SUBSCRIBER+EXCLUSIVE INTERVIEW — While Ukraine deals with shortages of troops, munitions, and equipment for its air defenses, some Ukrainians are teaming up with foreign investors to prepare for a post-war era. And if some might question the wisdom of putting money into a country as it fights a increasingly challenging war of resistance, others believe the moment to invest is now, not only as a gesture of support for Ukraine but as a smart financial move as well.
Certainly that's the message Lenna Koszarny brought to The Cipher Brief's Kyiv Economic and Security Forum in early April. Lenna Koszarny is an American of Ukrainian ancestry who has been traveling to Ukraine and investing in the country for more the better part of three decades. While Ukrainian government and military leaders plead for more international aid, Koszarny says she isn't looking for handouts, and she insists there is big money to be made in Ukraine. "All of our funds are profitable," she said at the Kyiv forum, speaking about Horizon Capital, the investment firm where she serves as CEO. The money that she and others have helped bring in are "ensuring there's capital, creating jobs, and powering Ukraine's resilience, but at the same time, investors expect a return." Her message today? "Investors should ignore Ukraine at their peril."
The Cipher Brief hosted a conversation at the Kyiv gathering between Koszarny and General David Petraeus (Ret.), who as a Partner at KKR knows a thing or two about global investment.
THE CONTEXT
- The International Monetary Fund predicts that Ukraine’s gross domestic product (GDP) will increase by 3.2% in 2024, and by as much as 6.5% in 2025.
- In 2023, more than 300,000 new entrepreneurs and 37,000 new businesses were registered in Ukraine – more than in 2021, before Russia’s February 2022 full-scale invasion.
- Ukraine has expanded its IT sector and defense industry, aiming to both withstand Russian attacks and help rebuild the economy.
- The U.S. has contributed around $26 billion in financial aid to Ukraine since the start of the war. The E.U. approved €50 billion in budgetary support for Ukraine through 2027. The IMF is providing $5.4 billion in assistance to Ukraine.
THE INTERVIEW
The Cipher Brief hosted a conversation between General David Petraeus (Ret.) and Lenna Koszarny, Founding Partner and CEO at Horizon Capital, about investment opportunities in Ukraine after the war — and how to seize them now.
The excerpt of the full Kyiv summit session has been edited for length and clarity.
Gen. Petraeus: How did you end up coming to Ukraine? How did you end up doing what it is you do?
Koszarny: I arrived in Ukraine 30 years ago and I wanted to come before the rush. That was in 1993.
Gen. Petraeus: And you're of Ukrainian heritage.
Koszarny: I'm of Ukrainian heritage. My father was born in Donbas. My mother's from central Ukraine. Ukraine is my mission, my passion. I found that out very early on and very quickly understood that what was important was to bring capital to Ukraine, and that's something that I've dedicated my life to.
I was lucky enough to join a U.S. Enterprise Fund, one of 10 that was set up, $2 billion that the U.S. put to work after the Soviet Union fell apart. We were managing $150 million for Ukraine and Moldova. From that, we formed Horizon Capital. We have $1.6 billion under management, and we've brought in $2.4 billion into the projects that we have backed in the country. 172 projects, 80,000 people, and today we have 26,000 people working in the companies that we back in this country, even before the full-fledged invasion, and continue to do so after the fact.
Gen. Petraeus: So you're still attracting investors. People are still raising their hand, wanting to invest here? I should note by the way, that rule number one with investing is that you're actually supposed to get back more than you put in. And you're still able to do that since the full-fledged invasion?
Koszarny: All of our funds are profitable. Our vintage 2006 and 2008 funds are fully distributed, profitable returns to our investors. We have raised $800 million since the (initial Russian invasion) in 2014. Those funds are generating high double-digit returns and continue to do so. We've sent almost $800 million back to LPs (limited partners). It is both development in terms of ensuring there's capital, creating jobs, and powering Ukraine's resilience, but at the same time, investors expect a return.
Gen. Petraeus: You're also a pillar of the AmCham (American Chamber of Commerce) here. Tell us a bit about that.
Koszarny: AmCham is an incredible community. It's a community of over 600 companies who invested $50 billion in Ukraine. It's a community that comes together to network, to be the voice of business, to be the voice to government, to be the voice that invests in ambassadors of the country.
We had a dinner last night and we brought in the heads of lots of companies. Cargill was there, Coke was there, McDonald's, Boeing and others. And what I think you were very impressed with is how resilient these companies are. How nothing will phase Ukrainians, how Ukrainians are going to get it done no matter what. The internet never went down. Connectivity never went down. The banks never failed. The people show up to work every single day.
The kind of productivity that we see in Ukraine, the kind of hard work – and remember, Ukrainians are not just working at their jobs every day, they are volunteering, they're working weekends, they're doing everything for the defenders on the front. So it's non-stop and it's the people here that have really made the difference.
Gen. Petraeus: You've been here, as you said, three decades. You have watched all these various evolutions, and you've been investing through all of it.
Koszarny: We never stopped. After the full-fledged invasion, we continued to invest. We made it our mission to raise the largest fund for Ukraine since the full-fledged invasion. We wanted to raise $250 million. We exceeded our goal by $100 million. We closed that in February.
