Startup Survival: Navigating the Challenges of War in Ukraine

Amid nearly a year of the ongoing war conflict in Ukraine, the country's technology sector has played a vital role in resisting Russian aggression. Ukrainian startups have supported the army in cyberspace through initiatives such as the IT army or Army of Drones while continuing to operate their businesses, implement projects, pay taxes, acquire new customers, and expand globally.

The latest survey found that 43% of startups expect business growth based on the results of 2022. To gain insight into how they have navigated the hardships of war, we interviewed 10 founders from the Startup Wise Guys portfolio to share their experiences and tips on the most important lessons learned during this period.

Their stories are both shocking and familiar, filled with advice that many of us would hope to never need, as well as timeless wisdom that could be useful for any business. Ukrainian founders have faced unique challenges that no business mentor or “how-to-do” manual can fully prepare them for. For instance, finding a way to relocate their developers from the massacre in Bucha or figuring out innovative solutions to maintain work during power cuts that can last hours or even days.

Despite these and other difficulties, 61% of Ukrainian startups have not relocated their headquarters. Some have shifted their focus to foreign markets to diversify revenue sources, but they still face hurdles such as adjusting sales, international recruitment or fitting into a new business culture.

Emergency plans to ensure that team members are able to survive

"Complete shock, rage, and sadness" is how Pylyp Samoilenko, Ukrainian co-founder of Pinghome, a startup that creates uptime monitoring and incident management software, described the first days of the war. Like many in Ukraine today, each startup has its own story of the war and the hardships it has brought. 

"Our first priority was ensuring that all team members were in a safe place and had enough money to survive the first weeks of the war," says Dasha Kichuk, CEO of Effa, a startup that produces 100% recyclable and renewable disposable toiletries. VRNET.io, a startup that helps sell real estate property using the metaverse, had two developers stationed in Bucha and Gostomel during the early months, where some of the heaviest fighting took place. The CTO's wife suffered a stroke due to the war and is now undergoing rehabilitation.

Some startups took action by moving their female team members to Europe and their men to western Ukraine as soon as the war started. However, even evacuation was not without its difficulties. As Igor Bauman, co-founder and CEO of Workee, states, "Running a startup is hard, and doing so with a family and team in the midst of a war is even harder." The company now only has three team members remaining in Kyiv. Everyone on the Workee team has had to move multiple times over the past year to the safest locations to stay.

For Oleksandr Solovei, CEO and co-founder of cash flow management tool Finmap, one of the main challenges is that his co-founder and several teammates were mobilised and are now fighting on the front line. “I’m absolutely not a military guy. I didn’t think I could be useful in the armed forces. But the opposite part of me was too angry about what they are doing with our people, land and homes. So I really wanted to be mobilised. And this internal conflict was too hard for me,” said Oleksandr’s co-founder and COO of Finmap Ivan Kaunov, in his recent interview literally from ground zero in Donbas.

Artem Poliakoff, CEO of biometric identification platform iriscan.net, followed the same path as Ivan and said that, as an officer of the Armed Forces of Ukraine, he is limiting his working activities. In fact, according to the Do IT Like Ukraine report, 70% of all surveyed companies have some team members on active duty, with a quarter of all companies having between 5% and 15% of staff members serving.

Another difficulty faced by male founders is the ban on leaving the country. Valery Chekalkin, CEO of logistical IoT platform Jetbeep, mentioned that it makes live product demos, attending startup events and pitches, and building trust through interpersonal communication impossible. 

Creative solutions to keep the business running 

61% of Ukrainian startups did not change the location of their headquarters after the outbreak of the war, according to the latest report by the Polish-Ukrainian Startup Bridge. One such company is uTrigg, a startup that enables marketing specialists with Emotion AI to better know their customers. "Almost all of my team consists of men, so fleeing the country and abandoning them was not an option.  And now, with the autonomous electricity in the office, it makes even more sense and saves on costs to stay in Ukraine," said Victoria Gerukh, the female founder and CEO of the startup. She advises other founders to have at least three plans in place to support their team in any circumstance.

Electricity cut-offs, which can last from a few hours to a few days, became a real challenge for those businesses who are staying in Ukraine. Each founder is looking for a way to keep the clock running in these new, unbelievable conditions. For example, the team members of Ticketsell, an AI-powered analytics tool for event promoters, resorted to using co-working spaces to set up batteries for backup at home. Jetbeep, on the other hand, purchased inverters and accumulators for their team. “Now everyone on our team is knowledgeable about various power generators and their types, how to handle fiber wires for your wifi router, and what real flexibility in your work is," shared Ihor Bauman from Workee.

According to Victoria Gerukh, an equally pressing issue for Ukrainian teams is the decline in morale. "To overcome this, we initiated a social program to fight disinformation, which contributed to the outbreak of war in our country," she said. The program aimed to address disinformation, which has been a significant issue in Ukraine and contributed to the outbreak of the war. This approach improved the mental well-being of team members and allowed them to focus on their work.

