Due Diligence on a War Zone | Ukraine

I've spent my career writing memos about investing into companies: can this get big enough, what has to be true for it to succeed, what might kill it. It forces clearer thinking to put pen to paper. After my trip to Ukraine this summer, my investor hat crept back in, and, against the advice of most medical professionals, I felt the urge to run the same process on the entire country.

The last time I wrote about Ukraine, I was interested in innovation velocity. This time it is the plumbing: the legal and financial wiring underneath the companies, the part that decides whether any of these founders and technologies are actually investable. 

Here’s my memo.

There were roughly fifty private defense companies in Ukraine before 2022. There are now more than nine hundred, and production output went from about a billion dollars to twelve billion. In several categories (long-range strike drones, ground robotics, electronic warfare, cUAS), Ukraine is not merely participating. It is where the category is being shaped in real time.

Those headline figures only tell you that the sector is large. The more interesting part to me is the trade. There are Ukrainian companies with direct Western startup analogs, executing as well or better, combat-proven rather than lab-proven, and priced at a fraction of what their US or Western European counterpart might command.

You are buying equity in something recognizable at a discount. The discount is not a magic arbitrage; it is the price the market is charging for capital controls, Ozempic-thin legal infrastructure, off-the-beaten-path fundraising, a newly opening technology export regime, and the small matter of operating during a war. The investment case and the reasons not to invest are, inconveniently, the same paragraph.

So the prize is real, and it is large.

The twist for me as an institutional investor is that I also have LPs I’m a fiduciary to, and they expect their money back multiplied inside a decade. “Compelling risk-adjusted returns” is the magic phrase. That limits what risk I’m allowed to take beyond the usual riskiness of an early-stage venture investment. Ukraine right now is one of the most appealing venture opportunities I’ve seen in years, and one of the trickiest to fund at the moment, at least for an institutional fund shaped like mine.

The rest of this is me trying to work out whether those two things can be reconciled.

Three things, none of them about the technology.

Money in; money (not so) out

Ukraine is open to foreign investment. The wartime awkwardness begins when you want the money back out.

A foreign holder can sell shares in a Ukrainian company to a Ukrainian buyer, but the proceeds generally stay in-country rather than flowing neatly back to the fund. Dividends can leave, but only for more recent profits and within throttled cap. This is a defensible policy for a government trying to preserve foreign currency while fighting a war. It is also not a very comforting answer to an LP who would, someday, like to see an actual distribution. It means that if your portfolio company exits in three years, your proceeds are, practically speaking, stuck.

There are workarounds. The common one is structural -  the company incorporates in Delaware or UK, and a wholly owned Ukrainian subsidiary does the engineering and production. Many venture-backed companies there have adopted some version of this. It works, but recognize it for what it is: a swerve around the pothole rather than a repair of it.

What passes for securities law.

We underestimate how much of our job runs on legal infrastructure we never think about. Ukraine does have securities law. It's newer and thinner than what we're used to, and a lot of what US investors treat as bedrock protection isn't a default there yet.

The problem is less the absence of a statute book than the absence of the deep, liquid, consistently enforced capital-market machinery an American investor takes for granted without noticing. The rules exist; the institutional muscle around them is still being built.

They know this, and nobody pretended otherwise. Their securities regulator put out a roadmap in June to implement hundreds of EU legal acts by 2027, corporate law and investor protections included. Whether they hit that timeline is another question, but the direction is set. Until it lands, you build your own protections into the deal, through lawyers and contract terms, instead of getting them handed to you. That's slower, more expensive, and it only covers what you thought to write in. 

The export lock, and what just happened to it.

Until a few weeks ago, a Ukrainian company building drones or missiles was essentially barred from selling abroad. The logic was survival. If we make things that keep us alive, we use them; we don't ship them to Poland. 

But the industry outgrew the rule. Some of these companies now produce more than the state can afford to buy. On July 1, the government approved its first formal export mechanism: uniform rules for manufacturers and foreign partners, exports limited to select partner countries, the army's needs guaranteed first, IP staying home. A controlled opening rather than a floodgate.

As I’ve been briefing my partners, LPs, and co-investor friends, there's the one people worry about most, usually with lowered voices. Corruption. Not always the clutch-your-pearls ethical version (though there's that too), but the practical kind. The kind that makes the numbers lie.

So I went looking. I asked people directly, and I sat with journalists whose entire job is investigating it. It's real, and probably more prevalent than we'd appreciate through a Silicon Valley lens. But despite some leftover post-Soviet corruption that is very much there, it's not the cartoonish level of Russia, where the whole societal systems persist only because of it. This war has exposed a business environment that isn't mature yet, being asked to mature very fast, in order to survive.

Revenue, contracts, competed procurement wins… in a working market, that's how you separate real companies from ones that are just good at looking real. When I diligence early-stage companies with my team, we focus on customer discussions and understand broad expert/market counter-narratives to find signal of what is real or not. When a latent system of relationships in a smaller market can stand in for product delivery, that signal breaks down.

So the question isn't whether Ukraine has a corruption problem. It's whether you can tell the difference between a company that won because it built the better thing and out-competed others, and one that has won because it knew the right person, but has a product that will fail hard. 

To invest in Ukrainian startups today, you critically need someone on the ground. Someone who knows which relationships are load-bearing and can tell you whether the contract in front of you reflects reality. And more so than most cross-border startup investing I’ve seen, every serious foreign investor placing bets in Ukraine has one. Local investors have this edge already, so it's the essential cost of doing business.

