Ukraine's IT-sector is unique even for Europe

Author : Pravda Economichna

Respondent : Eugen Sysoev

11:16, 3 February 2016

Ukraine's IT-sector is unique even for Europe

Author : Pravda Economichna

Respondent : Eugen Sysoev

Co-founder of AVentures Capital tells about the specificity of Ukrainian IT-market and its place in the global trends

11:16, 3 February 2016

Read the original text on Economichna Pravda

At the end of December 2015, Ukrainian English-language web resource Ukraine Digital News has published the first large-scale study of the market software development and IT-services in Ukraine.

The author of the idea of the study was Eugen Sysoev, co-founder of Ukrainian venture fund AVentures Capital. Eugene is a famous personality in Ukrainian IT-community and a respected professional in the field of venture capital investment. He graduated from Dnipropetrovsk National University, INSEAD business school in Singapore; he worked as an investment banker at Concorde Capital. Now Eugene is on the board of directors of successful startups, such as DepositPhotos, Augmented Pixels, VOX, Jooble.

In an interview with "Economichna pravda" he told about his one-year preparation of the study, about importance of the IT-industry in the economy of the country, where do Ukrainian programmers come from.

What were the achievements and failures of AVenturesCapital in 2015?

We have built a global business, which is rather influenced by the management, not by the situation in eastern Ukraine. In particular, we have closed a number of new deals and supported some successfully developing projects.

The team of AVenturesCapital also played an important role in bringing the two major investors in the Ukrainian IT - Soros Foundation and the EBRD. The most important thing is that our projects grow qualitatively and quantitatively.

The main unachieved result was that we could not create a second fund, which could greatly increase the amount of venture capital investments in the country. But this goal is delayed for 2016.

You are one of the founders of Ukrainian High Tech Report - the first study of Ukrainian IT-market. Why did this report appear, and who has worked on it?

I was the author of the idea and the concept of the study. However, the report appeared thanks to the work of a strong team consisting of the founder of Julia Sychikova, who became the lead author of the Ukrainian High Tech Report, editor in chief of Ukraine Digital News Editor Adrian Hanni and Ukraine Digital News Eugenia Kuguk.

The idea to create Ukraine Dealbook appeared because our foreign partners often ask what happens in Ukrainian hi-tech sector, ask about the possibilities for the creation of Ukrainian companies in the field of R & D - research and development. Partners with whom AVenturesCapital conducted business in joint projects, showed increasing interest concerning Ukraine.

Then I noticed that the scale of the events in our IT-industry is unique, even for Europe. In the U.S., it will not surprise anyone, but by European standards, we have established one of the largest software development ecosystem. Now the IT-sector in Ukraine is more powerful than in Poland and the Czech Republic.

They already have to learn from our construction of IT-business, but not vice versa. Speaking about the other sectors of the economy Ukraine should learn from Poland and the Czech Republic.

In February 2015 I formulated the idea, Julia and Adrian has supported it. And in April 2015, we began to work. To get the most accurate information, we have personally contacted all the companies from the report.

80% of large companies have provided information to our requests. Text draft was ready in November, one more month we have been working with design. Usually, I’ve been working at night and on weekends and finished it during vacations in the Maldives.

What surprised you during the making of the study?

I understand that many outsourcing companies have "tasty" customers. But when they have provided customer lists, there were a lot of companies from the U.S. Fortune 500. I was surprised that a few hundred of the largest Ukrainian companies can work on a project for companies from the Fortune 500.

So are they doing business with the Ukrainian office or headquarters in the United States?

At the stage of the sales transaction management occurs where there is a central office outsourcing company, - in the United States, in Western Europe. When we are working on the project, the engineers work with the customer's engineers outsourcing company directly.

The report says that the outsource sector in 2014 took third place in terms of foreign currency earnings to $ 2.3 billion. That's a lot or a little?

Actually, that is in the fourth place. Steel industry, agro-industry and mechanical engineering have higher rates. In the last five years, we may observe growth in the agricultural sphere, while in metallurgy and mechanical engineering exports are falling. Seven years ago, they were more than today.

At the same time, the growth of IT export is stable, and it is much more important than this figure, the volume of exports. It is difficult to predict how the metallurgy and engineering industry will develop in the next five or seven years. They are very dependent on the volatile situation in the international markets.

Related: 3D Printing in Ukraine

Demand for IT is always high. Information technologies are penetrating all spheres of human activity, so the industry is growing. In this global market competitiveness of Ukrainian steel it is considerably inferior to the competitiveness of Ukrainian IT-solutions. In some five years, the IT-industry may become the number one export industry in absolute dollar terms.

