Startups Under Fire: The Remarkable Resilience of Ukraine’s Tech Sector

Startups Under Fire: The Remarkable Resilience of Ukraine’s Tech Sector
Written by Techbot

In February 2022, Ukraine’s tech sector was booming. Between 2016 and 2021, the country’s IT exports tripled to nearly $7 billion a year, according to the IT Association of Ukraine. Its universities have long been a formidable production line for STEM talent, and thousands of these young graduates helped Ukraine first become Europe’s back office, stocked with developers and designers working for international clients, and then an innovation center in its own right, with a flow of cutting-edge startups: From deep-tech and robotics to translation and AI.

The war should have ended that. Russia’s full-scale invasion has killed or injured tens of thousands of civilians and soldiers, many of them pulled from ordinary lives onto the front lines. Millions have been displaced from their homes and are now scattered across Europe and beyond. Russia has targeted infrastructure, knocking out power and telecoms and threatening to cut Ukrainian businesses off from their customers and backers overseas.

And yet, the tech sector has not just survived but thrived: By the end of 2022, Ukraine’s IT exports had grown nearly 7 per cent, even as the economy shrunk by almost a third. These are the stories of how four startups have survived, but they’re just a sample of the thousands of acts of extraordinary resilience, defiance, courage, and cooperation in Ukraine’s tech sector.

“Music is a very powerful instrument.”

As a PhD student in quantum physics in the dying days of the Soviet Union, Andriy Dakhovskyy would hide bootlegged vinyl of western rock music in his room. “I was lucky not to be caught by the KGB,” he says. “When the Soviet Union fell and you could easily go to a record store and buy Led Zeppelin, something important was missing for me. The feeling of exclusivity, of being underground.”

Dakhovskyy spun his forbidden love of rock into a career, ending up establishing Universal Music’s first office in Kyiv, and becoming a central figure in the development of Ukraine’s music industry in its anarchic post-Soviet revival. He got Elton John onto Ukrainian TV and produced Kyiv’s first rock opera. As we drive through central Kyiv, he points out the nightclub he ended up running, kind of by accident, after being convinced to invest in it by a friend in need of a loan. It’s now closed, battered first by Covid, then by the war.

In 2020, Dakhovskyy launched Djooky with business partners in Ukraine and the US, based on a belief that less well known recording artists—particularly those from outside America—get a raw deal on platforms like Spotify, where only a small number of high-profile musicians make good money. “The music industry is heavily, heavily monopolized and centralized,” he says. “I know the system … and I couldn’t change the system from within.”

Djooky is a marketplace where fans can essentially buy shares in artists, helping them to build a profile, with the potential to profit from their success. When the Eurovision Song Contest was canceled due to the pandemic in 2020, the company launched its own Djooky Music Awards, letting fans vote for their favorite song in a huge multinational competition that attracted artists and listeners from all over the world. The platform has 200,000 registered users, submissions from artists from more than 140 countries, and has held 15 successful auctions.

Dakhovskyy knows Djooky is a strange kind of startup, a hybrid of a record company and a fintech—one which VCs need to grasp on an emotional level, as well as a financial one. He is a low-key but compelling speaker with an infectious enthusiasm for music, but for most of the past two years, he’s been stuck in Kyiv, first pinned down by the pandemic and then by the full-scale invasion. Over the winter, he says, he barely left his apartment, other than to trudge down the stairs to the bomb shelter. Djooky had to put its prize-giving on hold.

Then, in the spring,“I thought, fuck the war,” he says. In March, Dakhovskyy made the 14-hour overland journey to Warsaw to pitch Djooky to a crowd of international investors at an event organized by the tech giant Google. When we meet in Kyiv two months later, he’s just returned from the US, where a delegation of Ukrainian startups pitched to US business and political leaders. “I had only a four-minute speech,” he says. “So it was a choice between either being open and emotional, to speak about the subject, which is my love, which is the job of my dream. Or just, like, machine-gun through the numbers. I chose to be emotional.”

He’s still waiting for a VC to come through with funding, but he’s restarting the Djooky Music Awards this August. His pitch now kicks off with a ballad by a Ukrainian artist, Kler, recorded in the spring of 2022, as Kyiv was still under siege and Russian tanks were just 20 kilometers from her studio. “I give her as an example because she simply cannot imagine she can do anything else but make songs and perform them for people. No matter if there are air raids and shelling, she’s in the studio,” he says. “Music is a very powerful instrument.”

