Issue #55: Letter from Kyiv

Putin tried to kill me today

Greetings from Kyiv, the beautiful capital city of Ukraine. I’m writing this on 20 December. I’ll explain why I’m here after I get to how Putin tried to kill me this morning.

Prologue: A Party and a Prophecy

On Wednesday, our team went for its holiday event about an hour south of Kyiv to an artisanal bakery/cafe on a cliff overlooking the Dnipro River. Standing at the edge of the cliff, 100m over the river, I could see 40km down the meandering banks.

Alex, the owner of the bakery,¹ explained to me that the wide-open vista is because the east side of the bank is used as an artillery range. So it goes in a country that is fighting for its existence.

Then we had a conversation that went as follows:

Alex: “Only evil comes from the East.”

Me: “But the sun comes from the east. Isn’t each day a gift?”

Alex: “Well, there is that. The exception that proves the rule.”

Little did I know how prophetic his words would be two days later.

A Wake-Up Call from Comrade Putin

The air raid siren went off a bit before 7 am this morning. This is a common occurrence in Kyiv—sometimes up to four times daily. Like everyone I know in Kyiv, I rolled over to wait for my 7 am alarm to go off. When it did, I hit snooze.

Before the snooze woke me, I was jolted out of my bed in Room 504 of the Holiday Inn Kyiv² by a Russian missile strike. It was close—way too close. Close like you only see in a movie. It felt like an earthquake. The whole building shook, and I could not believe the window didn’t shatter. I started to get dressed to get the hell out of there.

Within two minutes, there was another strike, even closer. The window held again. My instinct was crawl under the bed, but there is no under the bed in most hotels, so I ended up in the bathtub.

The power switched to generator and wifi still worked. The hotel PA system broadcast an alert in Ukrainian and English saying a fire was reported in the building and guests should exit the building via the stairs. I grabbed my coat and backpack and joined the line of guests descending the stairs. No one panicked. No one said a word.

We didn’t leave the building; we went into the basement bomb shelter. The air had a metallic/plastic tang from the dust of the explosions.

No one from the hotel management was there. Most of the people were on their phones. I texted my partner explaining what happened and that I was ok and to make sure nothing had hit near his home. I called my wife.

After about 20 minutes, the all-clear went out via Ukraine’s air raid app, and people started leaving. I went up to the lobby, and that’s when I learned how close the hit was. It had taken out every window on the street side of the building. The lobby was full of glass and the entrance to the elevators was totalled.

I went outside through the glass doors that no longer had any glass in them and started taking pictures and videos. Emergency services had not shown up yet. The street was full of rubble. People were wandering around. Some hotel guests had parked on the street, and their cars had the windows blown out with debris crushing the roofs. People were crying.

The building next door had its face ripped off. One of my partners had owned the restaurant in the picture.

I tried to assess my reactions. I felt calm, which surprised me. The other emotion was outrage. Outrage that in the 21st Century, we let Russia get away with this.³

Alex was right: Bad shit does indeed come from the East.

Why My Hotel?

Putin wasn’t targeting me, so why target the complex where my hotel is? Because the headquarters of the SBU’s Alpha Unit⁴ is across the street from it. These are probably the guys who took out the Russian general in charge of their biochemical attacks on Ukraine.⁵ Tit for tat, with the Holiday Inn as collateral damage.

What Brings Me to Kyiv? It’s a Long Story…

Feel Free To Skip the Rest of This

I have an office here for my company, MITS Capital.

In February of 2022, when Russia launched its full-scale invasion of Ukraine, I was helping to run BOMA.ngo (see Issue #54) and was a two-time loser for office in Ketchum.

When there was no response from the UN or NATO to Russia’s violation of the UN Charter, its obligations under the Budapest and Minsk Agreements, and the Geneva Conventions, I was dumbfounded. I wanted to do something. But what?

I did what 3,000 other Americans did—I applied to fight with Ukraine’s International Legion. They have a website. I knew I didn’t have much to offer; I figured they’d make me a cook or an ambulance driver, I’d learn Ukrainian, and then work my way into a logistical support role.

