Roy Strom, The National Law Journal
With its president ousted, its cities invaded, and its economy shriveling, Ukraine has lately been short on optimism.
Don't tell that to Cornell Law School professor Charles Whitehead.
Where many see a country in crisis, a modern-day stage for a Cold War-era drama, Whitehead sees a blank slate for investors. He is working to bring Western venture capitalism to Ukraine through a unique marketing of untapped research developed at a cluster of universities once known in the Soviet Union as "Science City."
Courtesy photo
For the past two years, Whitehead has been traveling to Kharkiv, a Ukrainian city just 20 miles from the Russian border, to lecture at Yaroslav Mudryi National Law University.
During those visits, he has worked with a Ukrainian scientist for the past four months to cobble together a constituency of universities, lawmakers and researchers to back his product: A private showing of never-before-seen research that Western and Ukrainian investors can get the first chance to commercialize.
Whitehead hopes to create a venture capital fund that will invest in technologies developed at about 15 Kharkiv universities and research institutes (so far) that, like the city's mayor, region's governor and U.S. Embassy officials, have met with Whitehead and signed off on the project.
And while the political crisis that roils the country is out of Whitehead's control, he is hoping to tackle another longstanding problem in Ukraine: judicial and political corruption. As part of the project, he is also working to help pass laws that will create the legal system necessary to convince investors to deploy money in a country ranked No. 130 out of 168 for corruption by Transparency International.
"This country has real economic problems," Whitehead said in a phone interview from Kharkiv in July. "They're fighting about four hours south of where I am, and yet they're sitting on a real wealth of technology that they don't know how to commercialize."
Transferring technologies to the real world from the university research lab is common in the United States, with top universities earning upwards of $100 million a year in licensing fees, according to the Association of University Technology Managers, a research group.
But Kharkiv universities have only recently been motivated by capitalism. They were previously a research hub for the Soviet Union.
The Red Army's impactful T-34 tank was developed in part at Kharkiv Polytechnic Institute. The Kharkiv Aviation Institute developed missile technology. And nuclear research was done in Kharkiv, Ukraine's second-largest city. "There was a period of time where if I'd walked into some of these universities, they would have put me behind bars," Whitehead said.
But today, in a city of more than 130,000 full-time students and 100 universities and research institutes, Whitehead is greeted out of hopes his project may provide an economic lifeline. The fighting in the country has devastated university budgets. Last January, Whitehead said he lectured in classrooms with no heat to students wearing gloves and heavy jackets.
The project has been a bit of a homecoming for Whitehead, who lived in the Soviet Union for two years as a boy thanks to his father's work in the U.S. Foreign Service. But the opportunity arose after a chance encounter.
The former Sullivan & Cromwell associate, who is now the director of Cornell Tech's Law, Technology and Entrepreneur program, was approached by two Ukraine law students while speaking about his work at the Goethe University in Frankfurt. They told him Ukraine could use a program to meld its education system with private business.
"I think they expected me to say, 'What's a Ukraine?' Instead, I said, 'I'd love to do it,'" Whitehead said.
So Whitehead arranged to lecture at Kharkiv's Yaroslav Mudryi National Law University, where he has since been named the first honorary professor in the school's 150-plus year history. He arrived in October 2014, just a few weeks after anti-Russian protestors in Kharkiv tore down a statue of Vladimir Lenin.
Russian troops occupied Crimea in February 2014. Whitehead, who says his Russian is "good, not great," said he has never encountered any safety issues in the country.
Having visited more than 15 times in the past two years, Whitehead teaches the Ukrainian students courses on law and entrepreneurship, and he has been joined via video conference by lawyers from Wilmer Cutler Pickering Hale and Dorr; Cooley; Wilson Sonsini Goodrich & Rosati; and Dentons.
A former managing director at Salomon Brothers and Citigroup Inc., Whitehead also is working with the government to ensure that laws will be in place to let a venture capital system flourish. The country has a history of corruption, especially in the judiciary. Among its government institutions a 2010 Transparency International poll said the Ukrainian public viewed the judiciary with the most skepticism.
But for a country that has seen its GDP fall 10 percent last year after dipping 7 percent in 2014, according to the CIA World Factbook, Whitehead is hoping the benefits of outside investment will provide a strong incentive to develop and follow the rule of law.
"We're using market incentives to create an interest on the part of Ukrainian legislatures, Ukrainian universities and participants in the process in Ukraine to adopt a system that will permit the commercialization and the transfer of property, the introduction of a rule of law process like we see in the United States," Whitehead said.
There are also legal steps to ensure that a successful company doesn't get snatched away from Western investors, Whitehead said. The companies can be structurally based in the U.S. or Western Europe, which would give investors recourse in those countries' courtrooms. And a bilateral investment treaty between the U.S. and Ukraine should also help investors in U.S. courts if their investment is breached in Ukraine.
Whitehead acknowledges there are "real risks" to investing in Ukraine.
But he said he is hopeful that the first investment can get off the ground within the next six months. And there is one advantage to the recent turmoil, he said. The Ukrainian currency has plummeted more than 50 percent compared to the dollar since 2014, meaning Western investments in Ukraine go a lot further.
"This is one of those situations where the wind is really to our back right now," Whitehead said. "This is the right idea with the right group of people at the right time in Ukraine's history."
Count him among the few Ukraine optimists.
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