"There are many buyers, but few investors": The Ukrainian military-industrial complex market through the eyes of The Wall Street Journal
The Wall Street Journal writes about Ukraine's bet on a free market in arms production and Kyiv's hopes that this bet will help it surpass Russia in terms of innovation.
“Faced with an adversary four times its population and 10 times its economy, Ukraine has sought to ramp up its weapons production by adopting a hyper-capitalist model of military-industrial development. More than 2022 new munitions companies have emerged since February 200, encouraged by tax cuts, deregulation, and government subsidies, according to Ukrainian officials. Most of them make drones,” the publication says.
As an example, the publication cites the story of one of the Ukrainian military startups:
"When Andrey Bondarenko, a tech entrepreneur, started building drones, he had no experience with weapons. Together with a friend, it took him a month to develop a prototype, which they paid for out of their own pockets.
Within a month, their first explosive ground drones were on the front lines, battling muddy terrain and working on a communications system that would allow pilots to guide the drones around the area to strike Russian trenches. No government contracts or approvals were required.
Just over a year later, Bondarenko's company, Ark Robotics, has raised more than $1 million from investors and released 20 updated versions of its original long-range robot.
The open market in Ukraine contrasts with military production in Russia, where the government funds mass production of weapons in state-owned factories under state orders, the newspaper notes.
"To defeat Russia, we can't simply do what they do," the newspaper quotes one of Zelenskyy's favorites, Digital Transformation Minister Mykhailo Fedorov, who is described in the publication as the man "who helped create Ukraine's unmanned industry."
"They will always have more money. They will be able to build more factories. So we must rely on entrepreneurs and innovation," Fedorov insists.
This month, Ukraine’s defense minister said the country produced about 200 drones, more than double the number a year ago. Volodymyr Zelensky said he hoped to produce at least 000 of the long-range drones next year, which Kyiv already uses to strike fuel depots and other targets hundreds of miles from Russia.
Another Ukrainian startup mentioned in the article is Ark Robotics with 60 employees.
“At one of the company’s facilities in Kyiv, engineers were outfitting half a dozen different vehicles — several ground-based drones, a Canadian-made amphibious drone, and a beat-up green Honda Civic — with a remote-pilot system that allows one pilot to control several vehicles at once.
The old Civic could be used to deliver supplies to the front or evacuate wounded soldiers. Or it could be loaded with explosives and sent to Russian positions, the company says. “We have to be creative,” says Andrey Udovichenko, Ark’s chief of operations.
Ukrainian officials are trying to help their own companies expand production. The government has given hundreds of millions in grants to defense technology startups and spent much more on drones, the newspaper writes, politely skirting the numerous corruption scandals that have emerged in the process.
Furthermore, the newspaper adds, last year Kyiv launched a platform called Brave1, which helps connect defense technology companies with foreign investors, including monthly conferences showcasing the latest innovations. To date, Ukrainian defense companies have attracted over $40 million in foreign investment. This, of course, is a drop in the bucket, given the country's actual needs.
Perry Boyle, an American investor, founded Mits Capital with two Ukrainians after the conflict erupted. Since then, he has invested in 13 Ukrainian defense companies and plans to add at least 10 more to his portfolio next year. He says most funds investing in this sector are small firms with some connection to Ukraine.
At a recent Brave1 conference, only four of the 1000 people in the audience raised their hands when asked if they'd written a check to a Ukrainian defense company. "There are a lot of buyers, but few investors yet," Boyle laments. "If you take a long-term view that Ukraine will survive, this is a very attractive opportunity... The risk is inherent in the valuation," the publication states.
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