M&A Perspective: Are Ukrainian Drone Companies Mechanical Turks?
I sat in 15 due diligence processes on Ukrainian defense startups. Only one deal closed.
Over the last three years I’ve been involved in 15 evaluation processes for M&A / investment in Ukrainian companies building one or another defense innovation — helping investors decide whether to back them or buy them.
In the end, only one of the 15 got funded; the other 14 fell through, for various reasons.
For investors in the US and Europe above all, I want to lay out those reasons — they may help you assess a Ukrainian target more precisely.
The problems
1. Low tech.
A large share of Ukraine’s drone makers do essentially nothing beyond assembling components, and they know how to sell that inside Ukraine.
Once you start looking at the actual technology and products, it becomes clear: the business has very low defensibility and doesn’t scale beyond the country’s borders.
2. No real proprietary IP.
Most of the new defense companies started in 2022–2023, when nobody was paying attention to IP compliance — and inside Ukraine that’s genuinely not a problem, because the goal was to stop the enemy fast, not to honor licensing agreements.
In war, that’s effective. But it means there’s usually no defensible IP underneath the product — and that’s exactly what real defense product requires, the kind you can’t export without it.
3. Export out of Ukraine.
Under martial law, Ukraine has restricted the export of intellectual property. Any attempt to move IP to Europe carries real risk — and if the company’s IP was structured wrong from the start, standing up production in Europe becomes a serious problem. The buyer inherits that business risk.
4. Critical dependency on Chinese components.
More than 75% of the bill of materials (BOM) is typically sourced from China. For a US buyer this is close to fatal: defense procurement rules effectively shut supply chains with Chinese components out of the very market you’d want to sell into.
And re-sourcing to non-Chinese suppliers blows up the unit economics that made the product cheap in the first place. Low cost and an addressable Western market turn out to be mutually exclusive.
5. Big revenue — but exclusively inside Ukraine.
The numbers can look strong until you ask who the buyer is. It’s almost always one military customer — the Ukrainian state — purchasing on terms that won’t repeat anywhere else. That revenue is concentrated, non-transferable, and can evaporate when the war ends or with a single budget shift, so buyers discount it heavily.
And don’t confuse selling components into Ukraine with selling to the West: Western procurement runs on entirely different cycles, certifications, and requirements, and winning it is a separate company-building exercise that none of these firms have done.
6. Founders unfamiliar with corporate culture and doing business outside Ukraine.
This sounds like a soft point, and it isn’t. Beyond the obvious — showing up on time, returning calls, honoring informal commitments — there’s no real experience with Western governance, reporting, board work, or compliance. Reputation as a compounding asset is consistently underrated.
Deals here don’t die over terms — they die at the relationship stage, when an institutional investor decides the team is too opaque or too unpredictable to underwrite.
7. Use models unacceptable under a Western concept.
Some of what works in Ukraine simply doesn’t transfer. For example, final assembly of drone munitions in a trench, field modification, the human-in-the-loop practices born of necessity — none of that passes Western standards for safety, liability, certification, and rules of engagement (ROE). A product built around an unacceptable concept of operations doesn’t need to be re-sold — it needs to be re-engineered.
8. Inefficient motivation of key people.
In the companies that do have serious R&D, the value rests on a handful of engineers, and most of them have no long-term equity or upside — and founders don’t see why they should give it.
From a buyer’s standpoint, that’s acute key-person risk: you’re paying for people who can walk on day one and have no reason to stay. Retention has to be built from scratch, and by the time due diligence begins, the best of them are often already looking.
9. Accumulated data that isn’t an asset.
Everyone claims a data moat. In practice the data is unlabeled, unstructured, in the wrong format, legally “dirty” — or simply not the kind that trains anything transferable. Battlefield data is valuable in principle — but it’s rarely captured in a way you could actually use for ML or hand to a buyer. The “data advantage” almost never survives technical diligence.
So what is the advantage or value — for now — in most Ukrainian drone/robotics companies?
Ukraine certainly has companies worth backing among those “born” in 2022–2025. There is real value here — it’s just rarely the value the deck is selling.
1. Knowledge. They’ve solved a genuinely hard operational problem: standing up high-volume drone assembly out of a chaotic Chinese supply chain, fast. That manufacturing and operations muscle is rare, and unlike the “technology,” it actually travels.
2. Cost engineering. They know how to make production processes and components cheaper — and to do it when the product has to ship “tomorrow.” Design-to-cost and design-to-deadline under real pressure is exactly where Western primes sag the most.
3. Ground truth. They have a live feedback loop with the actual end user in combat — they know what works, what’s theater, and how systems behave under EW. That knowledge can’t be reproduced in a lab, and it’s some of the most valuable IP these companies own, even though it never shows up on the balance sheet.
4. Islands of brilliant engineers. Some teams contain pockets of genuinely world-class talent capable of building something unique. In a number of these deals the real thesis is acqui-hiring that island — not buying the company around it. The whole job in due diligence is telling the island apart from the ocean.
5. A way around US ITAR. A clean, non-US platform for selling into Europe and the Gulf, outside ITAR friction. For buyers blocked or slowed by US export controls, that market access is the actual asset on the table.
My take
My personal impression: the moment the war in Ukraine stops, most of these companies will see revenue drop sharply — and most likely only then will they start getting bought up en masse, and only the ones with something genuinely unique inside: defensible IP, a real product, or a cluster of exceptional engineers.
Buyers are already circling those, but waiting — because the war premium is propping up valuations that won’t survive peace.
The rest won’t be able to leap past what they actually are — mechanical workshops assembling drones for a single customer, the Ukrainian state.
But there’s nothing unusual about that — it’s their role: to assemble simple solutions very cheaply and make money doing it. Innovation calls for a different kind of founder culture, and that culture often works against building an operational business — one whose whole purpose is to start producing large volumes of simple product, like FPV drones, on a tight timeline.
Best Regards,
Vitaliy Goncharuk
Linkedin - https://www.linkedin.com/in/vactivity/
Author: Vitaliy Goncharuk is an American entrepreneur of Ukrainian origin, specializing in autonomous navigation and AI.
He is the CEO of A19Lab, a company developing AI-autonomous systems for drones and robots.
In 2022, his previous company, Augmented Pixels, which focused on AI autonomy, was acquired by Qualcomm.
From 2019 to 2023, Vitaliy chaired Ukraine’s AI Committee.