Since the outbreak of war in Ukraine, over 40 startups have approached me seeking investment, with the aim of solving military problems.
Despite my interest in supporting my homeland, I have only invested in one of these startups.
The reason being that investing in startups that are likely to fail DOES NOT BRING THE VICTORY ANY CLOSER.
I have therefore decided to only invest in startups with potential for success, while avoiding those with high risks or clear red flags.
In this article, I would like to highlight the common red flags that investors should look out for when evaluating Ukrainian MilTech startups:
- Legal Issues with Data and Intellectual Property (IP)
Many AI startups I have come across have trained their neural networks on data that is either a state secret or obtained illegally.
To mitigate this risk, it is important to have clear legal documents that confirm the legitimacy of the data.
Failure to do so could result in a criminal offense for violating state secrets.
2. Transfer of Dual-Use Technologies and IP
Ukraine has outdated legislation regulating the transfer of dual-use technologies.
It is crucial to understand that if the technology was created in Ukraine, it is subject to regulation. Investors should ensure that the transfer of technology from individuals or legal entities in Ukraine to a foreign company is done legally to avoid potential legal and criminal risks.
3. Company Jurisdiction
Due to the war, startups are mainly registered in Ukraine.
However, I do not recommend investing in companies in Ukraine due to problems with protecting the rights of minority shareholders and the country’s judicial system.
If investing, it is advisable to invest in a company registered in the US or EU, and ensure that the IP is transferred from the old Ukrainian entity.
4. Founder Shares
The entrepreneurial culture in Ukraine is different from that in the West, and the founders of new military startups often lack entrepreneurial experience.
It is important to ensure that all shares, options, and other interests are clearly documented to avoid potential conflicts and project collapse.
5. Recruitment Risks of Founders and Key Personnel
Due to martial law, co-founders and key employees of startups can be drafted into the army at any time.
Investors should ensure that the startup can continue to operate in such a scenario.
6. Competition in the Defense Market
Founders of new military startups often have a technical background, which may leave them with little understanding of global competition and how to compete with global monopolies in the defense market. Investors should carefully assess the startup’s strategy for competing in the global market.
Summary:
I would like to emphasize that the purpose of this article is not to discourage investment in Ukrainian startups, but to help investors understand the risks and opportunities involved.
I am encouraged by initiatives to create accelerators and training programs for startup founders in Ukraine, which will help address the challenges mentioned in this article.
Additionally, improvements in Ukrainian legislation regarding intellectual property, technology transfer, and state secrets will provide a favorable environment for the development of important technological solutions.
Invest in Ukrainian MilTech startups, but do so wisely.
Slava Ukraine!
Best regards,
Vitaliy Goncharuk
Linkedin: http://www.linkedin.com/in/vactivity