“We call it war-life balance.”

Stacy Pavlyshyna (left)  and Roman Sevast (right), cofounders of Awesomic.

Photograph: Ella Sophie

On the first night of the war, Roman Sevast and Stacy Pavlyshyna drove west out of Kyiv. Russian forces had swept across eastern Ukraine and were converging on the capital. American banks had halted withdrawals for Ukrainian clients, wary of impending sanctions on Russia. But the startup founders still had to make payroll.

So, as a Russian attack helicopter buzzed low over their car on the edge of the city, Sevast was on the phone to their bank manager in the US. In the darkness, the bank’s security systems couldn’t recognize Sevast’s face, so the pair pulled over to the side of the road. He peered into the screen, lit by the dashboard light, just long enough to pass the verification checks. Then they sped onwards.

A few months prior, Sevast and Pavlyshyna had opened a new office in Kyiv, with a full-sized yellow helicopter dominating the lobby. The startup they founded together, Awesomic, had recently graduated from the Silicon Valley incubator Y Combinator and raised a $2 million round. For a monthly fee, Awesomic matches businesses all over the world with designers and developers—most of them Ukrainian—like a kind of bespoke Fiverr on subscription that’s built, like much of the country’s tech sector, on abundant, affordable talent.

Sevast, Awesomic’s CEO, and Pavlyshyna, its COO, are both small-boned, slender, dressed in black. When we meet in Warsaw, on the fringes of a Google for Startups event, they talk over one another in a rush of overlapping sentences, finishing each other’s stories, correcting details. “It was a great life,” Pavlyshyna says. “We just had this life for a few months,” Sevast interjects. “And then the war started.” He has a picture on his laptop of the two of them, on the fourth day of the war, in a bomb shelter, eating a cake for his 26th birthday. “Celebrating,” he says.

The first few weeks were a rush of logistics: getting employees, who were scattered across Ukraine, out of cities under siege. The company hired a “kamikaze driver”—a local who knew secret back roads, to extract a designer from a town close to the Russian border. The designer had been hiding in a basement for two weeks, but had kept on working. Burying herself in work was, she told Sevast, an escape from the horror: “The only place where I can have a stable mindset.” This, Sevast says, is the approach that he and many others in the country have settled on to get through the dark days. “We call it war-life balance.”

The outsourcing industry can feel very transactional—freelancers and contractors are just email addresses in some far-off, low-cost country. (Upwork annoyed many Ukrainian freelancers by sending a note to clients in late January 2022 warning of disruption to its service in the case of an invasion). But Awesomic’s founders say their clients have stuck with them, even as Russia attacked civilian infrastructure, knocking out power and internet access, threatening to take the country offline for long periods. Awesomic bought generators and Starlink terminals, and the work went on. “We’ve done the craziest things as managers,” Pavlyshyna says.

The company kept on growing through 2022, reaching “multimillion-dollar” revenues, according to Sevast. After they moved their Ukraine operations to safe zones and got their people set up and working, the founders moved on to their next milestone, opening a new head office in Silicon Valley, where Pavlyshyna and Sevast are now based. “We believe that we can go through anything. The startup journey, it’s not scary when we’re already going through this,” says Pavlyshyna. “Resilience isn’t really a choice.”

“I see missiles, but I will deliver it in a couple of hours.”

Slava Matskov, CEO of concierge service Howly.

Courtesy of Howly

Howly’s offices are in an airy, brick-walled warehouse in central Kyiv, with a gym space and glass-walled meeting rooms on the mezzanine floor. They’ve had to abandon it twice. The company, which is less than two years old, offers an online concierge service for customers all over the world. At the basic level, it’s like tech support for your day-to-day life. Experts, most of them in Ukraine, will help you figure out how to set up your smart TV, or get into an email account after you’ve lost the password. Some customers use the platform like a personal assistant, seeking restaurant recommendations and travel advice. The longest troubleshooting session lasted eight hours.

