak economic conditions, those which have developed a global focus are beginning to enjoy success. Some have moved their sales and marketing operations to the EU and the U.S. while still maintaining R&D operations in Ukraine. The following four companies illustrate how “made in Ukraine” could become a label signifying high quality for global technology products.
Hideez Group: a cybersecurity and authentication devices and services company
The Consumer Technology Association holds every January in Las Vegas possibly the largest consumer electronics show (CES) in the world. In 2016, CES drew more than 177,000 attendees from around the globe and had 2.47 million net square feet of space for exhibits. In January 2017, the Kyiv-based Ukrainian Venture Capital and Private Equity Association (UVCA) invited eight technology start-ups from Ukraine to exhibit their products in a special area set aside for them. The Hideeez Group (http://hideez.com/), a Kyiv-based company specializing in cybersecurity and authentication devices and services, was one of the eight invitees. It was founded in August 2015 by Oleg Naumenko, Andriy Konkov and Denis Zaliznyak and received $325,000 in seed funding from three outside investors in December 2016.
CEO Naumenko, CMO Gennadiy Kornev and Julia Shykalova, global director of business development, all attended CES 2017 for Hideez and were very pleased with the unique opportunity to meet potential new investors and future clients. Their first product, Hideez Key, is a device that attaches to a key ring and can safely store up to 1,000 user passwords and lock and unlock your electronic gear. It works on multiple platforms, including Android, Windows and Mac. It was first sold in EU countries in September 2016 and will be available in the spring of 2017 on Amazon.com. A new upgraded version of the product, Hideez Key 2, will allow an unlimited number of passwords to be stored on it and go into production in May 2017. It can be worn on the wrist like a watch or a bracelet.
While the R&D operation (about 10 employees) is located in Ukraine, the company has several contractors and employees who live elsewhere. In January 2017, Hideez incorporated in the State of Delaware to more easily sell and market its services and products in the U.S. and the EU. Ms. Shykalova and one sales representative are now based in the U.S. Her activities will focus on selling Hideez cybersecurity and authentication products and services in the business-to-business market with an initial prospect focus on hospitals and small-to-medium sized companies.
Mr. Kornev points out that although the product is currently manufactured in China, due to the very precise device requirements, he is currently reviewing companies in Ukraine that could produce Hideez Key in the future. Regarding future company growth, he says “…while Hideez is now focused on selling its products to the consumer market, in the 12- to 18-month time frame major growth will come in the business-to-business area…” A January 2017 interview with Ms. Shykalova and Mr. Kornev can be heard here https://soundcloud.com/ukrainetech/hideezinterview013117.
Ecoisme: a home automation and smart home company
In 2016, Ukrainian tech entrepreneur Ivan Pasichnyk was included in the Forbes “30 under 30” list of top leaders and talented innovators in 20 different sectors. Along with his partners Nazar Mokrinskiy, Anton Diatlov and Alexander Diatlov, they founded in 2014 Ecoisme (https://ecoisme.com/), a company that has produced a home energy monitoring system that can help consumers save money and better understand how their electricity is being used. Ecoisme was one of the Ukrainian start-up companies invited by UVCA to exhibit at the UA Tech zone at CES 2017 in Las Vegas.
The Ecoisme product is an energy monitoring unit that is attached to the main electrical panel in a home using a contactless connection. The monitor can sense appliance use throughout the house and pinpoint where better efficiency can be achieved. It can also alert you when an appliance, such as an iron, has been unintentionally left on. The company suggests their system can help a consumer save as much as 15 percent monthly on an electricity bill.
Ecoisme is headquartered in Kyiv but has staff in Poland, the U.K. and Canada. A number of software developers are located in Krakow since one of its major investors, Deutsche Telekom, has a division there. The company began manufacturing the monitoring units in January 2017. In the pre-order phase, units are priced at $200 for regular home use and $300 if there is a solar energy system involved. Once fully commercial the prices will rise to $300 and $400 respectively.
COO Alexander Diatlov says the company will sell its product through four channels: “direct to the consumer through the Ecoisme online website and elsewhere, through energy providers such as electric utilities and working with solar panel installers and property management companies.” In North America, for example, Business Development Manager Maria Korolenko points out that “…public utilities will be a top priority for me…” In the U.S., the state of California represents a very significant opportunity for Ecoisme.
In June 2016, Ecoisme was one of three start-ups that won the EDF Pulse Award. For their achievement, EDF, the French electric utility and energy company, gave the three companies 100,000 euros each along with technical and communications support. The company is currently negotiating with EDF to do a product pilot in France. Other product pilots include one signed in late November 2016 with the Dubai Electricity and Water Authority (DEWA) to boost energy efficiency in the Emirate of Dubai, a major financial hub in the Middle East.
Mr. Diatlov believes that “… the market for home energy automation will grow quickly…” He considers the major challenge for Ecoisme to be the launch of full-scale manufacturing and scaling the product for global markets. A January 2017 interview with Alexander Diatlov and Ms. Korolenko can be found here https://soundcloud.com/ukrainetech/ecoismeinterview012317.
