Angel One Fund invested in six Ukrainian Defense Tech startups within syndicate deals in the last half of the year. There will be a separate deftech fund in the coming fall that has already accumulated over $1.5 million.
AIN asked Ivan Petrenko, the Angel One Fund Managing Partner and CfE Accelerator Executive Director, about the launch of his new fund, its startup preferences, and the average “temperature of the market.”
Let’s begin with the changes the venture, angel investment, and startup world has undergone compared to 2023 or 2022.
We all know each other in the industry. Some love to sound super positive. I prefer to sound realistic so that I can understand where the bottom is and how to get out.
Many say that we, Ukraine, are almost the leading startup development market in Eastern Europe. Hearing this, I have a bitter smile because I don’t see such a trend. This year, however, the situation became smoother thanks to grant programs, such as Google for Startups, IT Consortium, Seeds of Bravery, etc.
In my opinion, it is one of the two essential conditions needed for new startups to arise. Their teams need money. And it is grant funds for the first time. Before the full-scale invasion, USF granted $25-50k per applicant, and it was a significant boost for the industry. In 2022, they stopped doing this, resulting in a quick shrinking of the industry. It was one of the reasons.
Nowadays, new grant programs work in Ukraine, and some old ones are back, too. It’s a perfect chance for startups to give it another try. I think there will be more of them in six months.
I presume everybody is now looking at Defense Tech.
Not everybody. It is our bubble where all eyes are on deftech.
However, it is a very restrained domain most ventures would rather avoid because they are not allowed to invest in it. For example, we at Angel One may not directly invest in Defense Tech.
Is it because of your internal policy?
It’s not entirely about our policy. Legally, we are a US-based fund with several regulatory restrictions, so we cannot invest in Defense Tech. Otherwise, we would lose our investors. So, at the early stage, by establishing a fund, you should discuss [with partners] whether it will invest in the defense domain.
And there is a very thin line — dual use, deftech, and lethal weapons next. Those are three very different things you must be careful with. The same discussions we have in Ukraine. It’s obvious why. So, we often have to work with targeted deftech investments. There is no such bubble abroad. However, many players look at Ukraine carefully and pay more and more attention.
The funds that can invest are very familiar with the required information. Their analysts gather all the data about the current situation in Ukraine. They select projects with great caution because the funds must report to institutional or private investors.
Many things depend on Ukraine. And a lot of things are done. But a long way is still ahead. Anyway, when we invest in Defense Tech, we expect that their team and legal entity are based and registered somewhere in Delaware, as well as their technology, to enjoy protection according to the local legislation.
We do care that a deftech startup keeps thinking about sales not exclusively in Ukraine. The team should plan their international activities in advance. That’s why production or development is often located outside of Ukraine, which means a different market and an adapted business model.
The most recent investment of Angel One Fund in six startups was a syndicate deal with private investors, wasn’t it?
Yes. The same investors we had at Angel One.
So it was the Angel One syndicate member, right?
Mostly yes. Now, we are working on the launch of a Defense Tech fund. Hopefully, it will happen between September and October. We need an official opening to invest in defense startups not only through syndicate deals but also as a fund because there are interested investors who want to join not our syndicate, but the fund directly.
So, are there a bunch of investors committed to a new fund?
Yes, there is a particular sum. We may speak about a $1.5-million commitment. We are working on its institutionalization to run deftech investments as a fund.
Until there is no fund, we keep searching for teams and invest via syndicate deals.
Do you have a plan with your targets for this new fund? Which startups would it be?
We don’t care if it’s a hardware or software project. Software is always more attractive due to its better scalability, safety, and lower need for investment. However, I am not sure about the last one.
It is highly unlikely that it will be pre-seed rounds since fewer and fewer investors desire to enter at this stage, where you cannot check the actual demand and sales of a product. So, mostly, it will be very early seed and maybe late pre-seed rounds with a well-tested working prototype and pre-orders.
OK. Let’s return to the Angel One Fund. It currently has $1.5 million, right?
We have already got $2.5 million.
