KSE Institute, in cooperation with Brave1, has published a new study on barriers to growth and scaling for Ukrainian defense manufacturers. Since the start of Russia’s full-scale invasion, Ukraine has seen rapid growth in private defense companies, tech teams, and startups. For many of them, the question is no longer how to build a product, but how to produce it at a much larger scale.

The study is based on 14 in-depth interviews with industry representatives and experts and an online survey of 131 manufacturers. The findings mainly reflect companies for which scaling is already a relevant issue and should not be automatically extrapolated to Ukraine’s entire defense industry.

Many respondents are young, small companies. 41% have five employees or fewer, while 36% have reached serial production. Only 31% had previous experience with military orders, while 20% entered the sector with no relevant background. Small teams often have to develop the product, expand production, and build financial and management processes at the same time.

Products often reach military units early. 62% of manufacturers supplied products at the pilot production stage, while 68% turn military feedback into specific technical requirements. Sales also often begin before serial production, through direct sales to brigades and military units or through charitable foundations. This allows companies to get feedback and improve products quickly.

Scaling, however, is not only about producing more units. It also means maintaining quality, keeping supply stable, planning production, and managing finance, personnel, components, and documentation as volumes grow.

Other problems concern codification, testing, and cooperation between manufacturers. 20% of products in the survey have been codified, while 48% have not yet been submitted. Some are still at an early stage of development. Manufacturers also report uneven access to testing grounds and limited information on available testing opportunities. Only 26% of companies consider cooperation with other market players sufficient. Joint events, clusters, industry associations, and formats within the Brave1 ecosystem already provide some of these links.

Financing is another problem. 53% of respondents need additional funding but cannot secure it. The biggest needs are R&D, working capital, and production scaling. Some companies also lack the experience needed to work with banks, investors, and grant providers. Financing tools also need to reflect the specifics of defense companies, where standard approaches to risk assessment and information disclosure do not always work.

87% of respondents plan to grow in the near term, but only 19% have a formal development strategy backed by financial projections. Another 22% already have unused production capacity and could increase output with more predictable demand or better contracting conditions. Other issues include taxes, obtaining critical enterprise status and employee mobilization exemptions, the lack of long-term contracts, and shortages of qualified personnel.

Creating the conditions for scalability is a shared responsibility of all market participants. Government can simplify procedures, improve access to testing, and provide longer contracting horizons. Financial institutions and donors can expand funding for R&D, working capital, and production scaling. Industry platforms can support cooperation between manufacturers, exchange of experience, and mechanisms for collecting feedback from the Defense Forces. Companies themselves need stronger financial, management, and production capabilities.