But what is more important than the number is that we brought a consortium of nine governments, the EBRD (European Bank for Reconstruction and Development), IFC (International Finance Corporation), 20 of the top private investors, family offices, foundations, institutions, with a capital base of $700 billion. So when we put equity to work, we have the strength of that capital base to co-invest alongside us.
Gen. Petraeus: I've been visiting Ukraine off and on, since it was still part of the Soviet Union. And the truth is that we never judged Ukraine investable before the invasion. And not for big investment. There have to be certain conditions in certain contexts. There has to be reliable rule of law. Something doesn't go well, you have to be able to take that to the courts if necessary. There needs to be a lack of corruption. There has to be integrity in governance. There has to be reasonable competition. Oligarchs can't dominate a sector and have kleptocratic or monopolistic powers in them. And the truth is that all of those weren't present for the really big deal. Tell us how the situation has evolved in those different areas.
Koszarny: I fully agree with you that historically Ukraine has had a perception issue. And for us, we started with the U.S. Government Fund. We had corporate governance in our DNA. There were industries that we would not enter because there were sectors that were not transformed or had a vested interest or shadow economy. And we focused on the new generation, which I think is powering so much of Ukraine's resilience today.
We were the first IT investor back at the U.S. Government Fund in 2002 when IT was at $110 million, and now it's a $7.3 billion industry. We started off in consumer goods, retail, food processing, manufacturing. And E-commerce — we back the largest e-commerce player, Rozetka, the Amazon of Ukraine.
So if you are willing to look past the perception and come to the country in the sector that is of interest and start meeting people, talking to them and talking to those in the private sector, I think there's multiple opportunities.
We helped establish the officer for protection of investor rights, and that's within the general prosecutor's office. That's very important because as you said, these are the issues that large investors look at. They need rule of law, they need trust, transparency, political will. And then if something goes wrong with someone nefarious in a region somewhere, they need to know that this can be escalated and a spotlight shone on that case. And that is why we did the efforts with the office for protection of investor rights. The anti-corruption programs are gaining traction as well as the other reforms in that area.
Gen. Petraeus: I think what you're describing is a thoughtful way to go about it. You have to find the sector, you have to find the company itself, and then you can be assured that you've gotten the chance to have the excellence really rewarded in a way that you can see.
Koszarny: My message today is that investors should ignore Ukraine at their peril. It is going to be the greatest investment opportunity. This is going to be a $1 trillion opportunity. There are projects of scale. There is the scale in terms of everything from infrastructure to e-commerce to retail, to sectors that are of interest to investors.
I have heard a few comments that there won't be any big deals until the war is over. And I want to challenge that. In fact, we are catalyzing a big deal that will be known in full very shortly. It is an over-$1 billion deal and it is a very important investment for the country, and it is bringing someone who is quoted as saying, "I've made my career on the pessimism of others."
So I would say that the time is now to come to Ukraine to start building relationships. You don't show up and make an investment right away. You've got to earn the trust of entrepreneurs and the founders. You've got to do due diligence. You have to see how they operate over time.
Gen. Petraeus: What sectors have you most excited?
Koszarny: I've mentioned IT, of course. We are the largest tech investor in the country. We hold positions in companies that employ 26,000 people. Yesterday, one of our companies, Intelius, made news acquiring an American company, C2 Solutions, which is one of the fastest-growing Minnesota companies. So you're seeing strong Ukrainian companies that are entering new markets and buying platforms and excelling.
So we like IT. We like light manufacturing, food processing. We think with European integration, you are going to see more and more trade with Ukraine and Europe and the cost competitiveness, the productivity, the strength of the people is the reason to back a platform here. The other, I would also challenge, there's many investors who think that they can invest in neighboring countries and supply Ukraine, post-recovery. There's a real push for Made in Ukraine. And the Ukrainian state wants to support those who are paying taxes and creating jobs in the country.
Gen. Petraeus: How important has it been that the Ukrainian forces have been able to reopen the Western Black Sea for transit?
Koszarny: It's been a game changer. If you look at what Ukraine has done, and it's impressive, this Ukrainian corridor - over the year that we had the UN-brokered corridor, you had a thousand ships that left port, with 33 metric tons. You've had 34 metric tons that have left ports in six months under Ukraine's deal. And that's all because of the ability to protect the Black Sea, to protect those fleets and to do it together with the U.S. and other allies. Reducing the capability that the Russians have in the Black Sea by 30 percent. That's a game changer, and we have to keep those exports going. It fuels the strength of the economy. 20 percent of Ukraine's people work in the agricultural sector. Ukraine is one of the top exporters across so many different products.
Gen. Petraeus: 20 to 25 percent of the world's grain exports. It's massive.
Koszarny: There's so many sectors that people don't know because people are just reading the media headlines. Most people don't know that in March 2024, the parliament passed a bill for bio-methane exports to Europe. That's going to be very important this year. Most people don't know that Ukraine drilled 115 new wells in this past year, double the year before, double the year before that. Ukraine will be a net gas exporter this year. There are opportunities from agricultural to methane to e-commerce, retail. People think that 6 million people left the country, so retail is dead - but our e-commerce businesses are growing between 25 and 80 percent a year.