Agrieye Corp.: a Ukrainian player in the smart agriculture market
When you think about locations for start-ups in Ukraine, Kyiv or Lviv immediately come to mind. However, according to Andrey Sevryukhov, CEO and co-founder of Agrieye, the Black Sea city of Odesa has a very active start-up scene. With his partners CTO Roman Kravchenko and COO Ivan Balashov the trio founded Agrieye (http://agrieye.itc.ms/) in early 2016. Currently there are a total of five staff people on board. The company has one major investor, Alex Svirid, who was the founder of the EasyPay electronic payment service. He made a financial commitment of $150,000. Negotiations are also underway with additional potential investors, including Starta Capital, a New York based venture capital company that has a start-up accelerator to help new East European technology companies to gain a foothold in the U.S. market. Mr. Sevryukov is hoping to eventually secure a total of $3.5 million to develop his service in the U.S.
Agrieye provides the tools for small-to-medium sized farms to utilize precision agriculture. Precision agriculture helps farmers to make better farming management decisions based on the collection of real-time data retrieved from observing, measuring and responding to interfield and intrafield variability in crops. Mr. Sevryukov points out that “…the company offers a subscription service for farmers which includes a high quality digital multi-spectral camera and a drone to collect crop and field data. The data is then processed through a cloud-based, online service. It utilizes the Microsoft Azure cloud computing platform and services…” When the service is fully commercial, the annual subscription will probably cost about $10 per hectare.
While the company originally developed several pilot test projects in Ukraine, it is now looking to Western markets for growth. Only a very small percentage of tractors in Ukraine can be used to implement smart agriculture since most of the equipment is old. And, Ukrainian farmers don’t own their land so they can’t go to a bank to take out a loan to upgrade their equipment.
Mr. Sevryukov now plans to actively investigate the U.S. market of farms in the 200-5,000 hectare size (494-12,355 acres). States like Texas and Ohio are on his target list.
The company also has a pilot project in Peru and is considering taking a look at the market in New Zealand. Even though Mr. Sevryukov is convinced that Western markets will power the growth of Agrieye, he very much considers his start-up a Ukrainian company and its headquarters will remain in Odesa. He intends to continue to play a critical role in the Odesa technology start-up scene. It is his sincere hope that in the future as conditions and equipment technology evolve in the local agriculture industry, Ukraine will be an important part of his business. A January 2017 interview with Mr. Sevryukov can be found here https://soundcloud.com/ukrainetech/agrieyeinterview013017.
Jooble: an online jobs aggregator
It’s eye-opening to see the range of products and services developed by technology start-ups in Ukraine. Jooble (https://jooble.org/), an early start-up on the local technology scene, was started to assist online job boards and corporate career sites with additional candidate traffic for their employment postings. It was launched in 2007 by co-founders Roman Prokofyev and Eugene Sobakaryov. The service now operates in 64 countries worldwide with 160 million job candidates and a monthly audience of 30 million visitors. Its headquarters are located in Kyiv. The company has 120 employees half of whom are programmers with the remainder being country managers and other technology staff.
Sergey Litvinov, director of strategic sales development and growth at Jooble, describes how the service works. “The service runs on a business model similar to Google Ad Words. Online job boards and company career sites vie for candidate traffic through a real-time bidding system on a pay-per-click basis. Costs per candidate click range from $.01 in low-demand countries and as much as $1.50 in locations like the U.S. and the U.K.”
Job candidates can sign up for search alerts that bring jobs of interest directly to their email inbox. They can use Linkedin, Facebook, etc. to register with Jooble and put their personal profile online for companies searching for job candidates, but it’s not required.
If a person finds a job in which they are interested, they can click on it and apply directly on the posting company’s career site.
Within the world of online recruitment, there are other services like Jooble that aggregate jobs. The largest and best known of these is Indeed, which is owned by Recruit Co. Ltd of Japan. These services are used by online job boards and corporate career sites to secure more candidates for their employment postings. Mr. Litvinov says he has great respect for other industry players like Indeed and believes there is plenty of room for everyone to grow their own business. He emphasizes that Jooble intends to continue doing what it does best and believes that his company will continue to be successful in the online recruitment space for many years to come. A February 2017 interview with Mr. Litvinov can be found here https://soundcloud.com/ukrainetech/joobleinterview020217.
Ukraine technology start-ups can continue to grow
As long as universities in Ukraine produce highly competent engineers and software programmers, technology start-ups there can develop and increase in numbers. In order to flourish in a very competitive global economic climate, they will need to secure outside venture capital and guidance and need to look beyond their own national borders to grow their business. In the U.S., groups like Razom IT (https://razomforukraine.org/initiatives/razom-it/), a New York-based group that is helping Ukrainian tech start-ups to gain greater exposure locally, are working hard to facilitate innovative networking for new entrepreneurs. In the long run, the evolution from a raw materials economy in Ukraine to one driven by technology products and services can put the country firmly on the road to economic self-sufficiency for future generations to come.