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Ukraine-focused fund raises $350m, $100m above target

Published: 14 March 2024

Horizon Capital’s fund has attracted support from a wide range of investors, reflecting a growing recognition of Ukraine’s economic resilience and the key role of private capital in supporting the country’s reconstruction and recovery.

Ukraine’s president Volodymyr Zelenskyy attending the signing ceremony for one of the fund’s earlier closings in April 2023, alongside investors and country representatives | Horizon Capital

Kyiv-based Horizon Capital has recently announced the fifth and final closing of its $350m (€322m) Horizon Capital Growth Fund IV (HCGF IV), beating its fundraising target by $100m (€92m).

The fund nearly tripled funds raised since its first closing of $125m (€115m) in September 2022, receiving backing from a range of international investors.

These include the International Finance Corporation (IFC), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank through its EU for Ukraine Fund, and several development finance institutions such as the Netherlands’ FMO, France’s Proparco and Switzerland’s SIFEM, among others.

The fund has also received commitments from global institutional investors, foundations, family offices and private investors, including Blue Earth Capital, the Zero Gap Fund, an impact investing collaboration between The Rockefeller Foundation and the MacArthur Foundation, and philanthropists George and Rayla Myhal.

HCGF IV will invest in up to 20 fast-growing, primarily tech and export-oriented companies, as well as select domestic champions, with a minimum of  80% of the fund deployed to Ukrainian opportunities, although the firm said this number could be higher “given the rich opportunity set available in Ukraine at this time”. The remainder of the fund will invest in Moldovan companies with average investments in the portfolio expected to be at around $20m (€18m).

Lenna Koszarny, Horizon Capital

Lenna Koszarny, founding partner and CEO of Horizon Capital, told Impact Investor that her firm’s mission was to back visionary entrepreneurs transforming Ukraine and the region, and that president Volodymyr Zelenskyy had participated in the signing ceremonies for two of the fund’s earlier closings to underscore “the importance of investors backing Ukraine now, and not when the war is over”.

“President Zelenskyy emphasised that Ukraine is interested in investments and cooperation that will contribute to the development of our economy and industry, modernisation, and progress of new technologies. Among the priority directions, he named the development of the IT sector and energy, agrarian business, etc.,” she said.

Koszarny described the fund’s typical investment as “a bootstrapped, entrepreneur-led business, with ambition to reach global leadership in their niche and showing a substantial track record of growth”.

She added: “We typically look for a technological or expertise-related moat and also place a lot of focus on capital efficiency, with the overwhelming majority of target companies profitable and/or cash positive. This is also one of the aspects where the Ukrainian R&D base is a great asset to these businesses, given a unique combination of cost-efficiency and talent quality in the country.”

Three tech investments

The fund will primarily invest in tech opportunities in B2B software, B2C, as well as tech-enabled services, and its export-oriented company investments will include fast-growing light manufacturing, food processing and other businesses that offer goods and services higher up the value chain. In terms of domestic companies, the fund will target e-commerce, innovative retail and consumer goods as well as financial services.

Three investments have been made so far into tech companies Preply, a language learning platform helping students find and connect with language tutors, GoIT, an international edtech platform specialising in IT courses, and Viseven, a global B2B marketing technology services provider supporting the pharma and life sciences industries in their digital transformation.

Horizon Capital said their investment would provide the companies with growth capital to enhance their international reach, including expanding their R&D platforms in Ukraine, which it said was important given the crucial role played by the IT sector in Ukraine’s economic resilience during the ongoing war. It believes the investments will help to further digitalisation and increase hard currency inflows to the country.

Koszarny explained the three investments matched all the key aspects of the company’s investment thesis, being founder-led, efficient, high-growth businesses, basing their expansion on secular trends in their respective industries and having a long-term development ambition extending “far beyond” the fund’s investment horizon.

“Naturally, all these companies are enabled by a Ukrainian R&D force, which allows both the development of world-class products at low costs, and fulfils an important development goal of bringing in hard currency revenue into the country,” she added.

Gender smart investing

Last April, HGCF IV became the first fund in Central and Eastern Europe (CEE) to be awarded 2X Flagship Fund status by 2X Global, the membership and field-building gender finance organisation which also oversees the 2X Challenge, a G7-backed initiative to promote lending that specifically benefits women.

According to 2X Global, Flagship Funds are a recognised seal for gender-smart funds whose fund managers make ambitious commitments to gender targets at both the fund manager and the portfolio level.

HCGF IV applies a gender lens to its investment strategy and according to Koszarny is very active in seeking out women-led businesses.

“As a result, a significant part of our pipeline is women-led / women-founded, including the latest investment in the fund – Viseven, led by CEO and founder Nataliya Andreychuk. We also believe that as a geography, Ukraine is among the global leaders when it comes to women in tech, with women making up more than 25% of the sector’s workforce currently (and growing) and we look forward to further advancing this trend with our investment,” she said.

HGCF IV is only 1 of 18 funds globally to achieve this distinction, and 1 of only 2 such funds which are both women-founded and women-led.

Building resilience

A study published by the World Bank, the government of Ukraine, the EU and the UN last month found that post-war reconstruction and recovery in Ukraine is estimated to cost $486bn (€447bn) over the next decade, up from $411bn (€378bn) just a year ago.

Koszarny said private capital would be key to Ukraine’s future reconstruction efforts and that estimates pointed to 25% to one third of the required capital needing to come from the private sector.

“Importantly, the private sector are also the ‘deal makers’ who typically, will develop a bankable project, including the optimal capital structure to mitigate risks while delivering the intended outcome, including expected returns,” she said.

Horizon Capital says that the fund is the largest raised since Russia’s full-scale invasion of Ukraine and according to the company’s own analysis, it is also the largest fund ever raised for a country engaged in a full-scale war. Koszarny said this underscored the commercial merits of Ukrainian technology that held true even in today’s challenging times.

Pressed about the challenges of investing in a country at war, she said the key to success was to select partners well, develop integrity-based partnerships over the long-term, align parties to a bold vision and expectations upfront, and work shoulder-to-shoulder towards the desired outcome.

“Our investment strategy has been designed to mitigate risks, including focusing primarily on export-oriented companies to ensure a natural currency and macro hedge given that typically all or a majority of revenues are hard currency denominated, delivered from a cost-competitive platform based in Ukraine and the near region. We also have focused on ‘new generation-led’ businesses in innovative sectors with broad participation of market participants,” she said.

According to Koszarny, Ukraine is a country that has transformed immensely over the years, with its government, business community and civic society united in implementing legal, economic and systemic reforms that would support its future victory and bring the country closer to European Union membership.

“We believe firmly that those who are able to invest successfully in Ukraine, while mitigating risks, are in a position to deliver both superior returns and high impact, and Horizon Capital is focused on continuing to lead its industry in this capacity,” she added.

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