Three weeks that changed the venture capital industry

Russia-Ukraine military conflict: the losers and the winner in Venture Capital industry

I was going to write my scheduled article about the potential effect of investment funds in Abu Dhabi on Islamic technology companies. But I could not — because of weeks-long military conflict in Ukraine — I may not use any other term for this “special operation”, since I spend a substantial amount of time in Russia, and the use of any other terminology is punishable there by a prison sentence of up to 15 years. And I would not want to deprive my readers from my insightful articles for that long.

Everyone knows that the petrol has already gone up in price, the shortages of grain are going to drive up the food prices, and the tiresome flight from London to Tokyo is now 4 hours longer. So, I am writing how this February had and would change the VC industry in general, and Islamic VC industry in particular.

The short-term effects are significant but manageable. It is not a secret that many Tech projects from London to Dubai to Singapore outsource their IT functions to companies in Russia and Ukraine. The VC funds from DST to Runa Capital, and the companies from Revolut to Grammarly have their roots in both countries. We have already seen the halt of many IT development projects — the Russians can no longer get paid (the country is effectively removed from the international financial system); and the Ukrainians can no longer work — much of the infrastructure in the country is destroyed. But within the upcoming 2 months, the Russian IT teams will restart working in expectation of the sanctions’ removal, emigration, or the switch to the cryptocurrency. The Ukrainian IT teams will gradually move to Europe where they are welcome.

The long-terms effects are more profound. The “February event” (I am still ashamed of having to use this euphemism) will devastate the IT industries in both countries, but will significantly enhance the IT environments in the UK, Poland and Germany (due to the influx of Ukrainians) and in Dubai and Abu Dhabi (ditto for the Russians). The Islamic Tech will get its fair share of the boost — by now at least 4 companies in the UAE, including my favorites, DigiWaqf and UmmahXXI started employing Russian IT developers locally. We face the Tech version of the First Law of Thermodynamics — the intellectual energy cannot be destroyed — it will convert itself and move around.

The following sectors will receive a major boost — alternative energy (to replace Russian oil and gas), agrotech (to reduce dependence on Russian and Belorussian fertilizers), as well as fintech and cryprocurrency (to assure the survival of 140 million Russians, 25 million of which are Muslims).

Still, there are scarier challenges ahead. Two Ukrainian companies Cryoin and INGAS (both recently closed) use the byproducts of the Russian steel manufacturing (soon to be under global sanctions) to make 52% of the world’s semiconductor-grade neon used in the production of microchips. How far our industrially advanced world will go with a substantial shortage of microchips?

As the article went into publication I obtained the following stats from the Russian Agency of Electronic Communications:

  • 70,000 IT specialists left Russia since February 24, 2022
  • 100,000 more IT specialists are expected to leave Russia before the end of April 2022

Finita la tragedia…

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