Enterprise is booming for Vitalii Kolesnichenko, the founder and CEO of drone startup AirLogix.
Kolesnichenko labored in Ukraine’s burgeoning IT sector till 2020, when he began prototyping a civilian cargo drone. When Russia invaded final February, the entire enterprise shifted focus.
Now, from a naked and unmarked manufacturing facility within the industrial outskirts of Kyiv, Kolesnichenko and his 40-person staff are producing 10 glossy surveillance drones a month, due to a brand new collection of presidency grants and initiatives. By the top of the yr, AirLogix hopes to be producing 50 drones a month — supplied it lands a coveted contract with the Ministry of Defence, which was as soon as the unique area of established contractors.
However small dronemakers like Kolesnichenko face an uncommon conundrum: whereas demand is excessive for his or her army wares proper now, as soon as the warfare ends it’ll even be recreation over for his or her companies — until they’ll efficiently persuade traders and consumers that their expertise is simply as related in peace time.
Military of drones
On the finish of March, President Zelensky introduced that the Ukrainian authorities deliberate to spend 20bn hryvnia (€500m) on drones. The federal government’s tech innovation arm, the Ministry of Digital Transformation, often called MinTsifra, can be taking part in a key function in getting the defence tech trade off the bottom.
As Russian tanks rolled by means of the suburbs of Kyiv final spring, MinTsifra shifted its focus — as did all people else — to the warfare effort. It arrange a crypto-based donation platform to finance the army, which later become a extra formalised donation platform known as United24.
Drones are an enormous focus for United24, which spent $123m between drone and anti-drone techniques — over half of the $215m of complete spending in its first yr of operation. One programme, known as Military of Drones, particularly goals to make home-grown gear — “stimulating those that are right here”, as Alex Bornyakov, a deputy minister inside MinTsifra, places it.
As of January, defence minister Oleksii Reznikov stated that the army had contracted 16 native dronemakers. By the top of March, he advised Reuters that quantity was as much as 80. The Ministry of Defence didn’t reply to Sifted’s request for up to date figures.
It’s additionally turn out to be simpler for Ukrainian defence techs to work with the army. A joint challenge between the defence and digital transformation ministries known as Brave1, which launched in April, streamlines the time and paperwork it takes to begin contracting immediately for the army from two years to a month and a half, in keeping with Reznikov.
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“Our expertise demonstrates that in Ukraine there are numerous inventive and certified groups, which might create superior issues. However they need assistance in the beginning — with financing, with legalisation procedures, entry to bases of manufacturing, testing and so on,” he wrote.
MinTsifra has additionally standardised the method for testing drones and added a requirement for the army to make use of them, whereas new colleges have emerged to coach drone operators, a lot of that are free to lively troopers.
Maintaining post-war doorways open
The brand new army funding is a blessing and a curse, nevertheless.
Startup dronemakers are eager to promote their non-military merchandise to flee being pigeon-holed as weapons makers — and minimize off from post-war sources of capital.
The Ukrainian Startup Fund, a government-funded pot of capital for progressive companies, has given grants to seven “dual-use” drone tasks since launching on the finish of 2019 — together with dronemakers like AirLogix and Kray Applied sciences. One, Drone.UA, doesn’t make drones however somewhat gives providers for individuals who want drones or plan to construct them.
“What’s going to achieve success proper now gained’t essentially achieve success sooner or later and vice versa,” says Dmytro Surdu, who based Kray Applied sciences simply months earlier than the 2014 annexation of Crimea.
Earlier than final yr’s invasion, the agency was assembling automated crop-spraying drones out of a plant in Texas, with some components manufactured in Ukraine. Now, Surdu is busily pitching the Ukrainian army on a frontline drone that makes use of AI to determine targets and divebomb them, by no means slowing right down to turn out to be a weak goal itself.
This new era of dronebuilders are nonetheless in a distinct league from the Turkish and Chinese language corporations whose drones have seen widespread and extremely ingenious use in Ukraine, nevertheless.
“How lengthy will it take to realize the maturity of [Turkey’s] Bayraktars, or [China’s] DJI? That’s a extra advanced query,” says Surdu. “Most of those corporations will in all probability not be capable of increase a major amount of cash to be able to step as much as a excessive stage.”
Gun-shy funding
Whereas defence tech is rather more palatable than it was earlier than Russia’s invasion of Ukraine, many traders nonetheless gained’t again these corporations.
“We can’t be capable of contact it,” says Dominique Piotet, who runs the Ukrainian Tech Phoenix Fund, a €50m VC fund aiming to help Ukrainian reconstruction by investing in its rising tech. He’s additionally behind a string of innovation parks in Ukraine, together with Kyiv’s Unit.Metropolis. “Due to our LPs, due to our traders — we would not be capable of do any army tech.”
“We aren’t enthusiastic about simply army, as a result of the market, for us, is simply too slim. But when there is a twin use, sure, we’ll take a look at them,” says Mariusz Adamski, who runs ffVC’s Blue & Yellow Heritage Fund, which plans to speculate $50m into Ukrainian startups however hasn’t made its first funding but.
We can’t be capable of contact it. Due to our LPs, due to our traders — we would not be capable of do any army tech
“[Military tech] is one thing enterprise traders attempt to keep away from. It’s normally very related to the federal government and might face completely different restrictions,” Ivan Petrenko, who manages the Ukrainian Catholic College VC agency Angel One, tells Sifted. “We now have purposes from a number of makers, however none that might draw our consideration.”
“We as a VC fund aren’t allowed to spend money on weapons and ammunition. That is why we focus in defence eventualities on dual-use expertise,” says Tobias Enke of German VC Venture A, which hasn’t invested in any Ukrainian drone startups — however did just lately publish a weblog publish asking if VCs needs to be extra enthusiastic about defence tech.
Loads of Ukrainian dronemakers additionally aren’t in search of enterprise capital in the intervening time. In line with Adamski, the synthetic nature of the present market — and notably the prepared availability of donations and authorities funding — has made dronemakers hesitant to surrender fairness.
MilTech sans frontières
Lengthy-term funding challenges stay, alongside short-term logistics limitations. Native dronemakers are topic to export controls which restrict worldwide enlargement alternatives. However regardless of these points, some consider Ukraine is setting itself as much as turn out to be a next-generation army exporter.
“The largest menace that the Russians face is the ingenuity of the Ukrainian folks,” says Charlie Dean, an government at Aerovironment, a publicly traded US dronemaker and authorities contractor. “It is truly nice for the Ukrainian trade that sadly from these instances will come new progress and new capabilities within the nation.”
MinTsifra defence minister Bornyakov says Ukraine may observe the identical path as Israel, which has turn out to be a significant tech hub prior to now few many years.
“In each tradeshow and each army commerce present, if there was an Israeli product, everybody needed to purchase it as a result of they knew that it is confirmed, as a result of they’d battle,” he says. “Ukraine has this distinctive likelihood to turn out to be one of many international locations that produce military-grade gear.”
Surdu, whose enterprise nicely predates the full-scale invasion, hopes that Kray Applied sciences will turn out to be a “recreation changer in next-generation agriculture, significantly pushing it to sustainable and carbon-capturing expertise”.
“We’ll focus solely on this after the victory,” he provides.
