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20 February 2023

Makar Paseniuk, ICU Founding Partner


Written by Yuri Bender for FT's PMW. Original article is available here.


While President Zelenskyy has been calling for weapons to fight the Russian invaders, he is also appealing for investment to help rebuild the country


Ukraine has been blessed with several inspiring communicators during its colourful history, united by twin traits: an ability to speak with all tiers of society; and openness to international influences, well beyond Moscow.


The collective memory of Hryhorii Skovorada, an itinerant minstrel and teacher of ethics, poetry and folklore, is treasured nearly 300 years after his birth. He was known to have written in Greek, Latin, German and Hebrew, as well as his native Ukrainian. His 19th century disciple, Taras Shevchenko, a serf whose pro-independence poetry won him “father of the nation” status, wrote about learning from foreign cultures, but never forgetting your own.


The regular speeches of Ukraine’s key communicator of the 21st century – TV showman turned wartime president Volodymyr Zelenskyy – have had a similar transformative influence on Ukraine’s national consciousness, as the country approaches one year since it was brutally invaded by neighbouring Russia.


Speak to young Ukrainian entrepreneurs and they highlight their president’s role in helping shape their identity. “Young people don’t want to leave Ukraine anymore. They see we have the best president and the best nation,” says Victoria Repa, CEO and founder of the BetterMe digital health coaching company, who honed her skills at the Apple Entrepreneur Camp for female founders in Silicon Valley.  


“There will be much blood, pain and grief, but this war will provide an impetus, not just for winning our freedom, but rebuilding business and the economy,” says Ms Repa, who employs 200 staff in Ukraine, bringing annual revenues of close to $80m.


“It is much easier for me to identify with Zelenskyy than with previous presidents,” confirms Yurij Riphyak, founder of the YouTeam marketplace, which places Ukraine’s engineers with businesses in the US, UK and other countries, now based in California’s Silicon Valley. “He is so far from the old guard, associated with Soviet legacy. Seeing the respect he receives from world leaders, I now feel proud when I tell clients and investors that I’m from Ukraine.”


These sentiments should not be ignored, as the new generation of entrepreneurs are instrumental in attracting institutional and family office investment to renew infrastructure in Ukraine’s $500bn rebuilding story. Not only do they employ hundreds of high-tech developers in their war-ravaged homeland, but they also donate millions of dollars to the war effort.


Keyboards and Kalashnikovs


Their desire to combine Kalashnikovs with computer keyboards is central to President’s Zelenskyy’s foreign policy. While he wowed parliamentarians in London, Paris and Brussels, appealing for guns, tanks and planes to fight invading Russian troops, he also worked on opening a parallel investment channel.


Discussions with JP Morgan, says the president, focused on “creation of a platform for attracting private capital to rebuild Ukraine”, with projects in green energy, agricultural and IT sectors topping the wish list.


Members of the Ukrainian Venture Capital and Private Equity Association (UVCA), are dealing with Western banks to help facilitate such investments. They have established 14 funds, all seeking co-investors from family offices and institutions. When the Horizon Capital Fund raised $125m for IT and fintech investments in September 2022, Ukrainian authorities saw this as a “good signal”.


Momentum since then has been building. “We continue to grow and have even started to raise our new $100m growth stage fund,” says Andriy Kolodyuk, chairman of the UVCA board. “None of our portfolio start-ups have closed and a few even raised tens of millions of dollars, with teams that are performing well in Ukraine.” The Dragon Capital brokerage has also teamed up with the European Bank for Reconstruction and Development as part of an ambitious $70m project to build a warehouse and manufacturing hub in the west Ukrainian city of Lviv, 60km from the Polish border.


But the serious international money still waits in the shadows. “We expect significant investor interest in Ukraine only after the security situation improves,” says Makar Paseniuk, founding partner of ICU, a leading Kyiv-based investment banking and asset management group.


Equity and debt capital boom


The game changer, he believes, will be a combination of local businesses rebuilding production facilities and the relaxation of trade barriers ahead of Ukraine’s expected EU accession path. “After this, the demand for equity and debt capital will boom, and come from nearly every sector of the economy,” he says.


Since 2018, ICU Ventures has made more than 30 investments, with ticket sizes of up to $5m and half the portfolio’s start-ups boasting Ukrainian roots, including a “deep tech” element.


“Most start-ups had contingency plans before the war,” says Mr Paseniuk, using cloud technologies to store data and shift base to western Ukraine, where operations could continue. Their emphasis has switched from peacetime applications to war footing. One of his investments, Hideez, has teamed up with US-based pre-war competitor Yubico, to hone data encryption technology, helping the government and critical infrastructure providers to combat Russian cyber attacks.


Another portfolio company, voice cloning technology firm Respeecher, has developed ‘Zvook’ (the sound). This AI-based technology deploys radio sensors to detect Russian missiles and drones threatening Ukraine’s cities and villages. “This has allowed for sufficient warning to civilians able to hide in shelters and protect themselves,” says Mr Paseniuk.