Refocusing on foreign markets to find new revenue streams 

The outbreak of war in Ukraine has had a significant impact on the country's startup ecosystem, with 12% of startups closing their operations. It has been an enormous effort for those who have managed to stay afloat. Companies like IoT platform Jetbeep have reported losing at least two-thirds of their revenues due to the first month of the war.

Working in the Ukrainian and Russian real estate markets before the war, VRNET.io lost 90% of its revenue. “We have now got our first clients from Western Europe, and we are moving on," says Artem Batogovsky, the startup's CEO.

"On February 24, our revenue became virtually zero. Most customers cancelled earlier sales deals, and financing stopped," says Dasha Kichuk from Effa. Before the war, her startup was set to receive $200,000 in investment, but that deal was cancelled, so the team had to prioritise all their sales and fundraising tasks. Effa was able to secure big clients and funding from one of the biggest VCs in Silicon Valley, 500.Global, so Dasha is now pursuing customer interest in the US due to this investment. “Stay strong and fight for your dreams, no matter what, " she advises other founders.

To overcome the challenges, many startups have had to restructure their processes, cut costs, and refocus on foreign markets to find new revenue streams. As a rule, Ukrainian startups prefer to start their expansion abroad in the more familiar CEE markets. So, after a long effort, uTrigg was able to attract its first, albeit small, customers in Poland in autumn. "We have high expectations for 2023 as we have already survived the war,"  Victoria Gerukh says.

Some of the Ukrainian startups, like the text-to-video platform  Elai.io or Workee, have been able to multiply and raise money by operating in European and US markets. Ticketsell began working in the US and UK markets before the war and accelerated the process after February 2022. 

However, entering foreign markets is not always easy for Ukrainian founders. Challenges such as international recruitment, proper management of the unit economics, and supply chain management can make it difficult to expand abroad. "Interestingly, we have learned that there is much more attention to us after we got local salespeople on the team. We need to be as native as possible to get attention," Artem Batogovsky from VRNET.io noted.

Taking advantage of the available funding opportunities 

Despite the challenges posed by the ongoing war in Ukraine and the global economic downturn, a number of startups in the country have managed to secure funding. Notable successes include airSlate, which secured $51.5 million and is now valued at over $1.25 billion, and EdTech company Preply with $50 million raised in an investment round C.

Several global and European investors have launched funds dedicated to Ukraine, such as ff Venture Capital, Flashpoint Venture Capital, and Polish Inovo VC. Additionally, the EU and US governments and private corporations such as Google, Meta, and Mastercard have launched several grant programs for local startups.

Seven of the ten startups interviewed reported that they could raise funding this year, with Finmap receiving €1 million from European VCs. Workee was selected as one of the winners of the Google for Startups program, while Elai.io received a preliminary seed round and grants from SID Venture Partners and Startup Wise Guys. iriscan.net has successfully completed the Data Portability and Services Incubator (DAPSI) program, powered by the European Commission's Next Generation Internet (NGI) initiative.

However, while many grants are offered, the quality of tools, networks, and learning opportunities could be better, according to Dasha Kichuk from Effa. According to her, with the war ongoing, the global market downturn and the recession in play, startups need to stay focused and work as hard as before.

It's impossible to win alone, neither in war nor in business

According to the Do IT Like Ukraine report, 95% of tech companies and over 90% of IT professionals regularly transfer funds to aid the government in purchasing equipment and weapons. So, the Finmap team has already successfully fundraised and supplied the Ukrainian army with off-road vehicles, night vision systems, uniforms, and powerful drones. Notably, many companies choose to refrain from advertising the help they provide.

"Russia has not been completely defeated yet, and Ukraine cannot continue living peacefully. I spent 2.5 months in Ukraine, helping the people as much as possible. Still, the feeling that I haven't done enough keeps following me," said Pylyp Samoilenko from Pinghome.

"It was hugely devastating,"  is how VRNET.IO CEO Artem Batogovsky describes his general feelings about the Ukrainian startup ecosystem. However, according to the Polish-Ukrainian Startup Bridge report, most Ukrainian startup founders and employees are pretty optimistic. For 75% of them, the future of the whole market seems positive - they believe in the growth and development of their (and similar) businesses.

Among them is Ihor Bauman from Workee, who is convinced the war will strengthen the local startup ecosystem. However, much time has been taken away from building, raising, and hiring. “A lot of companies and startups started thinking more globally. The long-term perspective is good for that, but the circumstances that forced us to do that are terrible," said Oleksandr Solovei from Finmap.

Oleksandra Balkova, Partner and Portfolio Manager at Startup Wise Guys, one of the most active accelerators in Europe with 350+ investments in early-stage startups in B2B SaaS, Fintech, cybersecurity, XR, and sustainability in more than 60 countries. Ukraine is the second country after Estonia in terms of the number of investments made by the accelerator (45). The total amount of Startup Wise Guys' investments in Ukrainian teams reached more than €2 million, including €430K in 2022. After the full-scale war started, the company invested in 9 startups where at least one of the founders is from Ukraine.