"Promoting Ukraine's Investment Opportunities Abroad" by Invest In Ukraine UVCA Committee07 Jun 2021

On May 27th, the “Invest in Ukraine” Committee of UVCA held the event "Promoting Ukraine's Investment Opportunities Abroad".

During the meeting, we discussed the Investment market during the pandemic, new trends and opportunities, Ukraine's place on the global investment arena, investments and M&A activity in Ukraine in 2020, and perspectives of 2021.

Several famous guests were invited:

  • Vitaly Provotorov, co-chair of the “Invest in Ukraine” Committee of UVCA, Founder and Managing Partner at Soul Partners;
  • Andrew Kolodyuk, UVCA Supervisory Board Chairman, Founder and Managing Partner at AVentures Capital;
  • Dmytro Boroday, Principal at Horizon Capital;
  • Max Filippov, Managing Partner at GR Capital.

The conversation was deep, full of facts and analysis of trends and opportunities, filled with humor and hope for a better future.

We would like to cite the main theses of our guests:

Vitaliy Provotorov

co-chair of the “Invest in Ukraine” Committee of UVCA, Founder and Managing Partner at Soul Partners

UVCA was focusing on the venture capital market before, now the idea is to lure into the PE market as well. First of all, we need to apply a systematic approach to all the contacts and relationships UVCA has. The idea is very simple: we have a leverage for the contacts and relationships, we need to do systematic communications and to help any UVCA members to reach any contact abroad.

Committee’s tasks:

  • Inventory of all partnerships and communications
  • To let UVCA members reach any potential partner worldwide
  • To attract global market players to Ukrainian partners

M&A Market 2020 globally:

  • it was very “weird” and crazy
  • Interest rates are low
  • A huge pile of money
  • Postponed deals.

Thus, in the first 5 months of 2021, there were $1.7 trillion in deals. It is 2 times higher than 4 months of 2020.

Huge yields and returns can be found in developed markets. And it’s not related to Ukraine nowadays.

Commodity markets: prices are soaring. E.g. you can’t buy wood despite its price has tripled

Everyone is rushed into critical materials (beryllium, lithium, etc).

We will see deals and interests in commodities: food/agriculture, metal, critical materials, brains, and so on.

But what is disappointing: yet, this huge global wave still has not converted into the Ukrainian M&A market.

Ukraine’s trends:

  • in oversimplified terms – it will be about commodities
  • there is a postponed demand, existing breaks in logistics chains, soaring prices of commodities - that will be the interest of the M&A market in Ukraine
  • food, metal, wood, critical materials, iron ore, IT talent…. Shall draw attention to Ukraine in 2021
  • logistics as well

Andriy Kolodiuk

UVCA Supervisory Board Chairman, Founder, and Managing Partner at AVentures Capital

About UVCA: UVCA builds bridges between Ukraine and the world. UVCA is an investors organization and all investors are welcome regardless of the sector or their size, whether they invest in real estate or in alternative energy or in high tech.

M&A trends: despite COVID, or because of it, the window of opportunities has opened. We are talking about SPAC deals. The amount of money in this market is huge, more than 100 billion dollars has been raised in SPAC. It’s a great opportunity for M&A because the capital is already raised and the only thing they have to do is searching for good targets. And Ukraine is a place to look for such good private companies.

Startups and M&A: Startups of the early stages can be acquired by big companies (acqui-hiring deals) if they have a unique technology or they have uniquely skilled founders. Once you have started the company there is always an opportunity for M&A. And UVCA's role is to share knowledge on how to prepare your business for such transactions.

Dmytro Boroday

Principal at Horizon Capital

Ukraine had good momentum in 2018 and 2019 in terms of M&A activity. We really saw a return of interests from large international investors. Largest transactions since 2014 were done in 2019. We entered 2020 with big expectations but then COVID-19 happened and obviously put these processes on hold. And now we see the return of players who were interested in Ukraine in 2018-2019.

Ukraine still is a large market with good opportunities and reasonable valuations.

We have optimism for the year ahead and for the future years and we see the same from the conversations that are happening now with other market players.

In terms of the global context, we see really high levels of M&A activity, we see very strong rebound in the second half of the year. Unfortunately, it wasn’t reflected in Ukraine in the same sense as it was reflected in Western Europe or Central Europe.

2020 was a difficult year for the Ukrainian M&A market, the number of deals was down twice or even more.

But it’s recovering quite rapidly.

One of the trends which we are seeing and which helps Ukraine is the way the strategic and financial investors approach M&A transactions now. This has been a really big shift over the last 12 months. With this reality, with Zoom becoming the basic means of communication, it helps to do cross-border transactions. The period to do the transactions has been narrowed.

The second aspect is the sectors which become stronger. Ukraine is strong in the tech, IT, telecom sectors. Ukraine has a lot of great targets to offer. We just need to show great success cases of Ukrainian companies and show the great exits.

The winning formula here, in Ukraine, is to show the track record of what can be achieved and what kind of companies can be built out of Ukraine. In the last couple of years, there have been a number of success stories where big tech companies with deep roots in Ukraine have established themselves and attracted a lot of institutional capital from North America and Europe, the cases of Grammarly, Genesis, Ajax, etc.

If we will show more cases of success, we will be able to attract more and more capital.

Max Fillipov

Managing Partner at GR Capital

COVID has highlighted, from one side, the problems in companies which could survive somehow before, but during COVID it became apparent they wouldn’t succeed.
From the other side those companies which survived COVID (even going the other way and even getting better than they were before) - they became more evident and more easily findable. These companies now see the oversubscription for the round, 3-5 times more than the companies originally planned to raise. It’s a very interesting time at the market.

The exit environment also became more fruitful for these companies. For the last year, three of our portfolio companies made exits, two of them through M&A, including SPAC.

Ukrainian companies should also start considering these trends, they need to understand the situation on a global scale and correctly position themselves for these trends, which are: an unlimited supply of money, a lot of interest from retail investors in public markets, exits through SPAC’s and IPO becoming more profitable. And another trend is actually that Ukraine (despite the previous lack of big investments and strategic players, we all know why) is becoming more interesting. People are still looking for nice returns

Despite the fact that we (the GR Capital) don’t look into the Ukrainian market, we get a lot of questions from our co-investors and partners from Europe: where are the (Ukrainian) companies? Show us at least some targets?

Some work really needs to be done by UVCA and in general by ecosystem members: to help these companies grow, to help them internationalize, to help them become more obvious, more visible for the investors and we will see a really big capital inflow in our country.

Another trend, as mentioned earlier, is how all of these things become more and more online so the borders mean less and less these days. Nowadays it’s not a question anymore: you have your online presence, you have your brand, you have English and you can contact whoever you want. Online borders are already broken down and mean nothing more.

Another thought: the difference between late-stage venture capital and late-stage private equity funds is becoming less and less these days.

A company that is not employing technology even at some part of its business is probably not the best company to invest in the long term.

In Europe by far an M&A deal is the first way to exit the venture company, 90-95 % of exits happened through strategic acquisitions.

Watch the full version of the meeting here.