New opportunities for Ukrainian Deep Tech startups

DeepTech

In June, the European Innovation Council (EIC) announced its intention to issue € 20 million in grants to at least 200 Ukrainian deep tech startups. The EIC is looking for a consortium of Ukrainian and European organizations to manage the grant funds. Ucluster interviewed Alexandre Yurchak, the general director of the Association of “Industrial Automation Enterprises of Ukraine” (APPAU) and the coordinator of the Industry 4.0 movement, to find out who could create such a consortium in Ukraine.

What are deep tech startups?

Deep tech startups often are created as a result of scientific research in the energy industry, as well as chemistry, physics and electronics industries. A lot of funds and resources are usually invested into developing such products, and they are typically protected by patents. Sometimes such startups emerge in universities when the outcomes of scientific research and development become commercialized.

Deep tech startups are focused on product innovation, while e-commerce and consumer services startups’ success is based on strategy execution. Developed countries recognize the importance of deep tech startups since they create products with high added value, which positively affect the national economy and welfare (growth and development). Industry 4.0 suggests that deep tech should be the foundation of the high-tech economy. This concept means a coordinated private and state-level initiative to accelerate technological change in order to maintain leadership in global competition. Lastly, deep tech startups are often created in the field of industrial automatization, which we will discuss below.

Industry 4.0: Ukraine lags considerably behind developed countries

Industrial automation is one of the foundations of Industry 4.0. It involves the implementation of systems which allow process management without direct human involvement but still leave humans the right to make critical decisions. 

The concept of Industry 4.0 was first announced in Germany in 2011. The Association of “Industrial Automation Enterprises of Ukraine” (APPAU) was established that same year. However, it wasn’t until 2014 that APPAU embraced the concept of Industry 4.0 and organized an Industry 4.0 organization in Ukraine. 

Says Alexandre Yurchak, “In 2014-2015, due to the start of the war, the operations of APPAU members including system integrators got significantly reduced, and we started to analyze why it happened. It turned out many of them were heavily focused on Eastern markets. We, therefore, have started tracing and analyzing these supply chains: how do they cooperate, what’s going on and most importantly, why was that cooperation so significant? In 2016 APPAU began organizing clusters to understand the business connections of our players. That’s how we became involved in the concept of industrial clusters.”

Alexandre has built his career in industrial automatization. He’s responsible for the Industry 4.0 analytics and major trend tracking. According to him, despite its potential, Ukraine lags seriously behind compared to the countries of Eastern Europe, let alone developed countries.

High technologies specifically require state support

Industry 4.0 is one of the few digital sectors requiring significant state support because it is based on innovative ecosystems with developed infrastructure: test laboratories, scientific and technological centers, and technoparks. Private investors are unable to fund everything required on their own. According to Alexandre, the state helps build such infrastructure in Europe, America and China. It’s long-term investments and government policies.

The expert believes Ukraine has good PR in relation to startups and innovators from other industries. However, the situation with Industry 4.0 is different – it’s underdeveloped. Indeed, Ukraine does have successful innovative companies, but their success cannot be attributed to any state support programs. Instead, the companies have to pull through on their own. 

It looks like Ukraine is pulling through due to the ecosystems it has inherited (mainly educational infrastructure); however, there is no significant development at this moment.

“Our Association is trying to pull together and organize everything. We constantly appeal to the government; we have a strategy, but unfortunately, it hasn’t been accepted at the state level. Nevertheless, our Association is attempting to implement it. But we feel the war can change that, opening up a new window of opportunities into European space. Ukraine is getting much publicity now, although not for the best of reasons. Since the world is paying attention to us, we can use it to our advantage in areas such as innovative development,” – says Alexandre Yurchak.

Industry 4.0 also promotes the creation of centers of expertise for businesses

The Association is currently in close contact with various European partners, including the European Commission. Ukraine is involved in many diverse innovative programs, but its representation is either superficial or lost among other members. 

To illustrate this point, the Eastern Partnership initiative, which includes Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine, is coming to an end, says Alexandre. Thus the Association is driving the European Union to direct funding towards creating a network of functioning hubs in Ukraine which are geared towards serving small and medium-sized businesses. Europe has 600 such hubs, which serve as pillars of the innovations in the EU. Ukraine has only 3, with only 2 of them currently operational. 

The innovation paradigm in Europe is based on centers of expertise, where an innovator or a startup founder can come for a consultation or to test their invention. These centers serve dozens, even hundreds, of small and medium-sized enterprises. Unfortunately, Ukraine lacks such infrastructure, and the two existing digital hubs are located in Kyiv. APPAU is promoting the first one in cooperation with Kyiv Polytechnic Institute, and the other is registered by the Kyiv Academic University, a subdivision of the National Academy of Sciences of Ukraine.

Ukraine should develop a cluster economy

In post-war Ukraine, those sectors that will invest in innovation will grow. According to Alexandre, economic recovery will be based on growth within the infrastructure, energy and construction industries. 

Says Alexandre, “At this moment, we are trying to establish the construction cluster. We are partnering with the Confederation of Builders of Ukraine since there are a lot of innovations in that particular sector. Manufacturers in Ukraine in traditional, non-digital industries have a common issue – they tend to perceive digital technologies as hype. In terms of the level of penetration of technologies that have long been known in the West, Ukraine lags behind. Therefore I believe that the cluster economy will accelerate our country’s innovative development.”

Funding will also be directed to the agricultural and food industries. When the war began, the government started seriously considering the processing industry. Grant distribution for purchasing equipment for processing enterprises was announced recently. This signifies a change in the government’s thinking; back in 2016-2017, it used to be just Agro and IT, says Alexandre. 

A consortium of the European Innovation Council – an opportunity for deep tech startups

The European Innovation Council will choose only one consortium, which will receive all of the € 20 million of the grant funding. The consortium must include at least one Ukrainian organization that works with startups (for example, an accelerator, an investment fund or an industrial cluster) and at least three similar European organizations. Proposals must be submitted by September 7. The European Innovation Council expects that the winner of this competition will start disbursing grants to Ukrainian startups no later than February 1, 2023.

EIC-Ukraine
European Innovation Council: €20 million support for Ukrainian startups.

Ukraine’s digital ecosystem is sufficiently developed, with a large number of players. However, it’s too fragmented and not at all consolidated, says Alexandre. He believes there will be plenty of those who would like to form a consortium, and they will quickly partner up. 

UNIT.City and Civita, the flagships of the Ukrainian digital ecosystem, will undoubtedly take part. APPAU has an excellent chance to join such a consortium because, within the past four months, the cluster alliance provided it with broad international connections, support and international partners. 

In March 2022, APPAU joined the European Cluster Alliance at its request, began participating in intercluster meetings and became recognizable. In May, APPAU signed a memorandum with the French cluster within the Industry 4.0 framework. Last year the Association established ties with the Czech Industry 4.0 cluster. All in all, the Association has established contacts with 7 countries. The most important objective right now is to choose partners based on the terms of the EIC’s competitive call and evaluate their contribution, summarizes Alexandre Yurchak.

Additional materials regarding the competitive call of the European Innovation Council and the provision of €20 million to at least 200 Ukrainian deep tech startups can be found at the links below:

Slides

Info Session Video call