A week later I received an email from Bohdan in the Ukrainian Embassy in DC, rejecting my application but saying he had looked me up on LinkedIn and that we shared Friend A in common via my work with the International Institute of Strategic Studies⁶ Friend A was the point person for NATO with Ukraine during the Crimea Crisis. Friend A and Bohdan asked me to work with Denys Gurak to bring capital into Ukraine’s domestic defense industrial base. During the Crimea Crisis, Denys had been the Deputy Director of Ukroboronprom and the point person between Ukraine’s defense industry and NATO.

MITS Capital is Born

Denys and I brought in a third partner, Anton Melnyk. Anton is a well-known technologist in the Ukraine start-up community and had helped to stand-up Ukraine’s Ministry of Digital Transformation. In January of this year, we launch MITS Capital, LLC.⁷

Our first project has been MITS Accelerator for Ukrainian defense tech startups, which we operate in partnership with American University Kyiv.⁸ It is a Y-Combinator-style accelerator: we provide seed capital and a three-month boot camp and take an ownership interest in the participants. When they graduate we help them find customers, production facilities, and additional investment. Batch1 was launched on May 17 and Batch2 commenced on November 15. Eleven companies have participated, and we plan to run at least two more batches of 12-20 companies in 2025.

The participants are startups in electronic warfare, drone detection, secure communications, GPS-denied navigation and drone components.

In addition to MITS Accelerator, MITS Capital has invested in two US-owned companies that operate in Ukraine and sell into the Ukraine defense complex.

MITS Capital also acts as a consultant to more established Ukrainian defense companies. We are working on several transactions to bring European capital investment into Ukraine’s defense industrial base.

In 2025, we will launch MITS Lab, a platform for applied R&D in defense technologies like drone swarming and energy weapons.

Why Am I in Ukraine This Week?

1. Gave a lecture at MITS Accelerator

2. Was a keynote speaker at yesterday’s annual meeting of Ukraine’s Innovation Development Fund⁹ run by the Ministry of Digital Transformation.

3. Meet with representatives of an EU body to talk them into giving growth capital to MITS portfolio companies.

4. Talked one of our consulting clients out of doing a bad deal with some potential investors. We have a better deal in mind for him.¹⁰

5. To take the office out for our holiday party.

6. To be a keynote speaker at today’s Victory Drones innovator award event.. I was a few minutes late.

US/NATO Needs Ukraine

World War III is in the early stages; the democracies are losing. In terms of population, area and GDP, democracy has been losing share to autocracy for the past 20+ years.

Russia could not have invaded Ukraine and cannot maintain its war in Ukraine without the backing of China. China provides much of its weaponry, including US made chips via Hong Kong. Almost every Russian and Iranian drone and missile has US chips in it. China is Russia’s major financier and accounts for 50% of Russia’s exports. It would be impossible for Russia to maintain its invasion without China support.

Russia, China, Iran and North Korea invade the US cybersphere every moment of every day. This includes assaults on government servers, but also the servers that control our utilities and other critical infrastructure. Verizon and ATT’s networks are riddled with Chinese components that have allowed China to tap into almost any phone call it wants on those networks (including those of Trump).

In a kinetic conflict with China, the US loses. So say every war game about Taiwan. We can only deploy one-third of the US Navy at an time. We make 0.1% of the ships that China makes. We can’t make enough ammunition to supply our own troops, and we are dependent on India for explosives. In the big picture, the US is the high-cost producer of almost everything and China is the low-cost producer of almost everything. In a protracted war of technologically similar rivals, the low-cost producer wins. Both Ukraine and Russia cannot buy enough Chinese drones. Ukraine doesn’t buy any drones from the US.

China beats the US on every factor of production cost. Land, labor, energy, regulatory burden, etc. How can the US narrow its defense industrial base gap with China?

Innovation is one way, but China can copy US innovation very rapidly. They already have designed a home-grown Nvidia AI chip.¹¹ Why wouldn’t they? The US hosts about 90,000 Chinese students to study AI and quantum computing—every year. And China increasingly innovates on its own—their auto industry makes better quality cars for less than any manufacturer in the US or Europe.

The only way the US can regain some defense industrial base competitive advantage is to partner with free world countries that have the manufacturing expertise and cost structure to compete with China. That is a very short list: Ukraine and Mexico. And Mexico doesn’t have much of a defense industry.¹²

In the free world, Ukraine is the low cost producer of defense tech and defense production. It was the defense industrial base of the USSR. Handing this over to Putin would be a strategic mistake of epic proportions.

Not to mention the free world’s largest and only battle proven military. Losing that to Russia seems…unwise.

And then there are the minerals. According to a Washington Post article yesterday, Ukraine sits on $25 tr of critical minerals. 27 of them. 22 of them which the US sources from Russia and China. For example, Ukraine has the world’s largest uranium deposits. Right now, the biggest source of uranium for the US power industry is Kazakhstan—mines owned by China and Russia. Ukraine is rich in neodymium, which is used for most magnets. Including the magnets in almost every small drone motor used by the US military. Currently, China is the source of 90% of the world’s neodymium. Indeed, 40% of US weapons systems are dependent on Chinese components.

As China increasingly disengages with the West as it shifts from export-led growth to domestic demand-driven growth, its relative power grows while that of the US wanes.

Saving Ukraine is not only good for the Ukrainians; it is an investment in the strategic security of the US-led liberal world order.

Investing in Ukraine’s Defense Industrial Base

None of the “usual suspects” are investing in Ukrainian defense tech. All those billions of dollars of US aid? Not $1 goes to a Ukrainian defense company—it all goes to the US military-industrial complex. The same is true of every European nation’s military aid (except for Denmark).

All those Silicon Valley defense tech venture capital investors? I don’t know any member of the US Defense Investor Network that has been to Ukraine. The pickings are too easy finding small companies to sell to US defense primes. The same is true of the members of the UK Defense Investor Network and the EU Defense Investor Network—they are no-shows in Ukraine.

That leaves Ukraine with…me and MITS Capital. No competition. We see every deal. The government sends companies to us. Valuations are under one-third of what they would be in the US/EU. If only there weren’t a war on…

This post has gotten longer than I intended. I am still punchy and in shock from this morning.

Slava Ukraini!

1. Alex is the Nathan Myrhvold of bread. He runs Vytich, where he makes a wide variety of artisanal breads using locally sourced organic grains. He built his wood-fired ovens (Alpha and Beta) with his own hands.

2. Most foreigners doing government business stay at the Intercontinental, which is probably the nicest hotel in downtown Kyiv and very convenient to the government center. However, that is well known in Russia and it is common knowledge that every room in that hotel is bugged. As is the Hilton near the US Embassy.

Normally I stay at REDACTED, a smaller hotel near the Maidan Square and near the bar with the largest whiskey collection in the world. But our office is a 10-minute walk from the Holiday Inn (which is was actually quite nice), so I decided to mix it up. I won’t be staying there again for a while. Neither will anyone else.

3. That sense of outrage hit me in February of 2022 and is why I am in Kyiv.

4. https://en.wikipedia.org/wiki/Security_Service_of_Ukraine

5. This was confirmed by the Russian Ministry of Defense after I drafted this.

6. The IISS is a London-based think tank. It publishes an annual report called The Military Balance. I sat on their US board and had been an IISS delegate to the Shangri-La Dialog of Asian defense ministers (in Singapore) and the Manama Dialog of Gulf defense ministers in Bahrain).

7. MITS.Capital

8. AUK is the only US-style graduate school in Ukraine. It has a beautifully restored ferry terminal on the Dnipro River as its campus. It is an affiliate of Arizona State University.

9. You can find my comments here: LINK

10. We did this over dinner at a Georgian restaurant. The food scene in Kyiv is world-class. We really need to bring Georgian cuisine to the US—it is very popular in Ukraine. I can confirm they have great Italian, Japanese and French restaurants. In return, they could use Mexican and Thai.

11. China still lacks the lithography equipment to make that chip. How long do you think it will take them to acquire that capability? My bet is two years.

12. I’m going to Mexico in March to try to change that.