One of our hottest companies is a company called Aurora, a chain of retailers that was focused mainly in south and eastern Ukraine. We had 863 stores before the full-fledged invasion. It fell to 636. They have 1300 now. They're opening a store every 14 hours. They're growing over 80 percent of the top line in US dollar terms. We have multiple companies that are unicorns and are receiving over billion-dollar offers right now.
So I'm challenging this notion, just as we challenge other notions. If Ukraine has received $100 billion in military aid and $82 billion in financial aid to the budget, it's time to bring capital to the private sector, to invest in Ukrainians, to invest in Ukrainian companies and to ensure that everything from venture capital and start-ups, to growth equity, to buy-outs, to cross-border transactions. All of that is possible here. It takes people to buy a plane ticket, start talking to folks at AmCham, and talking to folks in the private sector and looking at those partnerships that can start now.
Gen. Petraeus: Speaking of plane tickets, when do you think that we'll be able to fly into Kyiv airport?
Koszarny: General, you tell me. There's a lot of buzz about that. Folks are talking about it. There's a great deal of work that has to happen, so just as entering any deal takes time, they've got to do all that legwork.
Gen. Petraeus: Fair enough. There were some pretty inspirational stories last night, about continuing the mission, regardless of what's going on. Can you relate a few of those?
Koszarny: One of my favorite stories is our broadband cable provider, which is the Comcast of Ukraine, Datagroup-Volia. And in Kherson, when Kherson was occupied, they had about 80 people based in Kherson that were providing internet coverage for Kherson and the surrounding area. And of course as the occupation set in, many people fled, but 15 people stayed throughout the entire occupation. Difficult to contact, but folks were trying to keep contact.
But on the liberation date, we thought it would take a long time to get internet coverage back because honestly, we saw the videos of (Russian) soldiers coming in, pulling out all the servers, destroying equipment, stealing everything. And we thought, "OK, it's going to take weeks." One of the employees hid the most expensive piece of equipment – a $150,000 Cisco piece of equipment - under his bed for the entire occupation. Imagine the courage. Imagine what it would take to do that, and how many of us in this room would do that? They were online in 24 hours thanks to the courage of that technical specialist.
Gen. Petraeus: We also talked a bit about something that I want to relate here as well, that veterans coming back into the workplace are going to be a really extraordinary commodity. In the U.S., maybe 12, 15 years ago, the veterans' unemployment rate was actually a good bit higher than the unemployment rate for the rest of the people in the U.S., and that has changed dramatically. It's now lower, a good bit lower for former active duty members in particular.
The reason it's lower is because businesses have fallen in love with veterans. They realize that they bring values, experience, expertise, offer leadership abilities that they've learned at very young ages and all the rest of this, the qualities and attributes are quite extraordinary. In fact, at KKR, I'm the chairman of the “Best at Work” effort that we have where we work with our portfolio of companies to ensure that they're going through the right process to hire veterans. KKR companies have hired over 100,000 veterans and spouses in the last about 11 years. Now they're competing to find these veterans.
But the big idea here is that this shouldn't be charitable. You're not giving a job just because they served. You're providing them with career opportunity. The employer invests in the veterans who are now part of their ranks, education, training, affinity groups, and give them a real opportunity.
I wanted to plant that thought here because that should be the approach that the businesses, especially those part of AmCham are pursuing.
Koszarny: Fully agree with you. At AmCham we are organizing round tables with a focus on veterans' reintegration. I believe that in Ukraine, there's a real respect in the corporate sector towards veterans. There is a respect towards the people within the organizations who volunteered to serve, who gave the ultimate sacrifice. I know from all of our portfolio companies, that everyone is supplying the veterans, they're helping their families, they are welcoming them back with open arms into the companies once they have completed their service. They're also asking them to bring their friends, bring those who they served with, because folks realize that what they have to give, have to offer in terms of leadership, in terms of teamwork, and in terms of resilience applies also in the corporate sector. They're an asset to companies. So we've seen across AmCham and across our portfolio that veterans are welcome and they are excelling in the companies when they come back.
We've got to work together with the government, together with the veterans organizations in order to make sure that, as you said, that they return to careers and it doesn't become something that isn't reflective of what they have to offer.
Gen. Petraeus: The generation of Americans and others and allies that fought World War II often is described as the "greatest generation." They're truly extraordinary. But what they would always say is that that title doesn't come from what they did just during the war. It was for what they did actually when they came home and built the United States into the arsenal of democracy, even more than it already was. I think that the generation that is fighting here today will do the same. I think it will become an attractive investment destination. Again, not just because the guns fall silent, but because Ukraine has finally dealt with the impediments frankly, to large investors in particular. That generation also will deserve to be known as the greatest generation of Ukrainians.
Koszarny: I can say that the greatest generation in Ukraine will be the generation that never knew the Soviet Union, that was born in an independent Ukraine. It's that generation that's also inspired their grandparents. So the greatest generation you'll see will be those born in an independent Ukraine.
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