Key facts

The total funding volume into the Ukrainian IT industry was record-breaking in 2019. For the first time, total investments surpassed a $0.5B mark, totaling $544 million.

More than 75% of this amount was raised as late-stage funding rounds by three companies:

• Grammarly – $1+ billion last round valuation ,
• GitLab – $2.5 billion valuation,
• People.ai – $0.5 billion.

The volume of deals in the early stages did not change compared to 2018. The total amount raised Seed and A Rounds funding accounts $44 million.

The Ukrainian product companies have made exits for a total of $478 million. Most of the exits are up to $100 million, while startups evaluated above this amount remain private companies.

Deals of 2019

The authors of the overview collected all public deals made in 2019 and ordered them by the sum raised. The result you can see in the following table:

They also separately showed the investments of software development companies. The amounts of deals are not disclosed.

Active investors

Most investments in Ukrainian startups were made by foreign investors at both seed and growth stages.

Currently, the public portfolio of Ukrainian investment firms for today looks as follows:

Top tech companies in Ukraine

AVentures Capital also selected the largest product companies with most international revenue and top e-commerce companies in Ukraine.

The ICO should have increased this number 40-fold by 2022 – to a phenomenal 120 million (for comparison, Netflix has 167 million paying subscribers). It was expected that Divan.TV 2.0 on the blockchain would start working from the end of 2019. The year 2020 came, and the ICO didn’t happen. Moreover, nobody has talked about it for almost a year now.

AIN.UA journalist could not confirm Divan.TV’s performance indicators in conversations with current and former content providers. The company did not respond to AIN.UA requests. Andrey Kolodyuk, the founder of the project, also did not respond to AIN.UA’s requests repeatedly sent to him via email and social media.

But what we managed to find out was multimillion lawsuits and debt to Fox. Before the acquisition of Fox by Disney in 2019, the company belonged to American billionaire Rupert Murdoch.

AIN.UA journalist traced the chronology of how the debts were “reregistered” to a saleswoman from Obukhiv [Editor’s note: a small town in Ukraine], as well as analyzed the unclear business performance indicators of the service in the media and presentations for investors.

Welcome to Ukraine, Rupert Murdoch

In 2015, the representative office of the U.S. media giant Fox (Swiss Fox International Channels Luxembourg) sued Divan.TV. The Ukrainian service did not pay for the content. It accumulated a debt of ₴1.5 million. In 2017, RBC Ukraine already described the status of this case.

In September 2016, the Economic Court of Kyiv resolved that Divan.TV (represented by LLC Divan.TV) should pay Fox $57,400 for broadcasts from January to September 2014. Kyiv Commercial Court of Appeal finally rejected the appeal of the defendant on November 22, 2016.

Later, the press service of Divan.TV admitted that the company had a debt and repayment plans. But the plans remained just plans. Divan.TV complained about Fox’s unwillingness to reach a compromise:

All channels, except Fox, have renegotiated their contracts with us on new terms. The owner of Fox, represented by Rodion Pryntsevsky, General Manager of Fox Networks Group in Northeast Europe, refused to come to mutually beneficial agreements, putting us in non-competitive conditions. <…>

But when they [Editor’s note: Fox] began to issue invoices even after our official request, we refused to repay the debt.

Representatives of Divan.TV informed RBC-Ukraine that they have never repaid the debt.

That was the end of a previously known part of the story.

Mug’s game: two Divan.TV

An unknown part of the story began almost simultaneously with the end of the trial. Divan.TV just got rid of a legal entity with debts. A step-by-step chronology of this scheme is given below.

In March 2016, six months before the court ruled in favor of Fox, Arkadii Kaniuka became the director of Divan.TV. He has been the CEO of the service since 2015, and now he is also the director of the legal entity.

In November 2016, a week before the appeal was denied, Divan.TV LLC changed its name. The company began to be called Multimedia Group Ukraine LLC, and Lubov Polishchuk became one of its representatives in court by Power of Attorney.

Four months later, in March 2017, Lubov Polishchuk replaced Arkadii Kaniuka as the director of Multimedia Group Ukraine LLC. And three months later, in June 2017, Polishchuk became the full owner of this legal entity.

Since 2012 the owner of Divan.TV LLC was a Cyprus company Mikarnial Ltd, whose key beneficiary and controller is Andrey Kolodyuk. However, at the same time, when Polishchuk took up the position, Mikarnial Ltd, and therefore the entrepreneur himself, left the ownership of Multimedia Group Ukraine LLC. Divan.TV did not comment on such reshuffles neither then, nor now.

Journalist of AIN.UA could not contact Lubov Polishchuk. However, according to YouControl, she (or her full namesake with an identical address) is listed as a manager in 22 other companies. It was also impossible to contact other representatives of Multimedia Group Ukraine LLC, the contact details of the company from the registries are invalid. And this is not an accident.

Lubov Polishchuk is not a serial entrepreneur but a saleswoman from Obukhiv, as journalists of Bihus.info found out. She sold her passport data, which was used by dozens of legal entities. Among those fictional companies are, for example, an Opposition Bloc party donor and a company that has been involved in corruption scandals.

