Startup Competition 2023 Behind the Scenes: Direct Investments, Defense Tech Startups, and Mentorship Madness

Startup Competition is a pivotal part of IT Arena annually. The competition allows young startups to validate their ideas in front of jury members, investors, and media representatives. In 2023, 44 startups participated in the competition in the general and defense tech categories. We spoke with Ivan Dmytrasevych, the organizer of Startup Competition, CEO of Startup Depot and United Angels Network, about the selection process, competition stages, previous participants’ success stories, and the event’s impact on Ukraine’s startup ecosystem.

Who should take part in Startup Competition and why?

I advise startups to attend IT Arena only if they target global markets. In this regard, in 2023, we had an excellent indicator. Over the past six years, we’ve had practically no teams addressing only Ukrainian problems or issues in a small city. And each time, fewer teams are starting in Ukraine. Client work and development can be here, but most launches happen in Poland, UK, and US markets.

The solution offered by a startup should scale quickly and relatively inexpensively. The history of startups is about growth and big money. A startup must make money – meaning the market it’s entering must be large, as investors are putting in millions in anticipation that the startup will earn billions.

The most important reason to attend Startup Competition is networking. We try to bring investors here, which has been difficult for the past two years. The international tech community has very little time. But here, not far from the border, IT Arena takes place, gathering industry leaders for a very short time.

Networking at IT Arena is your PR. Foreign media will be there and will potentially write about you. Networking can become your investor.

Imagine you’ve listened to all the mentorship advice and collected many contacts after IT Arena. You start following up with investors every month about your metrics, regardless of whether they’re good or bad. And at some point, one of them may become your investor.

The third reason the entire tech community attends Startup Competition is talent. Here, you find people for your team as well as partners or co-founders. And you might notice I haven’t mentioned the prize fund. First and foremost, I want to make Startup Competition a place where you can get investments.

How to get into Startup Competition?

For startups wishing to get into Startup Competition, I advise focusing on gaining initial traction. This measures how much demand there is for your product, or services – namely, the first users who use it for free or the revenue you receive from clients.

Some teams we had were very young. They were only a few months old, yet they already had traction and made it to the finals. Meanwhile, some startups had been working on their idea for a year but they didn’t have traction. In such cases, something is not right with the approaches. Perhaps it’s not a full-time commitment; maybe it’s lean part-time, but a year is too much time to invest effort without seeing results. There are different models – B2C, B2B, and we understand that gaining traction in B2B is not as easy due to longer cycles.

Therefore, we considered “letters of intent” as part of the preliminary traction – an agreement that a specific company would use the services of a particular startup. This was for teams at an early stage.

How does the participant selection process work?

The competition organization process takes several months from the announcement of the application intake. The number of applications from startups varies over time. Participants are similar to students – the number of applications increases as the deadline approaches. In the last few days, many eager applicants were applying for the Startup Competition.

A startup must fill out application forms about themselves. One of our requirements is to have a pitch deck. We listen to how the person presents their idea. Then, we conduct individual interviews with all teams. This takes 2-2.5 very intensive weeks. In one day, there can be 12-18 teams. We spend half an hour with each team.

On the one hand, it’s a very intense and challenging period, and on the other hand, it’s interesting to see cool participants and the ideas they’re implementing. You observe how the industry is evolving.

We announce the semi-finalists – 30 participants from the top ranking, but we also inform 10 more startups that they’re in a conditional gray zone. If someone declines, the ranking of the gray zone moves up, and someone from it enters the semi-final. This works every year: someone didn’t make it, someone changed their mind.

Before the semi-finals, we always conduct a workshop for startups on how to build a pitch. Last year, we added workshops on preparing for due diligence and effective participation in the conference. That is, how to get your social media profile ready, how to take notes, how not to forget to follow up with people after the conference, and how to plan meetings.

How were defense tech startups attracted?

The Ukrainian Startup Fund is a state organization that allocated grants to startups before the war. After the beginning of the full-scale invasion, the Brave1 cluster for the development of defense technologies was created based on the Ukrainian Startup Fund. It deals with defense tech startups, which we decided to attract to the Startup Competition.

The selection process consisted of two stages. We had a general pool of applications that went through the application form and those already in the Brave1 pool. Their team selected the applications and passed them on for interviews. Only teams that received Brave1 status could proceed – meaning they passed a specific certification within the structure or the General Staff of the Armed Forces of Ukraine. This means that their solutions – whether it’s a drone or an information system – are needed by the General Staff for a specific type of troops. Then, I interviewed them just like general teams, discussing their business models, teams, solutions, problems, and markets for half an hour.

Three startups that made it to the final in 2023 were already in the Brave1 ecosystem. For such teams, it’s great to receive private investments. It’s a good signal for angel investors indicating that investing in Ukrainian teams is possible. Nowhere else in the world are defense technologies tested in live conditions. In other countries, they test them in research institutes, on test ranges, but here it’s real war. It all comes down to cheap solutions that can destroy expensive ones.

How does Mentorship Madness work? 

[Mentorship Madness is a fast-paced mentoring format where startup competition participants get to interact with multiple mentors for 20 minutes each.]

Online Mentorship Madness starts two weeks before IT Arena. We gather mentors from the tech industry: founders of startups at a later stage than the semi-finalist startups; investors from funds and angels with relevant business expertise – for example, how to build a B2B product.

Mentors agree to help early-stage startups. They are ready to talk and help with various issues in a 20-minute conversation format. But it’s not so much about mentoring as it is about the time startups get and how they convert it into a conversation that continues later.

