The statements of military draft scared away investors and startups

Photo: Yevgeniy Musiyenko

Military actions in the east of Ukraine and risk of mobilization of the key employees force foreign investors to be more cautious about investing money into the Ukrainian projects. Last year developers of software for exports were the first to be hit by the situation as they had to open offices in Poland, Slovakia and other European countries in order to minimize the risks. Now the startups, whose teams usually consist of young men of service age, may be suffer.

After recent statement of the General Staff about possible limitation of departure of people of service age from Ukraine four European investment funds refused to consider startup companies from Ukraine, informed Managing Partner of BVU Group Denys Dovhopoliy. He did not disclose the names of the funds. Another two deals, which were expected to take place with a great deal of certainty, were also disrupted for the same reasons, he said. «The team is what maintains the basic value of the startup company. It has been subjected to a great risk because of the army draft and the investors took that into consideration (95% of the employees of a startup company are subject to army draft). Now this valuable asset is limited in its mobility,» he explained.

Investor of TMT Investments and Chairman of the Board of Directors at Happy Farm innovation community Igor Shoifot agrees: «Unfortunately the war in itself is always a bad factor for the economy (except for the military industry). Furthermore, it is difficult to understand from afar that there is no war in Kyiv or even in Dnipropetrovsk.» Mobilization means additional risks in terms of the loss of team members. «I’ve had this situation in several startups,» he admitted to Capital. The limitation for traveling beyond the borders of the country increases these risks. After all, investors bring their money into Ukraine in order to benefit by selling the startup company. Meanwhile the buyers are almost always located in the USA. If the team members cannot travel to the USA, it is a great risk and additional disadvantage. «On the other hand, as a person who served in the army for two years, I believe that it is a duty and honor for every man to protect his country with a weapon in his hands,» he emphasized.

Even though no official limitations for travels abroad have been introduced (the parliament still has to draft the legislation for that) the statement of intention became an alarm call for investors. «Negative influence of the very fact of the war on the attitude of investors towards Ukraine is naturally intensified by imprudent statements, for instance those about limitations of travels abroad, which, fortunately, have not been confirmed yet,» adds Director of Prom.ua project Mykola Paliyenko.

Dovhopoliy believes that the prospect of such limitations forces businessmen not to think, but act towards emigration, even those who would go to war if they were called.

At the moment many Ukrainian companies open offices abroad as the clients required them to do so, says Executive Director of IT of Ukraine Association Viktor Valeyev. «International information policy of Ukraine is very weak. People abroad only see that we have a war and political problems,» he tells. Small companies and startups sometimes move with their whole team. For instance, Kharkiv software development company Web4Pro moved its whole office with all employees to Montenegro in the end of last year. The company’s management, however, did not name the reason for the move.

It is possible to stop the mass outflow of companies abroad through reforms, de-regulation, protection of private ownership and solution of the issue of war in the east, Paliyenko assures Capital. As for mobilization, the risks for IT and other sectors of the economy could have been resolved by introduction of an official opportunity not to serve, but pay to the government for this. The funds could be directed at improvement of the attractiveness of the service via increase of the allowances and insurance of life and health of servicemen. «There is economy behind every war and it is economically unsubstantiated to call highly paid specialists to serve in the army, where they are hundreds thousands of the unemployed,» he sums up.