All this time, the Divan.TV service hasn’t stopped working. However, instead of Multimedia Group Ukraine LLC (formerly called Divan.TV) it has a new legal entity – Finart Capital Invest LLC. Previously, this company was owned by Kaniuka and engaged in financial services, and, since March 2017, the notorious Mikartial Ltd became the owner of the company. The transfer took place simultaneously with the appearance of Lubov Polishchuk in the former Divan.TV LLC.

Finart Capital Invest LLC is the recipient of funds for the service Divan.TV, it is also listed on the website of Datagroup as a provider of Divan.TV service. At the same time, according to the service offer, now all services are provided by Mikarnial Ltd. This company also owns trademarks of Divan.TV, and publishes service applications for Android and iOS.

Co-owners of Mikarnial Ltd, which is still behind Divan.TV, as of the beginning of 2020 are already well-known Andrey Kolodyuk, Denis Lukash, and Arkadii Kaniuka. Ownership is carried out through a number of legal entities: Meresta Investment Limited, Medoliv Trade Inc., For-com LLC, etc. Denis and Arkadii are minority shareholders – they have 6% and 1% of the shares, respectively.

It is noteworthy that the founder of Mikarnial Ltd was Sykon Holdings Ltd, which performed secretarial functions (registered and transferred legal entities to others) for more than 100 companies. It appeared in the corruption schemes of the former Minister of Energy Eduard Stavitsky and a number of other scandals.

After the Ukrainian court sided with Fox in November 2016, the enforcement service gained access to Divan.TV / Multimedia Group Ukraine legal entities accounts. No money was found there, the debt could not be written off – this is confirmed by the fact that the case is still open on the website of the enforcement service, as well as according to sources familiar with the situation.

Audio recording

In Divan.TV, the change of ownership of Divan.TV LLC that lost the litigation to Fox, was never explained publicly. It was only reported that the new team has no control over the former legal entity.

The sale raises questions: if this is a real deal, then what did the buyer in the person of Polishchuk get except for the legal entity that lost the court? The service began accepting money through a new company, and Mikarnial LTD retained all trademarks. There is no official answer, but AIN.UA got an audio recording that sheds light on some previously unknown things.

On the recording, people who introduced themselves as Divan.TV employees – CEO Arkadii Kaniuka and Content Procurement Director Elena Kohanets – talk to a person who introduced himself as Rodion [Pryntsevsky, Fox Regional Manager in Ukraine]. The subject of the conversation, which can be dated to the end of 2017, is the payment of Divan.TV’s debts to Fox and the resumption of cooperation.

E.K .: – In fact, the legal entity that signed the contract – LLC Divan.TV is no longer under our control. We have no power over it. This lawsuit forced us… We had huge financial problems and we would not have survived it. We had to sell our software solution along with debts in full. Divan.TV service and legal entity are two different things.

When asked whether evasion of paying debts was a lie, people who introduced themselves as top managers of the service answered in the affirmative:

E.K .: – Back then it was the only way to postpone the issue until the moment when it would really be handled.

R.P.: – So you lied to us?

E.K .: – Well, probably. Although in business it is called differently. But in fact, Andrey Viktorovich left the service for his personal reasons, unknown to anyone. And he said: “Try to decide as you see fit.”

As a result of this conversation, people who called themselves representatives of Divan.TV in 2017 wanted to sign a new cooperation agreement with Fox. They offered to pay the debts through the Cypriot offshore Micarnial Ltd, and only after Fox resumed the streaming. The man who called himself the Fox representative responded with a willingness to turn on the streaming, but only after the debts are paid. There is no Fox content on Divan.TV today.

Ctrl + C, Ctrl + V – “Continent TV”

The same story was publicly told by Continent TV CEO Dmitry Tatsiy. This is another provider who won a lawsuit against Divan.TV for pirate streaming:

• In May 2016, Continent TV was in talks with Divan.TV regarding the distribution of the Trophy, Trophy HD channels. The contract was not concluded, but Divan.TV still streamed channels from May 1 to September 30, 2016. The service denies it.
• In October 2018, Continent TV LLC went to court, asking LLC Multimedia Group Ukraine, known to us as ex-Divan.TV, to pay UAH 169,650. The Commercial Court of Kyiv refused to satisfy their requirements.
• The court of appeal upheld the claim but reduced the amount of compensation to UAH 96,050. They had to be written off from Multimedia Group Ukraine LLC (the successor to Divan.TV LLC).

But is there anything to take from a debtor who has been transferred into the ownership of a saleswoman from Obukhiv? According to the YouControl analytical system, as early as April 2018, the Multimedia Group Ukraine had their VAT certificate canceled – the company did not file a declaration within a year. It also has incurred a tax debt in the amount of UAH 5,665 and has had no revenues since 2016.

When Continent TV won the litigation, its CEO Dmitry Tatsiy publicly accused Divan.TV of changing legal entities. His words in Detector.Media repeat the Fox scheme described above:

Previously, the company provided service as LLC Divan.TV, then this legal entity was renamed to Multimedia Group Ukraine LLC, and in the future, it was changed to another legal entity Finart Capital Invest LLC. Such active actions to change legal entities, together with high-profile litigation, testify to the company’s intentions to avoid financial responsibility for lost court cases.

