On December 7 together with the volunteer-based humanitarian organization The Small Projects Team and the support of the Canada-Ukraine Chamber of Commerce (CUCC) we held a Canada-Ukraine Investment Ecosystems Online Meetup with the goal of the mutual discovery of our countries' investment ecosystems.

Here’s a written recap of the webinar crafted by MeetGeek, an AI-powered portfolio startup of Flyer One Ventures, one of our members.

You also can watch a full original recording at this link on YouTube.

Resilience of the Ukrainian startup ecosystem

The startup ecosystem in Ukraine is proving to be resilient and impressive, as evidenced by the recent startup contest held in Lviv, which drew in many international participants. During the event, Canadian representatives expressed their admiration and also mentioned the expected 5% GDP growth of Ukraine this year.

Andriy Kolodyuk discussed various topics such as the growth of the startup ecosystem, international investments, co-investments with Ukrainian GPs, a pipeline of deals, and Ukraine's 1% investment pledge initiative.

Investment Activity in Canada

Investment activity in Canada has been significant in recent years, with Ontario and Quebec leading the way. In 2017, these provinces accounted for 70% of all investment dollars and 82% of all deals. By 2023, their share had decreased to 63% of all deals and 69% of investment value, indicating that investment activity has spread across all provinces in Canada.

In particular, Alberta, New Brunswick, and Nova Scotia have experienced significant growth in investment activity. The number of mega-deals (above $50 million) has also increased significantly, from 16 in 2017 to 78 in 2021. As of 2023, there have been 27 mega deals so far.

The Canadian market has become more robust, with a focus on early-stage funding and capital efficiency. The ICT sector continues to dominate investment activity.

David Kornacki highlighted a few trends in the Canadian investment landscape. Firstly, the increase in AI companies, such as Cohere.ai, which raised almost $400 million in Series C this year. Secondly, the record highs in clean tech investments during Q3 and the Canadian government's funding initiatives to support clean tech investing.

There has been a significant growth in Ag tech companies in the prairies, which has driven $232 million across 37 deals this year, setting new records for deal value and volume of investments.

In addition to this, there has been a resurgence of exits in Canada, with recent major exits in the life sciences sector, and the first VC-backed IPO in 18 months.

David also mentioned that Canadian funds have an appetite for international investment. While Canadian investors primarily focus on growing their portfolio in Canada first, before branching out internationally, with the US being the first choice, more funds are expected to open offices in Europe as the industry matures.

Competition between Canada and the USA

The conversation highlights the competition for talent and market maturity between Canada and the USA. It is noted that in the past, big US companies were hiring Canadian talent, but there is now a trend of talent returning to Canada. The discussion also covers the future of the relationship between the two countries and the potential growth of world-leading companies.

Partnership between Canada and Ukraine

Canada holds the distinction of being the first country to recognize Ukrainian independence, and since then, both countries have shared a longstanding history of emotional investment and support.

To facilitate bilateral trade and investments, the Canadian-Ukraine Chamber of Commerce was established. The organization has completed two conferences this year with a primary focus on developing relationships, processes, and tools to support Canadian businesses in Ukraine.

Additionally, the Chamber is working on an initiative to create digital platforms that will enhance opportunities and deal flows, with plans to launch it in 2024. They have also mentioned the successful execution of the first free trade agreement, which has been modernized and has recently passed the second reading.

Trade mission to Ukraine

The Minister of International Trade and Development has shown interest in arranging a trade mission to Ukraine. The Canadian-Ukrainian Chamber of Commerce has been invited to be a part of this mission. Furthermore, there was a proposal to hold a small forum or conference to discuss potential collaborations between businesses of both countries.

Partnership and Potential Investments

Mark Markevych has highlighted that 2022 has been one of the most profitable years for their business, which could indicate the potential for investments in Ukraine. He also mentioned that a solid business case would be the trigger for implementing solutions.

Furthermore, the Export Development Corporation (EDC) is known for providing war insurance to investors who are interested in investing in Ukraine.

A platform for Ukrainian companies

The European Commission has provided support to a platform that has three main components. Firstly, it matches Ukrainian companies specializing in IT, programming, design, and other areas with international customers.

Secondly, it provides API technology for Ukraine's upcoming banking system. Finally, it has an investment block to attract investors and assist Ukrainian fintech to find new opportunities abroad.

Venture studio and startup accelerator

Sergii Kalinchuk is associated with Antigravity Partners, a financial studio, and the Founder Institute Accelerator. This organization specializes in assisting startups in their early stages to help them secure investments from institutional investors and venture funds. They also participate as co-founders in projects and aim to attract foreign angel investments. Additionally, they are seeking to collaborate with venture studios and angel investment communities based in Canada.

