KSE Institute Identifies Major Barriers to Scaling Up Ukrainian Defense Startups
KSE Institute, in collaboration with Brave1, investigated the key obstacles hindering the development of Ukrainian defense manufacturers. Among the main challenges are a lack of funding, limited access to testing, poorly formalized development strategies, a shortage of personnel, and the absence of long-term contracts.
The study is based on 14 in-depth interviews with industry representatives and experts, as well as an online survey of 131 manufacturers. A significant portion of the companies remain small: 41% have up to five employees, and only 36% of those surveyed have moved to mass production.
At the same time, Ukrainian defense tech teams often receive combat feedback even before scaling up production. 62% of manufacturers supplied their products to Defense Forces units during the pilot production phase, and 68% use the feedback received to formulate specific technical requirements for the product.
Funding remains one of the biggest challenges. 53% of respondents need additional capital but are unable to secure it. The greatest demand is for funds for R&D, working capital, and the expansion of production capacity. At the same time, the standard approaches of banks and investors to risk assessment do not always align with the specifics of the defense sector.
Another bottleneck is product certification and testing. Currently, only 20% of products are certified, while 48% of companies have not yet applied for this procedure. Manufacturers also note unequal access to testing ranges and insufficient information about testing capabilities.
Despite these barriers, 87% of companies plan to grow in the near future, but only 19% have a formalized development strategy with financial projections. Another 22% already have underutilized production capacity and could produce more if demand were more stable and contracting terms were better.
The KSE Institute emphasizes that scaling up Ukraine’s defense tech sector requires simultaneous changes from the government, financial institutions, and the companies themselves. This includes simpler procedures, broader access to testing, long-term contracts, new financial instruments, and strengthening the management and production capabilities of the manufacturers themselves.
Source: Kyiv School of Economics — KSE Institute study
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