It’s challenging to conduct a full-fledged mentoring session in 20 minutes: mentors only have time to get acquainted with the startups and their issues. The most persistent startups arrange further conversations with mentors. Of course, everyone has limited time in a day. However, if the mentor is interested in the startup, they will continue communicating with them. They may become their investor or connect them with an organization that can invest.

Mentorship takes place initially online and then additionally offline. In 2023, there were 44 teams in the semi-finals, with 56 mentors available. Each mentor couldn’t allocate 44 slots of 20 minutes each, so teams had to book meetings quickly. During the conversations, two tasks arise for the startups: to engage the mentor and to gain insights. 

It seemed to me that [in 2033] teams didn’t fully utilize all the opportunities regarding mentors, including investors among them. There were cases when a very cool mentor-investor was just standing there, and nobody approached them. Or when contestants booked slots but didn’t show up.

You can follow up with this investor later or make an online call. But it’s different from personally telling them about your idea for fifteen minutes. Building trust online takes four hours. And during a live conversation, it’s perceived entirely differently. 

How was due diligence conducted in 2023?

Initially, Sofia Brutsyak, Legal Counsel at TA Ventures [TA Ventures is a venture capital firm investing in early-stage tech startups] hosted a workshop for startups on legal aspects: what structure to have, where to open a bank account to receive investments, and what documents to prepare.

We agreed with investors and funds on soft commitment on investment. This means they could invest, but they might not. We understand that the fund’s profile matches startups, but we don’t know which teams will be in the semi-finals. We selected the semi-finalists in early September and immediately handed the lists to investors and funds.

I approached investors and said, “We have a dream for someone to invest in a startup at IT Arena.” Why was this important? A tech conference with many participants takes place in a country at war. But we have startups that are still being invested in. This creates a triple effect. It is a very good negotiating position with investors we will attract for 2024. 

All the people who came to us – dozens of investors and entrepreneurs from Finland, Denmark, and other countries – also saw this. It was a powerful international signal at a global level. 

Of course, startups that were invested knew about this decision earlier. It’s a negotiation process, and two sides are involved. Investors provide money for a certain percentage that should benefit both the startup and the investor.

How to get into the finals?

You need to pitch well. Your soft skills will save you. At this stage, pitching may be more important than metrics. Investors will still have questions about them. But you won’t make it to the final if you don’t explain them well. 

The team also matters. Investors evaluate the business model, market, and startup’s profitability. However, some prioritize the team because the market can change. If a problem arises, the team can adapt the process and create a different product for another target audience.

In the evening of the first day, announced finalists stay back, redo their presentations, and receive feedback from the jury. This works well for those who listen to the jury and adjust their presentations accordingly. Responding to feedback significantly boosts their ranking, and this works every year. I tell all startups to respond to feedback and filter it. They get better overall ratings, unlike those who don’t change anything.

A great pitch coach can train you. You’ll present with accents, mimicry, gestures, movements on stage, and beautiful slides. But investors sit on the jury, and they want a specific type of information. Ultimately, they will evaluate you in the end.

I asked a business angel who had invested in our startups what makes a good startup presentation. He replied: “A good presentation is one that leaves only one question remaining – how to invest money in your project.” In other words, when you have answered all the questions an investor might want to ask. You need to know all your weaknesses and work on them. If you haven’t done a good market analysis, then do it.

Why did SLab and Himera win in 2023?

Himera’s founder, Misha Rudominski, is a serial entrepreneur with extensive experience in pitching and fundraising. You should learn to do business like him. Moreover, his startup is not software but hardware-based.

Hardware startups are much more complex than software ones. In software, you can quickly change something. But it’s not as easy in hardware – there are many dependencies in the production and supply chains. However, Himera knows how to make quick iterations; they have created a truly needed product, and they already have users. Of course, these are not commercial contracts, as investors would like. However, through volunteer funds and funds under the Ministry of Defense, they buy radios from Himera and use them. 

SLab had a very good pitch, in my opinion. There was good traction confirmation. They have a contract with L’Oréal – such a large corporation doesn’t enter into a contract for a short period of time. Secondly, it’s just a trend – eco-friendliness. There is research indicating ten industries that are relevant to humanity for the next 30 or 50 years: eco-friendliness, energy, cybersecurity, and others.

What startup success stories do you remember?

We always mention the success story of Liki24, which is a highly successful case. They started with their first product in one of the early startup tracks and last year launched their third medical product. The first one, Liki24, offers medicine delivery at warehouse prices. The second, Lab24, provides a service for home testing. And their third startup, Nasnaga, offers check-ups and well-being improvement services. Users communicate with a health coach who provides advice on diet and suggests vitamins to enhance overall health.

I also like Legal Nodes, one of the winners of 2019. It’s a legal startup that offers a technological solution that helps companies identify their legal needs online. Also, Axdraft’s founders are doing very well and have made an exit. A large corporation acquired their startup.

A great startup, Pix Backpack, participated in the Startup Competition in 2018. Its founders were very cool, pitched well, and fundraised on Kickstarter. There were orders, but in the end, it didn’t work out, whether it was COVID or other crises. As far as I know, investors are trying to develop it further.

Startup Competition 2024 will take place on September 26-29 in Lviv. Pre-seed startups will compete in the main category and a special one – in defense technology and cybersecurity. Applications are accepted until June 6. Detailed information can be found here.