Do these 2.3 billion dollars come to Ukraine? Probably, most of this money is in foreign accounts of outsourcing companies.

IT-business is global, it cannot be ran only from Ukraine. Yes, part of the proceeds remains in the accounts of companies in the U.S., China, and Western Europe. $ 2.3 billion is the total size of the export. 50-60% of this amount go to salaries of Ukrainian programmers and mainly stays in the country's economy.

Can the IT-industry become the foundation of a new economy of Ukraine?

IT industry can give an impetus to become the locomotive of development of the Ukrainian economy. If we evaluate the contribution of industry to GDP, its share is growing against the background of the overall GDP decline and now stands at 4.5%. But even if the volume of the sector to double or triple, it will lead to an increase in the share of the GDP by only a few percent.

What is the IT-sector in our country? This is 100 thousand people. We expect that in a few years there will be 200 thousand. They will represent the middle class with a salary of a few thousand dollars, but they do not build the entire economy of the country because there are still more than 40 million inhabitants.

Someone has to build roads, houses, and produce food. Only after reforms and development of other sectors of the economy standards of living in Ukraine could rise o the level of "IT people" and the European average figures.

The report says that universities annually produce 28 thousand technicians. How does part of them become programmers, if we know that the training program and the material base of universities lagged behind reality?

More than 2/3 of programmers are people who have the first formal education not equivalent to Computer Science of Western universities.

Often these are the boys who are in high school learning to build aircrafts. Then it turned out that the salary on the factory is some $ 150, and it is not paid on time. Their friends programmers told how to learn programming, and in a  year they receive an additional qualification of programmer.

If you have a strong technical base, you graduated in good technical university in Ukraine, there is a strong motivation and perseverance in a year to become a junior programmer.

On the Internet you can find a huge number of videos, books, and interactive content with steps on how to become a novice programmer. Private system of IT-education is well developed.

The EBRD has invested $ 4 million to Depositphotos, Soros bought a part of Ciklum. Can we can talk about the growth of investments in Ukraine?

Are international investors  interested in Ukrainian IT? Yes. Are they interested in Ukrainian projects with revenues in Ukraine? Rarely. Before 2014 the South African media group Naspers, has actively invested in Ukrainian projects in the field of e-commerce, for example, in, ModnaKasta, Aukro, OLX.

Over the past seven years, it was almost the only foreign company that systematically investing in Ukrainian projects aimed at our market.

Investors do not care wether the engineers sit in Ukraine or in Belarus – your product is globally competitive and it is able to bring money in the U.S. and Europe.

What does it mean that Uber came to Ukraine is it a part of the company's strategy or success of the state represented by the Ministry of Infrastructure?

It is difficult to say who attracted the investors. Uber has a program of development around the world. Large technology companies have a priority interest: the largest markets in terms of GDP, then medium, then small. Ukraine hits the third wave. I think it was a strategy of Uber.

How does the IT-business takes the searches and seizures, which happened in the 2015?

Businessmen who refused to "solve the problem" on the ground and began to publicly protest against the raids, faced considerable economic losses. You can pay an amount that is much less than the official fine. In 2015, the accumulated anger against raids has united IT-business, and in September we delivered a public stance to the government officials.

Are searches and seizures caused by the "gray" schemes of the IT-business, or by outright extortion of the law enforcers?

I think most of the searches are reduced to the commonplace petty racketeering initiated by the local officials. Can they be legally valid or can they can find a formal occasion? Yes, because Ukraine has such legislation.

For example, in 2014 Ukraine has passed the law that law enforcers without a court have no right to take the servers. Now what do they do? They come with the pseudo court decision, “signed” by the judge-crook, who could not be prosecuted for signing such a document.

You are a frequent visitor to Silicon Valley. What they say about the Ukrainian IT-Business?

No one speaks about Ukraine there. In the world of high-tech the Silicon Valley is the center of the universe. 50% of IT-business world is concentrated at one point, stretched for 100 km. Every second global IT-company has their office there.

They have a little interest of what is happening in any country in Europe. They are interested in the China market. Speaking about the most of Ukrainian projects, they are confident that these are American startups. They are not interested in what is happening in Ukraine. Moreover, many do not even know that Russia is at war with Ukraine.

What are your plans and expectations for 2016?

The main goal is to create the largest venture capital fund, which will double the entire venture capital industry in Ukraine and give life to many IT-companies.

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