In response, Arkadii Kaniuka said only that Multimedia Group Ukraine LLC is not related to Divan.TV brand.

There were others

In general, Divan.TV almost from the very beginning had problems with copyright holders. Even at the dawn of its existence, the largest Ukrainian media groups were suing the company for illegal broadcasting of “1+1”, “2+2”, STB, “New Channel”, ICTV, and “Ukraine” channels. In 2015, it came to seizing the servers, which, it should be noted, were returned two months later due to failure to prove Divan.TV’s guilt.

In recent years, Divan.TV has been accused by other companies of failing to fulfill financial obligations, and those companies also won in court:

• Lawsuit from the MGB Ukraine (History TV channel) for UAH 297,000.
• Fox lawsuit for $ 57,000.
• Lawsuit from Continent TV for UAH 96,000.
• Lawsuit from “Tekhnologii setei” for UAH 218 000.
• Lawsuit from Mediakast for UAH 154,000.
• Lawsuit from the Russian TV channel Dozhd for an unknown amount in a Russian court. Previously, a fine of UAH 350,000 was in the news.

AIN.UA contacted all the companies from the list. Only the Russian Dozhd and Continent TV did not respond to requests. The rest either said that they settled the issue, or gave non-public comments that were used to verify the remaining evidence.

Multimillion user base was ‘made up by the PR-service”

Tatsiy from Continent TV brought another accusation: when signing contracts, the company manipulates data on the number of subscribers:

Divan.TV declares in open sources that it provides its services in more than 200 countries and declares its subscriber base at the level of 700,000 subscribers. However, when it comes to negotiations about granting distribution rights for channels, Divan.TV underreports its base and specifies numbers that are hundred times less.

Representatives of Divan.TV did not comment on that. The size of the user base is important because content providers charge a flat fee for services. In Ukraine, it ranges from UAH 5 to 95 per each user that is subscribed to a paid package. It is beneficial for the Internet TV service to understate numbers in a conversation with content providers and to overestimate them for PR, including confusing paying subscriptions with lifetime registrations.

People who introduced themselves as top managers of Divan.TV, on the audio recording mentioned above, recognize the discrepancy between public and real data. Another quote from their conversation:

R.P.: – We constantly read in the press how successful you are, how many years you have already been profitable, and how all is well.

E.K .: – For this, we have a PR department. Do you believe everything that is written on the Internet?

R.P.: – I don’t know. We publish the truth about our company.

E.K .: – This is the choice that you made, we have a different choice. We have a PR department and it [works] separately. We often hear from many partners such statements [about the success of the project], but then we give access to billing and the questions disappear. You read one thing, and then you look and it is written in small print: “These are all subscribers not registered on a paid basis.” We understand that now it’s practically impossible to lie to about the subscriber base. We have never had 40,000 subscribers. And we cannot even dream about such a huge user base now – because we do not have such good content as others have.

The woman who introduced herself as Elena Kohanets tells another reason why the service needs to manipulate the user base – that is its activity in Western markets:

E.K .: – PR is focused more on the international market for attracting b2b partners from all over the globe. Somehow it is a custom to provide all the information in a good light. We do not interfere there. Free subscribers and views are written…

How much profit does Divan.TV generate and from what?

In a presentation by Andrey Kolodyuk for potential investors in February 2019, the service has 3 million users, who brought $5 million in revenue in 2019. But how many of the claimed 3 million users are paying users remains unknown. Unlike Netflix, many users of Divan.TV are not paying subscribers. And unlike Megogo, there is practically no monetization of users with a free package through advertising.

According to the source of AIN.UA’s editorial office in one of the content providers, the paying audience of Divan.TV in 2014 was 5,000 people globally, and in 2019 – 10,000 – 20,000 globally subscribed to a basic paid tariff. This is unverified data. But we are still talking about tens, not hundreds of thousands of paying users. The editors of AIN.UA below offer several approaches to checking the claimed revenue of a service.

For example, for Megogo to generate $ 5 million in revenue in 2017 on the Russian market (which is also the main one for Divan.TV, according to their own presentation), 350,000 users made at least one payment to it.

Based on the cost of Divan.TV subscription plans (from UAH 59 to 299 per month for Ukraine and up to $13 per month abroad) in average proportions, the service needs at least 500,000 paying users to generate $5 million per year.

350,000 or 500,0000 – all this is far more than the 40,000 paying users mentioned in the audio recording. Which, moreover, is declared as a difficult goal to achieve.

According to YouControl, LLC Divan.TV / Multimedia Group Ukraine showed a peak revenue of about UAH 14 million in 2016. And that is with the obligations of the company amounting to more than UAH 52 million.

Finart Capital Invest LLC – which accepts service payments in Ukraine – in 2017 showed UAH 13 million in revenue. In 2018, revenue decreased to UAH 10 million.

If it is true that according to Divan.TV, 54% of users are in the CIS, and the largest market in Russia, then Ukraine, at best, has a quarter of the audience. If we calculate that it brought in UAH 13 million, then the global revenue of Divan.TV in the most optimistic scenario would not exceed $2 million. But there is a nuance here.

Russia, as stated in the presentation, is the largest market for the service, but the Russian branch of Divan.TV LLC with registration in Belgorod does not demonstrate this.

According to the extract from the SPARK database (which is in possession of AIN.UA editorial office), the total debt of the enterprise is about 2.4 million rubles, while current assets are only worth 27,000 rubles. The company showed its revenue only once, in 2016, and it amounted to 585 (five hundred eighty-five) rubles. And in July 2019, by a court decision, Roskomnadzor also deprived Divan.TV LLC of mass media status and a broadcast license, according to the regulator’s website.

All that put together casts doubt on the veracity of alleged Divan.TV revenue. And user bases.

Investor confusion

Another question is how much investment the service attracted and from whom.

At the start of the project in 2011, it was reported that AVentures Capital invested $1 million. Later, in an interview with AIN.UA, Andrey Kolodyuk said that the investment account “is well into the millions.” Crunchbase reports that AVentures has invested $2.5 million in Divan.TV spread over two rounds between 2010 and 2011.

AIN.UA also managed to find a CV of the partner and co-owner of Divan.TV Denis Lukash, where it is indicated that he helped the company to raise $1.2 million in two rounds between 2010-2014. Finally, according to the presentation prepared by Divan.TV for investors, by 2019 the company raised a total of $6 million in a single round.

Divan.TV is still listed on the unofficial website of the AVentures Capital [Editor’s note: the unofficial website is listed in the fund’s profile on CrunchBase, the partners of the fund write emails from its domain, but the author couldn’t find the official site]. However, AVentures was not found among the legal structures of companies whose connection can be traced back to Divan.TV.

Yevgen Sysoyev, a Managing Partner of AVentures, confirmed this: Divan.TV is Andrey’s personal project. Why it appears on the fund’s website is unknown.

ICO that never happened

In 2018, Andrey Kolodyuk actively commented on Divan.TV’s plans to enter the ICO. The company planned to launch its own D1T token in the second quarter of 2019, and the updated Divan.TV 2.0 platform in the third quarter of 2019. Users would have to receive tokens in exchange for viewing ads and spend them to access premium content.

To launch a blockchain platform for advertisers, Divan.TV planned to attract bridge financing in the amount of $5 million. This is a short-term loan for the development of the company at 8% interest and without dilution of interest. Investors were promised a 20% discount in the next round.

Among others, Alexander Bornyakov, founder of the advertising company VertaMedia (Adtelligent), and now – Deputy Minister of Digital Transformation of Ukraine, was specified as a technology advisor and investor in the service.

In response to a request from AIN.UA, Alexander Bornyakov said that Divan.TV was going to use its Adtelligent platform. They really started working with Kolodyuk in 2018. But three months later, Kolodyuk decided not to hold an ICO: supposedly this is no longer interesting to anyone. “It became clear that there will be no ICO,” Bornyakov noted in a comment to AIN.UA. For a while, the companies still worked together, but it did not lead to anything concrete.

Now no one remembers the ICO. As well as plans to reach 120 million users. Or about debts to the American company Fox, which have not been repaid.

In the meantime, the service continues to work, carries out advertising campaigns, and enters into partnerships with TV producers. And Andrey Kolodyuk himself has already approved the idea of Alexander Tkachenko (in the past the general producer 1+1, currently the MP from the “Servant of the People” party) to introduce a tax on Netflix and YouTube content. After all, foreign services “should be put in the same conditions as Ukrainian services in terms of taxes.”

But as far as the same conditions for paying debts and disclosing performance indicators are concerned – he did not provide any details. In December 2019, his Cypriot Mikarnial Ltd increased the authorized capital of Finart Capital Invest LLC by UAH 1.7 million: from UAH 804,000 to UAH 2.56 million. This is more than what is owed to Fox. Nonetheless, the debt is now on the shoulders of a saleswoman from Obukhiv.

In addition, Andrey Kolodyuk, the managing partner of the AVentures Capital fund, is also involved in the case (in the portfolio of the Petcube fund, Depositphotos, SolarGaps; the second managing partner is Evgeny Sysoev). 

AIN.UA shares the details of the case.

What happened

Andriy Stetsovsky sued PassivDom for allegedly illegal dismissal in 2018. Herbut fired him in the fall of 2018 for absenteeism, but Stetsovsky denied this version and, as a result, filed a lawsuit, adding also the requirement to pay arrears in salary. 

Plaintiff’s viewpoint

According to the court ruling, Stetsovsky worked at PassivDom as deputy development director with a salary of UAH 20,054 per month since August 2017. Since August 2018, he was no longer paid salary nor traveling allowances. 

In November of that year, the plaintiff filed a letter of resignation of his own free will, but it was ignored. Also, the employer did not return his workbook.

Later, after resorting to the court to protect his rights, he learned about the existence of truancy records, and on January 31, 2019, he received a notice of dismissal. In the days of supposed absenteeism, the plaintiff, according to his words, was on a business trip and on sick leave.

In this regard, Stetsovsky asked the court to recognize his dismissal as unlawful and pay him a total of UAH 200,000 (salary arrears, severance pay, travel and leave allowances).

Defendant’s viewpoint

Herbut objected to the above arguments claiming that the plaintiff did not have documents that would confirm the fact of his business trip – no one officially sent him there. 

He also stated that the plaintiff did not properly inform him of his quitting, was absent from the workplace without any good reason, and then completely ceased coming to work.

Other former and current PassivDom employees also participated as witnesses in the court hearing.

What do Andrey Kolodyuk and AVentures Capital have to do with it?

One of the evidence items supporting the version of Andriy Stetsovsky in court was the document that was issued to him by the AVentures Capital fund. It says that during the last three months of 2018, during alleged absenteeism, Stetsovsky, on behalf of PassivDom, worked with the AVentures fund on “drafting and conclusion of contracts.” However, this document, signed by Andrey Kolodyuk, managing partner of the AVentures fund, did not become a proper proof for the court: the power of attorney from Herbut, on the basis of which Stetsovsky allegedly worked with AVentures in September and October, was canceled back in June.

Simply put, when Stetsovsky allegedly worked with AVentures on behalf of PassivDom – as evidenced by the paper issued by the fund – he did not have the authority to do so. Also in the court decision, there is no data on providing the court with evidence to support the fact that the cooperation really took place.

The editors of AIN.UA asked AVentures fund for a comment:

“I don’t comment on the cases of other people and especially pending ones (the appeal was filed)! Herbut is now in court in America with his investors and we need to wait for their decision!” Andrey Kolodyuk replied to AIN.UA’s request regarding the case in Ukraine. 

What exactly was the collaboration of AVentures with Stetsovsky as a representative of PassivDom during this period, documented by the paper, and whether there is evidence of this cooperation? AIN.UA did not receive answers to these questions from the AVentures fund. 

It is noteworthy that in the past, Andrey Kolodyuk, according to Herbut, CEO of PassivDom, tried to seize a stake in PassivDom through extortion and blackmail. And after a while, Andrey’s fund, AVentures gives the ex-employee of PassivDom a piece of paper, which does not turn out to be proper evidence, but at the same time actually helps create troubles for PassivDom. Kolodyuk himself did not comment to AIN.UA about the connection between the paper and the extortion charges.

Herbut also commented on a court in the United States, “In the United States there is not a single court with our company. There is a statement on which the court did not even schedule a single hearing since the applicant lied in a statement and could not substantiate a single claim. The case has not been accepted by the court for consideration until the applicant either formulates his claims again or the parties come to an agreement”.

Ruling of the court

Having heard the versions of the parties and the testimonies of witnesses, the court decided to reject the plaintiff’s claims because of the lack of supporting documents. The court also decided to pay the defendant UAH 21,000 as compensation for legal costs. This decision may be challenged in the Kyiv Court of Appeal.

In his op-ed Gerbut claims that Kolodyuk was one of the first potential investors from Ukraine. According to the founder of PassivDom, Kolodyuk said he was ready to leave the fund, becoming part of the startup team:

“Our first contact with a toxic investor in Ukraine is with Andrey Kolodyuk, who said that he wants to quit his job in the fund and join us as a co-founder, but in reality he tried to get 35% stake in the company for advisory agreement consulting services. Andrey said that he kept his plans to co-found a Ukrainian startup in secret from his fund partners.”

Gerbut writes that when he realized that there would be no investment, and Kolodyuk wanted in for nothing, he bade farewell to him. After that, the founder of PassivDom writes, problems began to surface:

Emails with threats to tell everyone in the world how bad we are (all Ukrainian investors, the US embassy, investment funds, etc.) poured in. Despite the saved correspondence, Andrey even made a documented written attempt to extort $250,000, threatening with concrete actions to destroy our reputation. After we proposed to continue the correspondence in court, the toxic investor disappeared from our lives. As a result, it cost us reputational blows and the loss of three investment transactions with Ukrainian investors to the tune of just over one million dollars two years ago.

AIN.UA has reached out to Andrey Kolodyuk for comments regarding the words of Gerbut. Kolodyuk neither confirmed nor denied Gerbut’s words:

Maksym Herbut’s op-ed produces no evidence of his words. Similar accusations must be supported by facts, otherwise, they constitute a violation of the right to inviolability of business reputation (Article 299 of the Civil Code of Ukraine) and slander (Article 125 of the Criminal Code of Ukraine).

At the same time, there are the following facts: several Ukrainian news outlets began probing into the information about the court case brought by American investors against Maksym Herbut in the US court. The essence of the claims is that Maksym misinformed investors about the status of the project, moved out the investments through personal accounts in Ukraine and used them for things not related to the company or the project, and we are talking about half a million dollars. There are already three such investors, and none of them knew about the existence of others. There can be even more. But I am not a judge, and soon we will hear the decision of an American judge on this case. If accusations will be confirmed, this could be a serious blow to the reputation of Ukrainian startups for American investors.

As a person who is very familiar with Maksym’s project and who has done a lot of intro to other investors, I am responsible for recommending it and now I can’t let this situation remain unanswered. I urge journalists to be guided by facts, to communicate with affected investors and to prevent the dissemination of unconfirmed false details.”

According to Ukrainian investment funds polled by AIN.UA, this is the first such public accusation of a prominent Ukrainian investor in dishonesty. Most likely, this will negatively affect the reputation of Andrey Kolodyuk personally and AVentures Capital in particular. It will also negatively affect the reputation and investment prospects of PassivDom and Maksym Herbut personally if the case against American investors is resolved not in his favor.

Since 2013, Ukrainian IT companies have received a total of $1 billion investments. This interest makes the country one of the most attracting location from the perspective of investment activities in Central and Eastern Europe (CEE).

In 2018, IT companies and startups raised $323 million (excluding NDA deals). This is 22% more than last year. These are mainly investments in companies’ growth and development following B series. However, compared to the previous year, investment at the stage of seed-Series B increased by $6 million ($73 million in 2017 to $79 million in 2018).

71% of all investments on the market in 2018 are distributed among only three companies. These companies have development labs in Ukraine, and the founders are Ukrainians (GitLab, BitFury, and People.ai).

Total investments in 2018

The table below contains all public funding deals for the past year in descending order. In total, the compilers of Dealbook counted 44 investments. Gitlab, the company with Ukrainian roots which attracted $120 million in Series D Round, became an absolute record-breaker in the fundraising campaign.

Most active investors

As noted in the study, there are still very few local Ukrainian funds that support startups at the seed stage. Mostly they finance startups from fund 1 (tens – rarely hundreds of thousands of dollars per project), only a few collect fund 2 with a larger volume.

Traditionally, American and European funds and angels are the most active investors in Ukrainian startups.

Overview of Ukrainian IT Ecosystem

In Ukraine, there are R&D offices of 19 major international IT companies and startups, such as Oracle, Samsung, Ericsson, Huawei, and others. Most of them are based in Kyiv; R&D labs are located in Kharkiv, Odesa, Dnipro, and Lviv.

Many IT giants, such as Google, for example, also use the services of Ukrainian IT experts through outsourcing companies. However, such cooperation is often under NDA.

Top product companies by revenue

Also, the study covers data about Ukrainian product companies with the most international revenue. There is a total of 21 companies. Some of them are based in Ukraine, however, there are also those that are positioned as international, but have Ukrainian origin.

Merges and acquisitions

Ukrainian M&A market is mainly represented by funding deals with software outsourcing companies. The annual rate of this sector is going to increase by 20-25%.

Earlier, a similar study was published by UVCA.

CoreValue develops software for pharmaceutical, health care and finance companies. The company has eight offices in Ukraine: in Kyiv, Lviv, Cherkasy, Poltava, Khmelnytskyi, Ivano-Frankivsk, Lutsk and Vinnytsia. There is also a representative office in Wroclaw. Today, the company employs over 400 people.

“We are excited about the opportunity to join our forces with IT Kontrakt and to become a part of the success story in the CEE region. CoreValue fully supports the growth strategy of IT Kontakt and will work in close cooperation with its management,” said Igor Kruglyak, CEO and co-founder of CoreValue.

“CoreValue has doubled the business over the past few years, and its SalesForce practice has grown even faster. The company has become a good option for a buyer with global ambitions, such as IT Kontrakt, and we welcome this deal,” said Yevgen Sysoev, managing partner at AVentures Capital, who served on the company’s board of directors before the deal took place.

Let us recall, AVentures Capital bought a minority stake in CoreValue exactly a year ago. The parties did not disclose the amount of the transaction. Back then, Kolodyuk noted that the fund expects to earn on the share in CoreValue, as the company quickly increased its earnings. In addition to AVentures Capital, the outsourcer has another investor – Insoft Capital.

The total volume of IT exports from these countries by the end of 2018 was about $13 billion, $4.5 billion of which is Ukrainian. For comparison, China provided IT-services for $38 billion, and India – for $111 billion.

Eastern Europe in numbers:

• The total volume of IT exports is $13 billion.
• Profit of the largest 477 IT companies from the list is $5 billion.
• Annual revenue growth in the region is 20-25% against 5% worldwide.
• The number of IT specialists in the region is 700,000 people.
• The annual number of graduates in IT field is 60,000 people.
• The number of mergers and acquisitions for the 2015-2018 year is 74 transactions.

The report also provides a brief excerpt for each of the leading countries in the region.

Poland

• 35% of revenue in the market falls on software development.
• By 2022, sales of IT services in the country should reach 14 billion euros.
• Wages are rising, but still they are 46% lower than in Germany.

Belarus

• According to the World Bank assessment, the country is among the top ten countries in the world in conducting IT-friendly reforms.
• 60.5% of IT specialists are engaged in outsourcing services.
• IT industry ranks third in the country in terms of the number of vacancies.

Romania

• From 2014 to 2017, the turnover of the country’s IT sector grew by an average of 13.4%. Projected growth is 15.3%.
• Altogether, 185,00 specialists are employed in the IT industry.
• The software and IT services sector has 96,000 employees. Estimation by 2021 is 125,000 people.
• Since 2013, wages have increased by an average of 11.5% per year.
• Wages are still more than 50% lower than German ones.

Ukraine in numbers

Total information:

• The number of IT specialists is 172,000 people. Most (46%) work in outsourcing. Product development employed 29% of the staff and 11% of outstaff.

Distribution of specialists by type of company and experience

• 27% of specialists have 1-2 years of experience. Another 29% work in the field for 3-5 years. There are 17% employees with experience from 6 to 10 years.
• Men account for 77%, and 23% for women.
• 72% of employees are under 30 years old.

Distribution of specialists by age and gender

• The annual number of graduates in IT field is 23,000.
• The number of universities and colleges, graduating IT specialists is 150.
• In 2018, the share of IT exports rose to 4.5%. This is the second place in the overall export structure. The expected growth by 2025 is 8.4%.

Companies and locations:

• The total number of service IT-companies is more than 750.
• The number of service IT-companies with a staff of more than 50 people is 245.

Ukrainian IT Clusters

• The most popular form of organization of the company is Limited Liability Company, there are more than 45% of such business organizations.
• Most IT companies are located in Kyiv (118). This is followed by Kharkiv (68), Lviv (64) and Odesa (41).
• More than 60% of companies have a head office in Ukraine. Another 21% are located in the United States, 14% – in Europe.

IT business revenue:

• Annual profit of 245 largest IT-companies is $2.07 billion.
• The average revenue per engineer is $50,000 per year. The average hourly rate is $34.

• More than 50% of revenue comes from the US market. The United Kingdom comes in the second place.
• 78% of companies make money on web development, 64% – on the mobile applications development.
• Office rental prices vary. A-class office space in Kyiv is $28-38/month, in Lviv/Odesa/Kharkiv – $3-5.

It is reported that attracting IT specialists in Kyiv costs the most. The salaries of project managers here are higher by 22%, team leads – by 19%, senior project managers – 3%.

Salaries of IT specialists in Kyiv, Ukrainian cities and the national average

Earlier AIN.UA listed the companies that could have been included in the industry report of UNIT.City.

Ciklum was founded in 2002 by the Danish businessman Torben Majgaard. Starting from the age of 15, Torben was involved in sales of computer components, selling 10,000 floppy disks a week, while working in the Obs! supermarket in Holstebro. At 23, he founded the Den Blå Butik network of computer equipment stores. And at the age of 26 he founded the Latvian company Vilcomp, which was engaged in the sale of used computer equipment to the countries of the Baltic region, Russia and Ukraine. In August 2001 Torben turned 31 and moved to Kyiv, and in January 2002 he founded Ciklum. By next August, the company already had 40 people.

After 8 years, in 2010, the company already had 1,000 people and revenues of $32.5 million. Ciklum is among the top 5 Ukrainian outsourcing companies, and the only one in the top with the prevailing outstaff employment model of developers, there are 70% of them in the company, as opposed to 30% at an outsourcing.

Deals

Until the end of 2010, an American entrepreneur, Michael Schneider, is buying 11% of the company. He also holds the position of COO Ciklum.

Already in May of 2011, Schneider leaves the company. And in April 2012, Torben sells a stake to the American fund Horizon Capital. The size of the share is not specified by the fund, however, according to the Cyprus registry, it was 23%.

A month before the deal, Schneider’s share was returned to Ciklum Holding Limited. At the same time, Lorimer Ventures (Cypriot legal entity Horizon Capital) transferred MAJGAARD LIMITED (beneficiary Ciklum Holding Limited) $1.5 million secured by 5% of Ciklum shares. The purpose of the transaction was not clarified by the AIN.UA editors, however, it probably could have been related to the purchase of Schneider’s share and the subsequent transaction.

Ciklum’s revenue for 2012 was $86.4 million. However, the deal, announced in April, with probably preparatory transactions in March, and, most likely, started in 2011. Revenue in 2011 was $62.5 million. With an average EBITDA of 15% for outsourcing and a multiplier of 5-7, as for a company that had grown one and a half to two times before that year, it could be about $10.7 million – $15 million for 23% of the company. The Ministry of Finance comes up with that amount as well (albeit with a larger corridor of $5 million). Their calculations are based on public data on the IPO competitor Ciklum, the EPAM company.

In November 2015, Horizon sells its stake to the Soros Fund. A new share of Torben has been added to the share of Horizon, which, according to the AIN.UA edition, may amount to another 22%. The commercial result of Ciklum for 2015 is unknown. However, the revenue of an outsourcing or outstaff company, unlike a product company, is simple to calculate. It grows in proportion to the growth in the number of employees and amounts to about $4,000 – $50,000 per person per year at outstaff and $50,000- $60,000 per person per year at an outsourcing. The ratio of the number of employees to Ciklum’s revenue over the past years confirms this. With 2,500 employees globally, Ciklum’s revenue for 2015 could have reached $120 million. According to Ciklum’s own report, revenue for 2014 with the same number of employees was $130 million. Let’s assume that it never fell and in 2015 at least repeated the result of 2014. With the same EBITDA and possibly no smaller multiplier (although the growth from 2012 to 2015 slowed down, reaching 39% for people, and probably disappeared in revenue), the transaction amount could be $43.8 million – $61.4 million for 45% of the company.

