Denis Dovgopoliy: “Outsourcing is the base upon which a number of strong startups will emerge in Ukraine”
The history of startup infrastructure in Ukraine is one of highs and lows. The last few years have seen a few accelerators come and go, with others significantly reducing their operations. However, despite all the crises of the last decade, some of the major players have managed to stick around and show the way to more entrants to the market.
“Now we’re witnessing the second exodus of accelerators and incubators from the Ukrainian market,” said Denis Dovgopoliy, a figure of the local digital scene, in an exchange with Ukraine Digital News.
Dovgopolyi is the founder and managing partner of GrowthUP, one of Ukraine’s few remaining incubators.
“The main problem is that many people lack a long term-vision when they come to this market. When you create an accelerator, you shouldn’t expect first results to show up in less than three to five years, while a project’s life cycle can be 10 years and more. If you’re given KPIs for one or two years, you’ll most certainly fail to meet them,” says Dovgopoliy.
Although his incubator is supposed to compete with others, Dovgopoliy hopes that more competitors will appear on the market soon enough, as it was before. A large and healthy startup ecosystem is a win for everyone.
Being one of the industry’s most well-known facilitators, Dovgopoliy is a pioneer of Ukraine’s entrepreneurial community.
“In 2005, I came to Silicon Valley for the first time,” he recalls. “Then I decided to sell all my assets in Ukraine and focus on international tech business. In 2007, I flew to Silicon Valley 22 times.”
In 2008, Dovgopoliy reduced his flying time but doubled down on developing the local startup community. He consulted entrepreneurs in Kyiv, leveraging his experience in Silicon Valley, as well as launching other infrastructure-shaping activities.
One of them was Startup Crash Test, a series of events where entrepreneurs got to pitch their project ideas to an audience, as well as a board of mentors and investors. The format has since become a franchise, with events rolling in different parts of Ukraine and Europe.
The other initiative was the “Technology Entrepreneurship Basics,” an eight-hour workshop where startup founders could get answers to the vital questions of how to make a business fly. Soon the workshop developed into a 45-hour course. It is still held from time to time by Dovgopoliy and his team.
In 2010, an incubator was founded as part of Dovgopoliy’s consulting company, BayView Innovations.
“We worked in a way that we called the Entrepreneurship Academy,” he recalls. “Our idea was that if we make entrepreneurs familiar with the industry, they will come back to us later for consulting.”
By 2013, the incubator became a separate unit and a part of the GrowthUP Group, which also includes a consulting company, early-stage venture fund, and a number of industry events.
One of them is iForum, Ukraine’s largest one-day technology conference.
With Ukrainian startups becoming more mobile than ever, there is not much sense for global accelerators to enter the local market.
“The market is too small,” Dovgopoliy says. “However, many Ukrainian teams apply for acceleration programmes in other Central and Eastern European (CEE) countries, particularly in Poland.”
With this in mind, GrowthUP has come up with a new strategy. It is currently targeting the whole CEE region, while at the same time pushing Ukrainian startups to international accelerators.
“Ukraine is still our domestic market, and we will work here no matter what,” Dovgopoliy says. “On the other hand, we see a lot of opportunities in working together with European accelerators, co-investing and adding value together.”
That said, he’d warmly welcome any new player entering Ukrainian accelerators and incubators space.
“We think of them as of colleagues, not rivals,” he says. “The departure of an accelerator is always bad news for the market. Other players would look and think there’s not enough money here, and won’t consider expanding here. That’s why when a new player comes to Ukraine, we’re no less interested in their success than they are themselves.”
How startups evolve
Having watched the startup ecosystem in Ukraine since the 2000s, Dovgopoliy says that the quality of projects on the market is growing steadily. This does not mean, however, that the more startups there are, the more good ones will appear.
“The number of good projects which we could consider investing in grows some 10 to 15% per year,” he says. “In better growth conditions, their share in the total number would just be lower.”
The main factor behind better projects is entrepreneurs’ growing experience and expertise.
“It’s almost like a ‘mafia:’ every successful startup brings to the community one or two people who worked there but are now ready to launch their own startup,” Dovgopoliy explains.
“That’s where most quality projects are from. Another source of good startups are serious entrepreneurs experienced in building companies in the offline world. They do not romanticize startups, they come to build businesses – and they know how to do it. They may lack online expertise, but that’s something we can always help with.”
Clash of industries
Against widespread opinion, Dovgopoliy would not oppose Ukrainian software publishers to IT outsourcing companies.
“I used to think that outsourcing hinders the development of startups, but now as I’ve dug deeper into it, I can see two important things. The first one is that outsourcing isn’t for everyone. For many creative software developers it’s hard to just sit and work on a product they don’t really understand. At the end, they become bored and end up joining a startup, bringing their experience, understanding, discipline, and coding standards from the outsourcing industry,” he notes.
“The second thing is that many people who reach their career ceiling in the outsourcing industry may join or launch startups. These are mostly senior developers or project managers, who directly interact with clients and understand their problems. At some point, they get ready to take on creating a product to solve them. That’s why I think that outsourcing is the base upon which a number of strong startups will be built within the next few years in this country.”
The outsourcing software development industry, is not going to die, though. In Dovgopoliy’s opinion, about 5 to 7% of Ukrainian software developers working there today have the right mentality to join a startup, while just about 200 to 300 people would be able to launch a successful product.
Innovative startups, however, might not be enough to make Ukraine’s economy thrive, Dovgopoliy reckons.
“Perhaps the outsourcing sector could save the country’s economy, but not the innovation sphere. Startups may be the main growth driver in a small country like Israel, but not in Ukraine with some 40 million inhabitants, many in rural areas.”
“I do believe, however, that innovations are key to the country’s development. There should be two main drivers of our economy. The first is the SMB segment, which will thrive once the legislation is in place. The second one is agriculture, provided that it makes good use of modern farming technologies.”
This interview is an excerpt from the soon-coming new edition of “The Dealbook of Ukraine,” a report by AVentures Capital and Ukraine Digital News about venture and statup activity in the country. To receive your free copy, or to inquire about advertising opportunities, please write us at jane[at]uadn.net.