In the days following the full-scale invasion, most of Howly’s staff joined the enormous queue of people flowing to the relative safety of the west of Ukraine, spending upwards of 24 hours in the traffic jams reaching out of Kyiv. A couple of employees had near misses: One person’s house was destroyed around him, another was hit by debris from a missile. But once everyone was out, they got back to work. “The week after the war started, we had to put everything back in place,” says Slava Matskov, Howly’s CEO. “People were ready to work 24/7. They were calling us saying, ‘OK, I see the planes flying next to me, I see missiles, but I will deliver it in a couple of hours. So, no worries.’ That was amazing.”

By the autumn, they were all back in Kyiv. Matskov prefers his team—which has grown from 30 at the start of the full-scale invasion to 41—to be in the office. But then Russia started hitting power stations and telecoms infrastructure. Some days, the electricity was only on for a few hours at a time. As temperatures fell, Howly once again moved the whole team west, to where it had generators and Starlinks set up to keep the lights on and the internet running. Employees brought with them family members and even pets. “I think the electricity was cut, like, 10 times a day. And after the electricity drops, you hear somebody running to the generator,” Matskov says. In mid-January, the team voted to return to Kyiv.

The war has pushed Howly to speed up its plans to diversify. It’s branching into legal advice, signing up lawyers who can spend a few hours online to answer queries from users. And it’s moving into Spanish language services. Growing in the current environment isn’t easy—venture capitalists are leery about investing in a leadership team that’s entirely based in a war zone. But there is still some money available, and the war has driven a new kind of solidarity and mutual support within the tech sector—whether that’s unicorns reinvesting into the ecosystem, or companies sharing generators and survival tips. “All the biggest tech companies in Ukraine, starting February 24, they just work together,” Matskov says. “The cooperation was amazing.”

“In 10 to 20 years, Ukraine will be the new Silicon Valley.”

Victoria Repa, founder of BetterMe.

Courtesy of BetterMe

January 1 is a huge day for the health and well-being industry. It’s when millions of people, fired up by their New Year’s resolutions, sign up for gym memberships and fitness apps, and order sportswear and wearable tech. To prepare for the start of 2023, Victoria Repa ordered $300,000 worth of generators and water-treatment equipment for the BetterMe office in Kyiv. Russia was in the middle of a ferocious campaign of air raids that targeted civilian infrastructure, including power stations and water-treatment plants, and Repa needed to make sure her team could get online, stay warm, and have access to showers and clean water. “It’s strange,” Repa says, laughing at the absurdity of it. “But we compete with companies that aren’t in this situation, so we don’t have time to complain.”

Before the war, Repa was planning BetterMe’s path to IPO. She launched the company as a health and well-being app in 2016, offering consumers, mainly in the US, access to home workouts and coaching. The app has been downloaded 150 million times. The most popular workout at the moment is “Wall Pilates,” which is, as it sounds, a series of contortions that you can do at home, up against a wall. The vision, Repa says, is “creating happiness within,” and building health care products that feel like entertainment. “In reality, we compete with Netflix, we compete with Instagram, TikTok for people’s attention.”

BetterMe, which has more than 200 employees in Kyiv, always had a “plan B” to relocate people to the west of Ukraine if the Russians invaded, which they triggered in February last year. “It’s not something I’d ever learned at business school,” Repa says. “But the war changed everything.” After the capital was liberated, many of the staff returned. They’ve continued to launch new products, including sportswear and fitness bands.

The company grew its headcount and revenue by 20 percent in 2022, and Repa—like others in the tech industry—says that success is now about more than just making money. “It’s highly important, not only as a business mission, but also how we can help our country.” The unemployment rate in Ukraine hit 20 percent last year, and keeping the economy going is vital for the war effort. BetterMe has made its mental health products available free to all Ukrainians, and created a stress management course with the World Health Organization.

Repa has had to balance being with her team with being able to access investors and partners overseas. From Kyiv, it is a long slog on a train to the Polish border, so she’s temporarily relocated to Warsaw. But she says it’s important that, even though BetterMe’s customers are in the US, Western Europe, and Asia, the company remains Ukrainian. “I hope that in the future after the war … that young people stay in Ukraine, build businesses in Ukraine, grow in Ukraine,” she says. “It’s my patriotic mission that, in 10 to 20 years, Ukraine will be the new Silicon Valley.”

This article appears in the September/October 2023 edition of WIRED UK

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