Avoiding blackouts


Other fund launches are also preparing to tap these opportunities, particularly in the sustainability sector. “Today, renewables in Ukraine are not only about ESG, but also about decentralisation and sustainability of the energy system and avoiding blackouts,” says Philipp Grushko, founding partner of SD Capital, which plans a fund to invest in Ukraine’s renewables and infrastructure.


Mr Grushko has his work cut out. Together with partner Andrey Stavnitser, he is opening the Superhumans clinic for war veterans in Lviv, providing prosthetics, rehabilitation, reconstructive surgery and treatment for PTSD. Another six clinics are planned for other regions of the country.


Their firm also runs Ukraine’s largest seaport, close to Odesa on the Black Sea coast. Grain terminals there are currently working at 50 to 60 per cent of capacity, even though Russia is “sabotaging inspections” and hugely restricting ships passing through the internationally agreed “grain corridor”, says Mr Grushko.


These challenges mean Western firms have been slow to climb on board such initiatives, even though the language they use has been changing significantly as the war progresses. At the start of Russia’s invasion, back in February 2022, most banks and fund firms were reluctant to speak about the war, worried about alienating their lucrative Russian clients in what they saw as a “local conflict”.


But as US and EU sanctions began to bite, Western politicians queued to condemn Moscow’s aggression and Ukraine regained territory with help of Western weapons, a major change in the investment industry’s rhetoric took place, as management began to worry about ending on the wrong side of history.


At a landmark briefing from fund house M&G last September, chief investment officer Fabiana Fedeli agreed to start calling Russia’s aggression a “war” rather than a “conflict”, voiced sympathy with the “disrupted lives of Ukrainian people” and criticised Moscow for “holding to ransom investors from an energy standpoint”. This was, however, not the case across the board, with some major private banks, including HSBC, refusing to go on the record about the war or even condemn Russian action from a moral standpoint, talking only in general about “looking at sustainability as a way of understanding the world”.


November, however, saw BlackRock and the Ministry of Economy of Ukraine signing a ‘Memorandum of Understanding’ to build an investment framework to facilitate reconstruction and recovery of the country’s economy and more recently the wealth industry is starting to discuss the issue publicly, realising it is fast becoming one of the major concerns for clients.


Energy independence


 “The energy independence of Europe, versus Russia or any other supplier is now basically our topic number one for Europe,” says Frederic Rochat, managing partner at Geneva’s Lombard Odier Group.  This theme, he believes, will “drive a lot of capital expenditure investment to help Europe build itself a fully independent energy mix. Next time such a crisis could occur, it means we may not have the same inflationary pressure which we just had.”


Mr Rochat calls the war “one of those watershed moments”, where the Ukrainian people are not only presenting “a remarkable lesson for all Western democracies, which were erring on the brink of populism”, but also innovating while threatened by “a much bigger aggressor”.


This resilience, he believes, will help massively in the reconstruction task. “They see this as an opportunity to wean themselves off a Soviet past of all the old infrastructure, much faster than others, and actually rebuild,” says Mr Rochat.


Ukrainian authorities are also promoting this sustainability angle to attract foreign investment. “In order to rebuild Ukraine, we will need to reorientate our industry, to switch from a raw material exporting country to a mode where Ukraine has a strong manufacturing sector,” says Sergiy Tsivkach, CEO of UkraineInvest, the country’s investment promotion agency. “We need to process our raw materials in Ukraine and bring more value-added to them.”


Agricultural processing, currently Ukraine’s most important industrial sector, is under-diversified, he says, with over-reliance on raw products such as cereals, accounting for 47 per cent of exports. “If we compare that to other European countries such as France and Austria, where it’s closer to 20 per cent, we have a lot of room to improve,” he says.


Mr Tsivkach spends much of his time speaking to firms in Europe and the US about investment opportunities. One of the latest recruits is Kingspan, the Irish manufacturer of energy efficient insulation, which is planning to invest €250m in Lviv, creating up to 1,000 jobs in a global technology hub.


But the road to rebuilding will be a rocky one, even after Russia eventually withdraws its troops. While profit margins in Ukraine are much higher than in neighbouring European markets, so are the risks. Mr Tsivkach’s recent meetings in London, Washington and New York led to expressions of interest from at least “seven groups of investment bankers planning to build private equity projects” in manufacturing and construction of agricultural processing machinery.


While keen to invest, most required reassurance that their capital will be protected.


“We need to get ready for that moment when investors are ready to give money to our projects. This requires investment insurance programmes. Even if we win and the war ends, we cannot change our geographical location, and the threat of the next attack in the eyes of investors will be there for quite some time.”


But he also believes the people’s fast evolving identity will help persuade investors. “The will of the people of Ukraine will prove decisive. There are up to 1m men and women defending our country in battle,” he says. “When these people eventually arrive back at their workplaces and see what their friends, families and kids have been through, their level of tolerance to any corruption will be at zero level.”


Throughout history, Ukraine’s ambassadors have played a vital role in leading dialogue with the international community. For the likes of Mr Tsivkach and the president and country he represents, this conversation with investors today is more important than ever.




For further analysis of how Russia's invasion of Ukraine impacts global wealth management, please visit the PWM website: