During a full-scale invasion, defense technologies are developing rapidly in Ukraine. Oleksandr Kardakov, a reputable IT businessman, author of the latest miltech developments, founder of Octava Defense and Chairman of the Supervisory Board of Octava Capital, is one of the few Ukrainian entrepreneurs with over 20 years of experience in Defense Tech. In his interview to Forbes BrandVoice, he reflects on his path in the defense sector, warns about the challenges facing developers today, and shares his predictions for the future of the industry.
More than 20 years of defense research and development
Octava Defense was founded in the mid-2000s, long before the war in the east. What was the background idea and goal of creating this business line?
Octava Defense is a holding company in Octava Group. Its core functions are asset management, provision of services to all companies comprised by it, as well as development of the R&D direction. The emergence of Octava Defense was a logical step, as AVTOR company, employing almost 100 experts in cryptographic protection systems, has been in existence for 22 years. Besides, as far back as I can remember, we have been working on information systems and products for the military community, building data centers for them, and, in particular, producing secure computers. That is why there emerged a need for a single-stop company that would integrate and manage all security-related processes.
How has this business line been transformed in response to Russiaʼs aggression?
On February 24, 2022, I met with 25 technical experts in Lviv. We had rented an office and server cabinets in the data center in advance, and then deployed a communication service to support our own information systems, ensure cyber defense, and customer service. We were ready for an invasion.
During the first months of the war, we helped to organize another data center for the Ministry of Defense in Lviv, deployed information systems and organized cyber defense. We checked more than 15,000 accounts after the loss of hardware – none of them was compromised, and there was no information leakage. Later, when the Armed Forces established their own team of experts, we transferred the system to them, ensuring its continuous operation.
Upon return to Kyiv, we identified the urgent needs of the military community and launched two areas: the development of attack drones and an acoustic UAV detection system. This became the basis for the creation of the R&D company Venator Technologies which develops kamikaze drones and where I «was hired» as a chief designer (laughs). We also created FENEK, fixed and mobile system with acoustic sensors for counterfire and drone detection.
Given the great interest expressed by international partners at conferences worldwide, I can safely conclude that our developments are successful.
Defense Tech and bureaucracy
The defense industry in Ukraine remains an overly regulated sector. How does this affect your business?
It creates numerous obstacles to our work. That is why our strategy is to minimize direct contracts with military customers. After all, the established profit margin of 25% immediately attracts the attention of inspectors.
However, it is worth noting that there is a movement in Ukraine to improve the business environment in the Defense Tech industry. However, it is only thanks to some self-starters so far. For example, with the support of Mykhailo Fedorov, an effective system for supplying drones to the Armed Forces was created, but, unfortunately, it was terminated later.
Why do some promising military technologies remain untapped despite their obvious benefits?
The fact is that there are no single decision-making centers, and it is almost impossible to prove something technologically complex. For example, there was a request to create a military personnel card, and AVTOR presented it. This is an electronic ID that is supposed to replace all paper documents, such as a military ID, combatant ID, business trip certificate, medical card, medical examination report, and EDS (electronic digital signature) for logging into information systems. However, there has been no decision on this development for two years now.
Over the past year, many Ukrainian businesses have been complaining about the arbitrariness of law enforcement agencies, and you also mentioned inspectors’ visits. How does this affect your work?
We are fighting this more or less successfully. We have been dealing with sophisticated special equipment for over 20 years, we have a perfect document flow, so no fault can be found with us. When we place dozens of kilos of documentation on the table, this kills the inspectorsʼ mood.
Drones, people, money
In its lending development strategy for the summer-2024, the National Bank identified support for the defense industry as one of its priorities. Have Defense Tech market operators felt it?
At a meeting of arms manufacturers, I saw only one company that managed to get several million hryvnias in loans. This was considered an exceptional achievement – everyone applauded because they had almost worked a miracle.