Startup incubator and accelerator in Odessa

Jan Shapiro is launching the first international startup accelerator in Odessa. The goal of this initiative is to integrate technologies, innovations, and startups into the Ukrainian economy. Shapiro and their team are partnering with local organizations, business clubs, and regional development agencies to achieve this goal. They have already held conferences in Europe and are currently seeking Canadian partners to support Ukrainian startups.

Interest in the Ukrainian Market

Marina Cortes introduced Intrinsic Venture Capital and Intrinsic Innovations. She mentioned that they are interested in investing in companies that are willing to enter the Canadian market. In particular, she highlighted the quality of talents and startups in Ukraine. However, she also expressed concern about the geopolitical situation in Ukraine, which could be a potential risk.

Intrinsic is committed to helping startups looking to establish themselves in Canada. They offer various services, including immigration assistance, incorporation, and support in scaling into the North American market.

While Intrinsic is interested in opening an office in Ukraine, the current geopolitical instability is a concern. They are open to discussions and partnerships with government entities to support local startups.

Discussion on Establishing Entities in the US and Canada

Marina mentioned that they have set up entities in the US and Canada to invest in those regions, considering it a positive outcome and a way to mitigate risks associated with political stability and financial issues. It is common for startups to have entities in Delaware or Estonia. She emphasized that having multiple options to mitigate risks is interesting and important.

Dmytro asked about the advantages of establishing a new entity in Canada compared to Delaware. Marina acknowledged it as a great question and mentioned that the US startup visa has strict criteria and contingencies, while the Canadian story offers more flexibility and better positioning for permanent residence.

Benefits of doing business in Canada

The cost of living is lower in Canada compared to the US, and establishing operations in the US can be more costly in terms of establishing operations and the cost of labor. Also, establishing a business in Canada does not prevent startups from raising funds from US investors.

The same time zone as the US and the ease of travel between the US and Canada for business purposes is an advantage.

Economic Growth Pillars for Ukraine

During a presentation, the speakers emphasized the potential of military technology startups in Ukraine. They specifically mentioned the opportunities that exist in the drone warfare sector, as well as the increasing budgets of European countries. Additionally, they highlighted the expertise in artificial intelligence that exists within Ukraine. The speakers also suggested that AgriTech is a crucial component of Ukraine's economic growth, especially regarding making agricultural production more sustainable.

Discussion on Ukrainian startups in hardware and ecological products

The participants discussed Ukrainian startups in the hardware sector, specifically in the field of ecological products. They mentioned SLAP, a company in modular construction that creates an ecological package for consumer goods, and Effa, a startup that produces recyclable toothbrushes and other sustainable products.

The HR risk and talent risk associated with investing in Ukrainian startups were concerned. They mentioned the possibility of key staff being drafted into the army and discussed ways to mitigate this risk, such as the DSCT tax regime.

Investment Criteria

Alexander Soroka emphasized the significance of startups having an annual recurring revenue (ARR) of one million dollars or more, along with a technology-based solution, rather than being a small or medium-sized business.

He cited the example of Altris AI, a Ukrainian startup that provides second-opinion AI for ophthalmologists. Moreover, he mentioned Babovna AI as an ideal investment opportunity due to its diverse team composition, with one American and one Ukrainian founder.

Alexander also talked about investing in Zeely, a Ukrainian startup based in Europe but incorporated in Delaware, highlighting the importance of incorporating in Delaware for ease of investment.

Additionally, he mentioned Zebra, an early-stage startup with software based on deep technology and 100k in ARR. He expressed the need for government support in the pre-seed stage for Ukrainian startups, as the country lacks business angels like those in the US.

Funding Sources

Dmytro discussed various aspects of the Ukrainian startup ecosystem. He talked about the dependence on Ukrainian and foreign business angels due to the lack of reliable crowdfunding platforms in Ukraine. He also mentioned the interest of European Business Angels in investing in Ukrainian startups.

Furthermore, Dmytro emphasized the need for solutions related to paperwork to attract investments. He also stated that European Business Angels are interested in investing in startups with small checks.

Charles highlighted the Ukrainian diaspora in Canada as a potential source of investment. He mentioned that Canada has the second-largest Ukrainian diaspora and that the Canada Ukraine Chamber of Commerce is interested in supporting angel investments.

Expectations from Canadian investors

Charles expressed concern about the security of investments in Ukraine and the legal environment, which he does not fully understand. Besides, the risk of losing talent and the financial flows, as well as the issue of corruption in Ukraine were noted.

In his turn, Mark highlighted the lack of clear escalation paths and the need for better corporate governance and tools for due diligence. Furthermore, he emphasized the importance of understanding decision-making processes and having a plan for when things go wrong.