Horizon Capital at this calculation could make exit x2 compared to the entrance. The specific buyer in the transaction is the Ukrainian Redevelopment Fund LP., managed by Dragon Capital within the framework of the Dragon Capital New Ukraine Fund, invested by the Soros Fund. In addition, probably 45% of the buyer, according to AIN.UA edition, could get the right of veto and the right to dismiss CXO, including the CEO. M&A deal consultants were AVentures.

New Management

In August 2017, Ciklum announced a change of CEO. Michael Boustridge became the new CEO, and Robert Corace became the new director of sales and marketing. Previously, these two roles were performed by Torben Majgaard.

In February 2019, a month after the death of Torben, the company announced a new deal, the sale of shares of Dragon Capital and AVentures. The specific buyers were Dragon Capital-controlled funds of the Dragon Capital New Ukraine Fund L.P. on the money of the Soros Fund and Dragon Capital Investments Limited. With a staff of 3,500 people globally, Ciklum’s revenue in 2018 could reach $168 million. Dragon Capital and AVentures shares according to information from AIN.UA sources could be 10% and 1%, with the current calculation it was $13.8 million – $19.4 million for 11% of the company. The entire company may cost $150 million.

To find out the details of the sale of new shares, the AIN.UA editors contacted the alleged successors of Torben, but failed to get a public comment.

It is noteworthy that 9 months ago, in April 2018, Torben invested in the AVentures Capital fund a seven-digit amount, which, according to AIN.UA sources, could be about $1.5 million. The amount is comparable to the likely price for 1% in the last transaction. Such investments are usually made not in cash, but in commitments – a promise to participate in transactions for a declared amount. AIN.UA editors could not find out whether the fact of the conversion of Torben’s stake into an equivalent stake in Ciklum for AVentures in the framework of the transaction announced on February 4, 2019 took place. According to AVentures partner, Evgenia Sysoev, “This is absolutely wrong. This is a separate new investment.” According to one of the interlocutors of AIN.UA, in the current situation, this may be a plausible scenario for the implementation of the April Torben’s commitment.

What’s Next?

After the sale of Ciklum’s stake to the Soros Fund in 2015, the company started talking about an IPO. However, the growth of employees, which directly affects revenue, slowed down:

From the middle of 2014, the Ukrainian office of Ciklum did not actually grow. For comparison, SoftServe and EPAM have doubled in Ukraine over this period of time. Luxoft also almost did not grow in Ukraine during this period, however it added 5,000 employees in other locations. EPAM has grown from 11,000 to 22,000 employees in other locations. SoftServe has grown by 1,000 employees abroad. Ciklum has increased the same amount of employees abroad for this period.

Now the company seems to have taken a strategic direction to “gain weight” through M&A: “The company has the potential to grow even faster if it increases its M&A activity — buying smaller companies with expertise in a specific IT field,” says the managing partner of AVentures, Andriy Kolodyuk. – EPAM has completed 19 M&A in its history, Ciklum – not even one. In fact, Ciklum has already performed M&A: in 2009, it bought Mondo A/S with 150 employees in Denmark, Pakistan and Ukrainian Kharkiv. In 2013 it acquired 100% of the shares of the outsourcing company Kuadriga with an office in Kyiv. According to forecasts of AIN.UA sources, the next purchase of Ciklum could be the outsourcing company CoreValue, the company where AVentures invested earlier.

The article was prepared by: Ilya Boshnyakov, Ilya Kabachynskyi.

“We believe that ongoing global digital transformation will support increasing demand for IT solutions and services, and that Ciklum is very well positioned to capitalize on this sustainable trend. Founded in 2002 and headquartered in London, Ciklum has one of the largest footprints in Ukraine, great expertise and access to IT talent. We are enthusiastic about the opportunity to support one of the leading companies in the segment, which is run by great management and shareholders,” said Andriy Nosok, Managing Director for direct investment in Dragon Capital.

According to Michael Boustridge, Chief Executive Officer of Ciklum,  the attracted investments “will continue to propel Ciklum’s rapid growth in delivering cutting edge technologies to clients around the globe.”

According to Andrew Kolodyuk, AVentures Capital Managing Partner, he has known the company since day first when it was founded and has been a member of the Board of Directors since 2015. “This is a natural decision for AVentures to invest at this round and share our confidence and belief in management and company’s future, ” he said.

In April last year, the late founder of Ciklum, Torben Majgaard, invested in AVentures Capital, a Ukrainian venture capital fund. He also became a partner of the fund. Previously, AVentures Capital has already conducted joint investments with Torben, for example, in Augmented Pixels, an augmented reality company, in the Vox audio player from Coppertino.

Dragon Capital New Ukraine Fund L.P. is a private equity fund, established in November 2015. The fund is managed by Dragon Capital. Dragon Capital and a private investment fund managed by Soros Fund Management LLC became its anchor investors. The fund invests in various sectors of the Ukrainian economy.