Some risk-seeking private equity (PE) and venture capital (VC) firms are already thinking about Ukraine’s post-war reconstruction and the consolidation of its drone industry.

Despite the war with Russia, which invaded in 2022, around 27 funds are raising some USD 4bn with a Ukrainian focus, according to Andriy Kolodyuk, founder of AVentures Capital and chairman of the Ukrainian Venture Capital and Private Equity Association (UVCA). Momentum is growing, he said.

These Ukraine-focussed PEs have “a visible and credible pipeline,” particularly when it comes to defence and dual-use tech, Kolodyuk said.

At the same time, there has been a marked increase in the number of international funds applying for membership in UVCA, Kolodyuk said. “This trend demonstrates a clear interest from global investors in gaining access to Ukrainian deal flow, particularly by partnering with existing investors who have already been active in the region for the last decade.”

Tetyana Dovgan, partner at CMS Ukraine, said: “Many international investors and strategic players are closely monitoring the situation and already laying the groundwork for entry or expansion.”

The country’s reconstruction and integration into the European Union (EU) would bring significant opportunities over the long term, Dovgan said. Local and regional PEs are already deploying capital in Ukraine, she said, adding that most global funds will likely come after the war.

There could be exceptions, though, particularly among international firms with a mandate from their limited partners (LPs) to invest in defence.

Some firms “understand the advantage of getting in early and are already planning deals and pipelines,” Dovgan said, adding that funds with a strong risk appetite and a long-term view could start deploying capital in the medium term.

Keen Venture Partners, a Dutch VC firm that invests in defence and security technology start-ups across Europe, is an example of an early mover.

Earlier this month, Keen Venture’s partner Giuseppe Lacerenza told Mergermarket that Ukraine is becoming the core of Europe’s defence tech industry, with a product development cycle of three to six weeks. Drone and counter-drone tech is particularly interesting, he said, adding that the VC’s strategy is based on helping Eastern European innovators get access to large defence budgets.

Drones and counter-drones

Ukraine’s drone sector (including anti-drone tech) has grown significantly during the war, leading to unexpected strikes deep within the territory of Russia. The market is still dominated by numerous small players, implying the possibility of roll-up plays.

“As the sector develops, consolidation is a natural next step,” Dovgan said. There are discussions around synergies, talent and tech, she said, adding that both partnerships and mergers would attract investment to the sector.

Investors who question allocating capital to Ukraine in the midst of a brutal war can contemplate the example of a special purpose acquisition company (SPAC), which is closing a massive Ukrainian deal.

In January, VEON, a global digital operator based in Dubai, announced a deal with SPAC Cohen Circle Acquisition to list Kyivstar, its digital operator in Ukraine, on NASDAQ.

While preparing the deal, Kyivstar bought an online cab-hailing company in April and has said that it could also look at buying e-commerce companies, bulletin boards and fintech providers. It is also working with the Ukrainian government to build the first Ukrainian Large Language Model (LLM), making it an exciting artificial intelligence (AI) play.

VEON and Kyivstar have also increased their joint commitment to rebuild the war-torn country’s digital infrastructure to USD 1bn from USD 600m in the period 2023 to 2027.

The NASDAQ listing moved forward in June with the filing of a Form F-4.

Largest deal in a decade

Kyivstar’s deal with Cohen Circle Acquisition is valued at EUR 1.8bn, making it the largest Ukrainian deal in a decade, Mergermarket data shows.

Largely as a result of this single deal, the year-to-date (YTD) M&A volumes in Ukraine hit a 12-year record, with EUR 1.96bn over six deals. This beats EUR 1.17bn over seven deals in YTD23. The pre-war record was EUR 2.4bn over 97 deals in YTD13.

The YTD25 result is already ahead of the full year (FY) records for the past 11 years. The high watermarks of the last decade came in FY23, with EUR 1.7bn over 21 deals, and FY19, with EUR 1.5bn over 142 transactions.

The Kyivstar deal and other smaller transactions are “strong indicators of renewed activity” in the country, according to Kolodyuk

VEON and Kyivstar’s plans to build an ecosystem through targeted transactions signal a trend of tech consolidation, according to Dovgan.

“We may see other large Ukrainian companies take a similar approach, especially in sectors like telecom, healthtech, fintech, and transport tech, where digital services are still fragmented,” Dovgan said, adding that buying tech platforms is a way of demonstrating long-term confidence in Ukraine’s future.

“Despite the war and the obvious challenges that it brings, the mood among dealmakers and investors in Ukraine is cautiously optimistic,” Dovgan also said.