How many projects do you plan to invest in until the end of the year?
Recently, we confirmed our fifth investment. Hopefully, it should be three more until the end of the year. We wouldn’t reach more for certain, because we have another deftech focus with five more investments this year.
Are you going to close to close the fund in 2025, or not?
No, we will keep raising. So, the fund will keep working. It will be a nonstop process. We decided in favor of a rolling fund that will be constantly filled.
Speaking of your syndicate deals, we had a conversation with Dmytro Vartanian (SID Ventures) recently. Can you tell us about the platform you use to close deals? Do you use any technological platforms?
At the moment, we don’t use any. All prefer SAFE or Convertible Loans. It’s a universal tool with more than enough functions.
With the investments in six startups, you also announced that you will support them. What will it look like?
We are only learning. The fund is new and small. We don’t have any military expertise yet, so we cannot provide it. But we do have good business expertise thanks to our network of private investors, primarily US-based. They have good contacts.
We also can help with sales. If a startup team is interested in entering the US market, we undertake the work with contacts, which we get from our private investors.
Which domains are the market’s top priority?
It is AI, for sure.
I also hear a lot about EdTech.
First, we declared at least 30% of deals in EdTech would be a target. But so far, we haven’t made a single deal. SAS remains one of the simplest and most popular models as always. MedTech and BioTech are growing fast. There are vast investments and technologies quickly grow.
I think EdTech is less popular. It was three to five years ago, especially during the COVID pandemic, but the MedTech, BioTech, and FinTech development is very impressive. And there is, for sure, AI constantly added to different products. Finally, people have the idea that AI is not a product but a tool. You should learn how to use it to create added value for your product.
Did the startup average ticket and entry terms change for Angel One during the full-scale war? What are the startup rounds you are looking for?
The average ticket didn’t change and remains about $150,000. The terms, more or less, are the same. In any case, we realized we are not a pre-seed fund, as we declared once. After all, we became a seed fund. Our team seeks products with customer feedback and dynamic sales. So, we are cautious by investing in startups without sales.
This requirement is a must now, and our investment committee doesn’t want to speak with teams that don’t generate sales. The only exception here could be some real innovations, such as quantum computers. But not so many startups work with them. OK, there is Haiqu, but our fund arose too late when they already had raised everything they ever wanted. This startup was, for sure, the one we would be very interested in investing in.
So, they must show some traction and a clear sales strategy. It is one of the weaknesses, particularly of Ukrainian teams.
And which of the Angel One Fund investments is the fastest-growing one?
Our first investment, Zeely, is showing the best results so far. They grow very well. I understand that the estimated value is a theoretical indicator because there can be any number until somebody puts a money bag on the table. Nevertheless, they attracted new investments and tripled in size for the past year. It is a very substantial indicator.
Another example is GO TO-U. Their sales are growing each month, maybe not so fast as at Zeely, but they do. They also entered the USA market and made several potentially good deals, including one with Siemens. We expect their mighty growth about the end of this year.
You are also starting a new IdeasLab program. What are the terms? Are there any changes compared to previous times?
There are no specific changes except for the constant improvement of the CfE Accelerator program. The program aims to support student teams in a hybrid format for free. Our main goal was and remains to let students try to launch a product, make their first mistakes, etc.
We decided to create our own learning program for future startupers where the students can get essential skills and apply them in practice by doing everything on their own. IdeasLab’s other goal is to allow students to do everything within three months. It is the only university program in Ukraine providing student teams not only with knowledge but also workspace and grants up to UAH 200.000 at the idea validation stage. Now, we have over 100 mentors, the founders of Ukrainian and foreign startups, who spend their time teaching the students. Among them are the founders of SoftServe, Angel One, LvBS, Netflix, Microsoft, TedxLviv, AiSDR, The Gradient, QubStudio, Kormotex, Tickets.ua, Harmix, Medallion, etc.
We already have $1 million in so-called credits from different companies, such as Grammarly, Salesforce, and Notion. We teach students how to use it. More applications are expected this year than in the past year.