We utilize our own financial resources only, like most other market operators who rely on their own savings or private investors.
At the same time, access to finance is extremely critical for small companies that cannot raise a bank loan due to the lack of liquid collateral.
Almost all businesses talk about the staffing crisis. How does Defense Tech feel about it?
Itʼs a little easier for us, because we have historically had strong R&D software and electronics teams. We retain key specialists and gradually add new ones. However, in the field of mechanics, where we had to create a new direction and hire designers, we learned how to find personnel. Interestingly, the design team has two extreme age groups: 55-60 years old and young people under 24. They have learned how to cooperate effectively, so now we are purposefully looking for people in these categories.
Do you manage to book staff given the latest changes?
It is a very difficult task. For example, AVTOR, which works for Defense Tech, has a ʼwhiteʼ certificate for impeccable tax payments and is a resident of Diia.City, failed to book 100% of its employees. They submitted documents dozens of times, but only a 50% booking was allowed.
Obviously, the shortage of personnel originates from the situation with engineering education. Are there any interesting initiatives here?
Initially, I planned to create an engineering center at my alma mater, KPI. However, the then leadership slowed down the process, so the project was implemented at the National Academy of Sciences, which has now become the Kyiv Aviation Institute (KAI). It was there that I funded the creation of the DHUB educational space. Ksenia Semenova was responsible for this project yet before she was appointed the KAI rector. We set to work quickly and developed the space in a few months: we renovated 180 square meters and equipped a laboratory. Today, it hosts events three to four times a week, and we have created a community of stakeholders. In addition to DHUB, KAI has already opened four or five other laboratories.
From innovation to implementation
Are there any in obstacles between defense technology developers and the army in Ukraine? How quickly do new developments get into service?
There are two extremes here. On the one hand, the army has competent experts who set smart terms of reference. We have already implemented several developments based on their inquiries. However, these solutions have not been developed further because decision-makers in the Armed Forces simply do not understand their value. This is a classic example of ʼsystemic resistance.ʼ
At the same time, there are individual enthusiasts who are trying to introduce innovations, and occasionally they succeed. The situation is partially improved by private foundations that work directly with manufacturers. However, their influence and funding have now decreased. Therefore, we hope that this baton will be picked up by foreign countries that can buy from Ukrainian producers to supply our army.
Is defense procurement transparent and efficient?
Judging by what I hear at manufacturers meetings, the process is underway, but not as well as I would like to. I compare it to a product with negative nutritional value: it takes more energy to ʼdigestʼ than it does to benefit. For business, participation in state defense procurement looks much the same.
Can Ukrainian Defense Tech manufacturers export their products?
No, because there is a direct ban, except in certain cases. Thatʼs why Ukrainian manufacturers of drones and other defense products showcase their products at international exhibitions under foreign flags – Czech, Polish, Slovak.
Are there any attempts to change this situation with exports?
The Defense Alliance was established for this very purpose, and I am part of it. It is joined by associations that promote the idea of opening up exports, but so far officials do not consider it expedient. The TFU (Technological Forces of Ukraine) Association has collected interesting data: in the segment of drones, signal warfare and high-tech products, only 37% of the potential volume has been sold. The problem is not in capacity: for example, the production of artillery shells requires machines and considerable time, while technological developments can be scaled up quickly. However, the sales channels are lacking. This puts many Defense Tech companies at risk.
What is the future of Ukrainian Defense Tech?
Once the active phase of the war ends, 80% of Defense Tech companies will cease to exist. They do not have deep R&D experience and work exclusively for current demand.
10% of strong players will enter the international market, and another 10% will become part of large corporations, which is also a good result!
Can defense developments affect the startup industry?
Absolutely. We are already discussing how Defense Tech can integrate into the other areas. For example, self-propelled vehicle technologies can be adapted for agricultural automation. Those who are currently developing systems for war can create unmanned combines. This is a promising area, and I will be happy to see this development.
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