UKR: Navigating Ukrainian miltech’s wild entry into U.S. market

Presented by FTI Consulting

BLUF: For Ukrainian companies, entering the U.S. market is far more complex and slow-moving than they might be used to – shaped by the Pentagon’s rigid procurement system, strict supply-chain requirements, and mandatory testing under U.S. procedures.

Russia has started using a new strike drone, the Geran-5, which, in terms of technical characteristics, is similar to a cruise missile and is designed to bypass Ukraine’s air defense systems due to increased speed and flight range.

Ukrainian-Estonian startup Farsight Vision and Estonian company CrystalSpace have received a joint grant to develop autonomous systems that can operate without GPS.

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More than six months after the first rumors of a U.S.-Ukrainian ‘mega-deal’ involving joint production of drones and other critical technologies, U.S. and Ukrainian negotiators are still hammering out a framework for industrial collaboration. 

A Ukrainian delegation visited the United States early October. American delegations visited Ukraine twice over the following two months.

Some joint production is finally getting underway. In November, Volodymyr Zelenskyy announced that a Ukrainian company had begun producing interceptor drones in collaboration with a U.S. company. Zelenskyy did not specify the companies involved.

As a precondition to the still-evolving wider deal, Ukraine has pledged to buy — with European financing – U.S.-made weapons worth at least $10 billion. 

In exchange, the United States could invest $50 billion in joint efforts by American and Ukrainian companies to produce drones and other defense tech honed in Russia’s war in Ukraine. There may also be substantial American demand for Ukrainian counterdrone tech.

“There's a frequently expressed appetite for new ideas and breakthrough technologies,” explained Dan Ward, a former U.S. Air Force acquisitions officer. “At the same time, there is a huge emphasis on conformity, predictability and control. So there’s tension between what they say they want and what they are able to accept.”

For Ukrainian-led firms in the United States, these new opportunities come with new challenges:

“It’s really difficult to come in as a foreigner and crack [U.S. Defense Department] acquisitions,” said Porter Smith, co-founder of California-based tech firm CX2. 

It’s all about the sheer scale of the U.S. defense budget: The U.S. spends around $900 billion a year on its armed forces—as much as the next 10 countries combined. The American process is much more formal and slower than the alternatives —even after a series of reforms under the so-called Adaptive Acquisition Framework in early 2020. 

Broadly speaking, here are the multiple acquisition pathways for weapon systems:

Generally speaking, the demand starts in one of the U.S. military branches or one of the major commands, which lump forces from multiple branches into regional (U.S. European Command, for instance) or functional organizations (for example, U.S. Global Strike Command, which oversees nuclear forces).

The branch or command formally expresses a tech requirement, at which point various oversight organizations within that branch or command endorse or reject the requirement. 

After that, it’s in the hands of the bean-counters. Budget officials must find existing funds to pay for the tech, or add new funds to some future annual budget request.

It’s complicated. And it’s slow. Urgent acquisitions are likely to be fastest—but in the Pentagon system, they can still take up to two years.

The Pentagon also expects its vendors to offer products with secure supply chains. That means supply chains that don’t run through China.

The same wartime urgency that speeds up decision cycles in Kyiv may also compel smaller firms supporting the Ukrainian war effort to include Chinese parts in their systems. 

After all, Chinese-made components are often cheaper and easier to acquire than their Western equivalents.

But to expand into the U.S. market, these companies must strip out Chinese parts. The office of the U.S. Secretary of Defense maintains a long list of Chinese components that are forbidden by law. That list has been growing fast since the early 2000s.

The implication is clear: A company trying to break into the U.S. defense market should know where its parts are made. If any are made in China, it should look for alternative sources.

Trust is everything. Pentagon officials are looking to be reassured as they meet new vendors for the first time.

Demonstrations must take place at a U.S. government test range under U.S. government protocols. Companies would need an invitation to the range—from an established U.S. partner or, better yet, from a prospective military buyer that has already codified an official requirement for a system.

Securing that invitation is just one of the many steps in an aspiring U.S. defense contractor’s ponderous, bewildering—but potentially lucrative—journey into the American weapons market. 

Russia has deployed the Geran-5, a new strike UAV with characteristics more akin to a cruise missile. Its primary purpose is to bypass Ukrainian air-defense and counter-drone systems.

