A New York-based firm FF Venture Capital launched a $30 million fund to support Ukrainian-founded startups. The Blue & Yellow Heritage fund is reportedly the first Western venture capital fund focused exclusively on the Ukrainian startup market.
Over the next five to 10 years, the fund will invest in 15-20 early-stage startups founded by Ukrainian entrepreneurs or employing Ukrainian refugees. For that, FF Venture Capital aims to raise another $20 million, making the overall support reach $50 million.
“When the war broke out we wanted to figure out how we could make the most difference in Ukraine and step in to fill the sudden drop of liquidity in the country,” the fund’s Ukrainian venture partner Denys Gurak told the Kyiv Independent.
This is much-needed support for Ukraine’s techies, whose business has been upended by the war and the global financial crisis. More than 90% of Ukrainian startups said they are looking for financial support to continue working and expanding.
Much of the funding for Ukrainian startups is now available in the form of grants provided by the U.S. tech giants such as Google and Amazon, as well as Ukraine’s state-backed startup fund that provides grants for military-tech startups.
FF Venture Capital, which styles itself ffVC, emphasizes that it's a for-profit fund, not a donor. It provides investment in exchange for shares and expects to earn a return on its investment.
Many Ukrainian startups have suffered losses due to the war and needed to revise their business strategy, but investors are convinced that startups will soon sort it out.
After all, the Ukrainian tech industry has good immunity to crises – there have been no easy times for business in Ukraine, and yet Ukraine-funded startups managed to secure $832 million in funding in 2021 alone.
Interest in Ukraine
FF Venture Capital was founded by British investor John Frankel and American Alex Katz in 2008, amid a worldwide economic crisis. Over the next 12 years, the fund invested in 140 companies, generating $15 billion in value.
The fund focuses on startups working in fintech, property tech, artificial intelligence, drones, and robotics. Its average investment is $700,000.
The Blue & Yellow Heritage is ffVC’s eighth fund. The fund plans to invest in Series A startups with an average investment ranging from $500,000 to $2.5 million.
The firm has been investing in Ukrainian tech startups before. In 2019, ffVC invested in a Kyiv-based startup Respeecher which creates AI-generated voices for games, movies, audiobooks, and podcasts. Respeecher’s technology was used to recreate young Luke Skywalker’s voice in the final episode of “The Mandalorian,” a spin-off series in the Star Wars universe.
To be closer to the Eastern European startups, ffVC opened an office in Warsaw in 2019, and staffed it with 12 investment professionals.
It was the experience it had in the region that prompted ffVC to start a fund to invest exclusively in Ukrainian startups.
“We realized we can offer a lot of value and funding to Ukrainian entrepreneurs when they need it most,” according to Gurak.
“We’re also plugged in with the Ukrainian government to support their broader push to attract investment to Ukraine,” he added.
The fund doesn't yet plan to open a representative office in Ukraine – instead, it cooperates with local investors, such as Gurak, and Ukraine’s Ministry of Digital Transformation.
According to Gurak, the fund has already reviewed more than 250 companies from which it identified about 50 targets that can receive financing. “There are 3-4 companies that we’d like to add to the portfolio in short order,” Gurak told the Kyiv Independent.
Surviving crisis
Many Ukrainian startups were undeterred by the war and continue to grow their business. What helped them was what experts and startups refer to as “global thinking.”
Most Ukrainian startups are registered in the U.S. and have offices around the world. Every fifth Ukrainian-founded startup considers the global market its main market.
People outside Ukraine may not even know that some big-name startups such as Affirm, Grammarly, Revolut, and GitLab were founded by Ukrainians and usually have the core team operating in Ukraine.
Among the startups that did not survive the crisis brought by the full-scale invasion are the food delivery services Rocket and Goodex, as well as the fresh fish delivery service Seadora. All of them operated in Ukraine.
Other Ukrainian-founded startups continue to grow and attract investment. Atlant 3D Nanosystems raised $15 million in September. Language-learning platform Preply secured $50 million in July. Document automation service AirSlate raised $51.5 million in June, reaching the company value of $1 billion and becoming the fourth unicorn with Ukrainian founders.
Compared to the record year of 2021, there is significantly less funding in the startup market this year: The startup valuation is falling, and investors are becoming pickier and focusing on their portfolio companies, rather than investing in new startups.
Yet some firms, like ffVC, go in the opposite direction and increase investment in Ukrainian-founded startups.
“(In Ukraine), we see an opportunity to not only fill the current funding void but to continue to help talented teams grow and become large successful international companies,” the company said in a statement.
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