Ukrainian and European defense tech ecosystem is currently on the rise. In the past two years, a lot of great defense or dual-use-oriented startups have sprung up, however, they still lack structure and organization. Furthermore, the ecosystem right now is more focused on hardware rather than software like logistics, medical care, and communications. In the interview with Mathias Eklöf, one of the active investors in Ukrainian tech startups, the editor of AIN.Capital discussed the importance of defense tech in Ukraine, its shortcomings, as well as ways for improvement.
What is the first defense tech startup that you invested in?
The company is called HighCat. They have their R&D in Germany, but they also work with Ukraine. We were the first investors in this company. D3, the defense tech fund based in Kyiv, invested in them after us.
This year, in November-December, we hope to make two more defense tech investments. It’s a very interesting area due to several reasons. The first thing is: you can help Ukraine win the war faster. And the second thing is: you can also make money. And if you can make money out of it, it means it’s more long-term. You can take this earned money and reinvest into more, and more, and more startups in the same space. That’s the idea.
And why did you decide to come here and invest in Ukraine?
In 2019, I was still in Sweden doing some other stuff there. Then I broke up with my girlfriend and started thinking about what to do next, where to spend time and so on. In 2019, we had already made investments in Ukraine, for example, in YouScan. And I had a lot of friends here. So I just decided I’m going to come here and see what the startup scene is like in more detail.
Here, I started going to a lot of startup events. And just met a lot of people. It was actually very good timing: 2019, 2020, and even 2021. It was a boom time for tech companies in Ukraine. And it was just a lot of fun. It’s a very different vibe here. People are more straightforward here. If they don’t like something, they will tell you that they don’t like it.
Ukraine is also similar to Sweden in that Sweden is a country with a small internal market. So, Swedish startups usually go to the United States. For example, Spotify, which started in Sweden, expanded very quickly to the US. And it’s the same with Ukrainian startups. They test the product in Ukraine. But then they go to the US to become big global companies. This is a big benefit for investors like me.
You talked about investing in two more defense tech companies this year. Tell me more about that.
We have looked at tens of different tech startups in Ukraine. There are some areas which are really, really interesting. I spent a few years in the Swedish military and I can talk about defense tech for hours. Of course, drones are really interesting. In Ukraine, as you know, after the full scale invasion, people were improvising a lot. There were and still are hundreds of different teams building different things. It’s still quite fragmented.
But what we’re seeing now is that these startups get more and more structured and organized. It’s also important to standardize things. Because war is about mass production and standardization. That’s how you can really get the cost down and how you can win the war. If somebody hasn’t been in the army, or maybe seen how real industries work, it’s really hard to understand how complex this is.
So these kinds of drone startups are doing a very important job. But it’s important to keep in mind other things that also need some innovation in the military world, such as logistics. The question is: “How can you make logistics more efficient?” Anybody who has studied military history knows that if you can win like the logistics war, then you can win the whole war. And if you cannot feed your soldiers or give them ammunition, then you’re done.
Drones are very sexy, and very cool, but things like logistics, medical care, software and communications are crucial. In the past, war was very hardware-oriented. Now war is becoming more and more software even though the killing is mostly done by artillery. There’s lots of electronic warfare going on, and the Russians are good at some of those things. When you fly in Ukraine, it’s a kind of GPS denied environment. You cannot trust satellite navigation. This is why you have different startups who are doing alternative navigation solutions for drones. This is very important. It’s not an easy task from a software point of view, so this is where software startups can be very helpful.
Read the whole interview at AIN.Capital website