Earlier jet-powered Shahed variants are gradually losing their edge as their speed remains insufficient and interception vulnerability increases. 

Russia has already used a limited number of Geran-5s during recent mass strikes, an air defense serviceman with the call sign Cat told The Arsenal. It is not an original Russian development but is based on Iran’s Karrar interceptor drone, he added.

The Geran-5 may be capable of carrying a warhead of up to 90 kg over a range of around 1,000 km and reaching speeds of 500–600 km/h, enabling air-defense systems circumvention. The UAV is reportedly designed for air launch from a jet aircraft, increasing its range, speed, and maneuverability. 

The drone can be launched from an aircraft, significantly reducing the time needed for its detection, the air defense serviceman said. 

Ukrainian-Estonian startup Farsight Vision and Estonian company CrystalSpace have received a $1.5 million grant under Estonia's Applied Research Programme. The project focuses on creating systems capable of processing data directly onboard platforms and operating in environments with limited or no GPS signals.

The joint project will run for 18 months, from January 2026 to June 2027, Viktoriia Yaremchuk, co-founder and CEO of Farsight Vision, told The Arsenal. The key objective is to increase autonomy and decision-making speed for unmanned systems.

According to Yaremchuk, the main task is to enable the system to analyze video streams in real time, generate three-dimensional terrain models, detect objects and environmental changes, and immediately use this data for navigation and decision-making. All processing is performed directly within the camera, close to the sensor, significantly reducing latency and reliance on external servers and communication links.

The approach uses 3D environment models that replicate real-world conditions, including terrain, objects, and spatial changes. This allows the system to be tested across multiple scenarios while algorithms are refined in parallel with real-world trials.

The Ukrainian Council of Defense Industry has launched the UCDI Investor Club, a strategic platform designed to connect investors with Ukrainian defense companies, streamlining capital raising and fostering deep cross-border cooperation. 

With 15 investment funds already onboard, including D3 VC, MITS Capital and Greenflag Ventures, the club is poised to become a central hub for scaling innovations for international markets. 

Investors can join the club by referral from an existing member, after which a personal interview is required. The club has strict criteria and is seeking institutional investors who are active in Ukraine, not angel investors, Eveline Buchatskiy, head of the UCDI Investor Club, told The Arsenal.

The club will meet once a month to discuss current topics, share experience, and provide mentoring for defense companies, she added. 

UCDI is also working on mechanisms for startups to submit applications to investors.

As for available investment mechanisms, funds may compete for certain opportunities, while co-investment is also allowed when it makes sense, said Buchatskiy.

By: Oksana Zabolotna

Identifying Defense Industry Enterprises Eligible for Suspension of Enforcement Actions During Martial Law 

Resolution CMU №1576 dated December 3, 2025

Why it’s important: 

Here we’re talking about enforcement primarily aimed at debt recovery against enterprises. Certain coercive measures—such as the seizure of funds or property—may be temporarily paused. This does not cancel debts or obligations; it only suspends their enforcement during martial law and only for enterprises that meet all established criteria.

These amendments ensure that the suspension of enforcement actions is applied in a targeted manner exclusively to enterprises for which defense production constitutes the core activity, thereby reducing the risk of abuse of special status and unjustified restrictions on creditors’ rights. The introduction of a clear quantitative threshold and the requirement to meet all conditions simultaneously enhance legal certainty and facilitate consistent application of the rules. 

Proposals:

Stage: Entered into force on December 5, 2025.  

Initiator: The Cabinet of Ministers of Ukraine.

What’s next: Implementation of the resolution. 

Black Forest Systems is a defense-tech startup building infantry-first unmanned systems designed for real battlefield conditions.

Their solutions combine proprietary electronics, secure communications, and control software into vertically integrated platforms that prioritize simplicity, safety, and rapid deployment. The systems are designed so that even soldiers without drone-piloting experience can operate them effectively with minimal training.

“Our mission is to shift complexity from the operator to the technology itself,” said Oleksandr Davydenko, CEO of BFS. “We build systems that simplify decision-making and give every infantryman access to advanced unmanned capabilities.”

Black Forest Systems is currently raising $500,000 to expand manufacturing, sales, deployment, and R&D to build a solid foundation for future scaling.