A New Horizon: Despite Russia’s Invasion of Ukraine, the Country’s Tech Sector Is Thriving 

Last November, amid the rubble and the devastation wrought by Russia’s invasion of Ukraine, a series of distinctive murals started to appear on bomb-hit buildings in towns near the capital Kyiv.

One showed a child throwing a man down to the floor in a judo contest. Another showed a woman wearing a dressing gown and gas mask and carrying a fire extinguisher, while another depicted an elderly bearded man scrubbing his back in a bathtub.

The murals were by the elusive British street artist and activist Banksy, created ‘in solidarity’ with the Ukrainian people and quickly adopted as symbols of resilience and hope by a grateful nation. With his works often selling for millions around the world, however, it wasn’t long before attempts were made to steal one.

Enter Ukraine-based Ajax Security, now Europe’s largest manufacturer of smart security systems.

In February, the company, which had already helped create an air alert app for authorities, installed hi-tech wireless security systems around four murals to protect them from vandalism and adverse weather conditions, and preserve Banksy’s legacy for Ukraine. The systems include sophisticated motion detectors, built-in sensors, transparent polycarbonate walls, and an air quality monitor.

Ajax, founded by Aleksandr Konotopsky in 2011, has had a phenomenal growth trajectory. The company now exports to 169 countries around the world and recently launched its first overseas factory in Türkiye. It’s one of a number of innovative Ukrainian businesses fueled by funding from another Ukraine-based company - and long-term IFC partner - Horizon Capital.

Funding in times of crisis 

Horizon, a leading private equity fund in Europe’s emerging markets, focuses on fast-growing export-oriented companies in Ukraine and the near region. It aims to support visionary entrepreneurs like Konotopsky ‘who dare to be bold’, according to founding partner and CEO Lenna Koszarny.

That strategy has paid off. Horizon-managed funds have invested in over 160 companies employing more than 77,000 people over the past five years, including Ajax, Ukrainian e-commerce leader Rozetka, and Intellias, a leading software developer in Eastern and Central Europe. IFC has been a long-term supporter, investing in previous Horizon funds in 2008 and 2017—part of its strategy to boost private equity in emerging markets to build dynamic, job-creating companies.

IFC was among several institutions preparing to invest in Horizon’s newest fund – Horizon Capital Growth Fund IV – when news broke that Russia had invaded Ukraine. “Horizon immediately told us they were putting the process on hold,” says Investment Officer Ketevan Liparteliani, who led the project for IFC. “It was very unclear how the situation would unfold.”

And Horizon had other issues to worry about. “Our priority was the safety and security of our team, their families, and our extended Horizon Capital family—the over 26,000 people on-the-ground in Ukraine employed by our portfolio companies," says Koszarny. Beyond safety and security, Horizon was also working with its companies and numerous humanitarian initiatives to support communities and NGOs in Ukraine.

But when it became clear the situation was going to continue for longer, talks about going ahead with the investment resumed and IFC started discussions to get other development finance institutions on board.

Last September, with funding scarce in Ukraine and neighboring Moldova, IFC announced a $30 million investment in the fund—its first new investment since Russia’s invasion of Ukraine. In April, IFC announced a further $30 million investment to support the tech sector in both countries. The record $60 million investment makes IFC the largest investor in the fund and also helped mobilize a further $79 million, underscoring IFC’s crucial “countercyclical” role in times of crisis.    

As William Sonneborn, IFC’s Global Director of Disruptive Technologies and Funds, says: “When promising companies and funds struggle to find the support they need from private investors - who tend to be more risk adverse – we’re able to step in to mobilize much-needed capital and help reduce the risks for other institutions.”

“IFC’s commitment alongside other investors helped signal to the market that Ukraine needs investments now,” says Lenna. “It enables visionary entrepreneurs to grow their business, create jobs, and pay taxes - at a time when the country needs it most.”

The importance of tech 

IFC’s financing will support Horizon in providing critical growth capital to cash-strapped businesses in Ukraine’s information technology (IT), e-commerce, consumer goods and financial technology (fintech) sectors. Almost a third of the fund will be earmarked for women entrepreneurs.

The tech sector, which had been booming, with exports crossing a record $5 billion in 2020, has been a lifeline for the country’s economy since Russia’s invasion of Ukraine, continuing to create jobs, provide income and drive innovation. The sector employs 289,000 people and was the only export-focused service industry to grow in 2022, increasing to over $7.3 billion – a 6 percent increase on the previous fiscal year.

The majority of tech businesses have also maintained productivity levels—thanks to quick relocations of staff, the use of satellite internet services, and experiences gained from COVID-19 around delivering work remotely. According to the Ukraine IT Association, in fact, 77 percent of IT companies have actually gained new customers since Russia’s invasion of Ukraine.

“Our businesses have demonstrated exceptional resilience and adaptability since Russia’s invasion of Ukraine,” Lenna says. “The detailed plans they developed beforehand – including relocations and safety measures for their employees, and communications with clients - actually helped them grow their topline revenues last year by around 30 percent.”

That resilience has made the tech sector one of the key pillars of Ukraine’s economy and will ensure it is a major player in recovery and reconstruction efforts. But the ongoing insecurity and instability pose challenges and have made access to finance for businesses critical.

Prior to Russia’s invasion of Ukraine, the private sector was a key source of growth, contributing up to 70 percent of gross domestic product. In 2022, Ukraine’s economy contracted by a staggering 29 percent, and the human and financial toll has been devastating.

IFC’s funding for Horizon is part of a $2 billion financing package it announced last December to address these challenges, with finance from IFC's own account working alongside guarantees and concessional finance (or grants) from donor governments. The aim is to ramp up support for Ukraine’s private sector - helping businesses stay afloat, ensuring access to vital goods and services, and supporting recovery efforts.

While the World Bank says the country’s economy is projected to grow by 0.5 percent this year, the cost of reconstruction and recovery is now estimated at $411 billion - more than twice the size of Ukraine’s economy prior to February 2022.

To meet those needs, provide much needed hope, and help bring Ukraine back to growth, keeping the country’s extraordinary spirit of entrepreneurship and innovation alive will be essential.