I was lucky enough to sit down with both the Ukrainian Prime Minister Svyrydenko and the Minister of Defense Fedorov, and the conversation was profoundly the opposite of what you'd expect from officials fielding “foreign investor complaints”¹ (go read the footnote. It's at the bottom. I'll wait.)

They each opened with a version of: “we know much of what's broken, we can't fix everything at once, we’re going to fix a lot of it, help us figure out what to prioritize.” Then they previewed a few fixes already in the pipeline. The export mechanism landed a few weeks later, right on schedule. 

There's a bigger force working the same direction. Ukraine wants into the EU badly enough to reform around it, and the path just got more plausible, since Hungary (a key holdout on Ukraine’s ascension) has a new, more liberal prime minister with a more open point of view. You don't get into the EU with capital controls and no investor protections. So either the government fixes the issue list on its own, or the EU makes them fix it as part of their price of admission.

That's what I believed when I started writing this. I'd have called the reform path more or less inexorable.

Then came the footnote (I did tell you to go read it), and it left one burning question open: 

How much of this is a system reforming itself, and how much was a few specific people sitting in the right chairs at the right moment? Since I wrote that sentence, both of them have left the government.

The Prime Minister resigned in a cabinet reshuffle in mid-July. The Minister of Defense was dismissed right after, roughly seven months into his job. He's the one who signed the export mechanism I just spent three paragraphs praising, announced it on July 1, out of office by the 15th, which has to be some kind of record for the shelf life of a policy win.

Public reporting frames his removal as an unresolved conflict with military leadership rather than a scandal; something about his proposals to overhaul how the ministry operates ran into people who liked how it already operated. I'm not going to pretend I understand the politics well enough to tell you what really happened. I'll note that he'd also been publicly working on stamping out corruption inside the military, which is either relevant or a coincidence, and I'm not smart enough to know which.

What I do know is that mass protests broke out after he was sacked, and they were overwhelmingly young people. That's a strange thing to see for a defense minister. I can’t imagine seeing the same for a Secretary of Defense in the US. It tells you something about what he'd come to represent. Between you and me, I think he has the strong capability to run for even higher office. We should stay tuned…

Anyways, I'm leaving the sentence above exactly as I wrote it, because the gap between when I wrote it and when you're reading it is arguably the most telling thing in this entire memo. Everything here is a snapshot of a dynamic system. The plumbing is being rebuilt in real time by people who can be replaced in an afternoon.

Investors love to see momentum and to know “who else is in the deal”². The picture for who is already invested in Ukraine is, like everything else, a little more complicated and opaque than I first surmised.

The capital paying closest attention has already moved. But it has not, so far, arrived wearing the standard US institutional-venture uniform. The big American funds are watching, meeting companies, and generally being sensible about a market where money can get trapped, and a factory can be in the sights of a missile barrage. I saw interest. I did not see a swarm.

The people who moved fastest are local VCs, family offices, and foreign governments. Local funds obviously have the relationships and the judgment that comes from being there with real boots on the ground. Family offices can use their own money, their own time horizon, and their own tolerance for an investment committee meeting that would otherwise turn into a hostage situation³.

Eric Schmidt is the visible version of a larger category: private wealth that can structure a deal creatively, accept risk a conventional fund cannot, and live with an answer that is not tidy. Most of what stops a normal institutional venture fund is a feature, not a bug, for these investors. He and some other family offices have become familiar sights on the ground.

These private investments are growing: defense-tech funding rose from roughly $5 million in 2023 to conservatively more than $100 million last year⁴, and specialized funds are beginning to make follow-on investments rather than just seeding the field. From what I saw on the ground, this year should make that number look small.

Surprisingly, I even became aware of some large-scale direct equity and debt investments from foreign governments into individual companies. It seems to be escaping mainstream tech/investment reporting. These capital pools are hardly driven by pure financial interests. This is about the future of war, and many of these countries want preferred access to the teams and products. They are happy to stomach much of the structural risk that a fund cannot.

This shifts us to realize the cap table isn’t the whole story. Some companies are not getting invested in at all. They are getting something that can have a remarkably similar effect: a real procurement contract.

The “Danish Model” ⁵ is the clearest example. Denmark and partner governments finance Ukraine’s purchase of weapons from Ukrainian manufacturers rather than simply shipping equipment from their own stockpiles. It is foreign government money behaving less like aid and more like a very large, very opinionated customer. In 2025, Ukraine’s Ministry of Defense says foreign partners put $6.1 billion into the country’s defense industry; estimates point to almost $1.8 billion of that allocated through the Danish Model⁶.

But those are not equity rounds. They don’t bet on founders to build “what comes next”, and it does not solve my exit problem. They pay to scale up existing components, payroll, and a production line. For a founder, that is a lot closer to capital than the word “procurement” makes it sound.

So the question is not whether money is coming. It is which pipe it comes through. Equity is one. Procurement is the other, and right now the second pipe may be doing more to turn clever Ukrainian companies into durable ones⁷.

Normally this is where I pretend to be Nostradamus, and tell you what we should do. I don't have that answer yet.

The prize is as compelling as anything I've seen in years. The risks are real too: your money can get trapped, the legal protections you're used to aren't there yet, and you can't always tell what you're actually buying. Some of that is getting fixed. Some of it just got shakier in the last few weeks.

I ultimately answer to people who trusted me with their capital, and "let’s throw reasonable caution to the wind" is not a thing a fiduciary gets to say.

So we're still debating what the shot through the trees here might be, and when our first investment will be. Maybe soon. Either way, time will solve parts of this, and driven Ukrainians will solve the rest.