PE Firms Make Big Internet Bets In Emerging Markets


When Melih Ödemis  co-founded Turkish online food ordering company in 2001 there were plenty of skeptics. Even his best friend – an Internet savvy investor — told him not to do it. But Ödemis and his partners persisted and in September their bet paid off. General Atlantic, a global growth equity firm, invested $44 million in exchange for a minority stake.

There was no need to do a road show to raise the round. Some 20 U.S. and European VC and PE firms trekked to Istanbul to see Yemeksepeti.

It is a sign of the times. Emerging markets are now a big draw for both private equity and VC funds. And PE firms — until recently almost entirely absent from the Internet sector — are more comfortable making massive bets. The upshot? New players are attracting funding from new sources in new markets.

Questions around high valuations, difficulties with predicting Internet cash flows and competitive threats around technology disruption are less of a concern now than in the past, says Marco Rodzynek, a partner at Noah Advisors, the corporate finance firm behind NOAH, a conference focused on late-stage Internet investment taking place in London November 6th and 7th. “With the structural transition of eyeballs and shopping behavior from offline to online, we finally see a highly-awaited shift of the buyout funds to focus on online opportunities,” says Rodzynek. “KKR, Permira, Hellman Friedman and many others want to bet on the right side of the medal when investing large equity checks.”

Since bricks and mortar companies in emerging markets often don’t have the expertise to develop turbo-charged digital companies, PE firms are increasingly writing checks to young entrepreneurs like Ödemis, who are jumping in to fill the gap, benefiting from first-mover advantage in fast-growing markets like Turkey and Russia.

Founded in 2001, when Ödemis was just 24 years-old, acts as a portal, bringing together consumers and restaurants, enabling consumers to order food online, with no extra charge. It makes its money by taking a cut from restaurants for orders placed. It has 1.5 million registered users across Turkey and the Middle East who submit over 50,000 orders daily.

The platform encompasses more than 6,500 restaurants including Burger King, Domino’s Pizza, KFC, Little Caesars Pizza, McDonald’s, Papa John’s and Pizza Hut.

In addition to its core delivery restaurant marketplace, Yemeksepeti is developing new product offerings including a marketplace for grocery ordering, a restaurant reservation and review service, and a local delicacies ordering platform.

When Ödemis and his three co-founders — Nevzat Aydın (the company’s CEO), Gökhan Akan and Cem Nüfusi, started the business there were only two million Internet users in a country of 70 million people. “We looked at what was happening in the U.S. and saw from day one the possibilities,” says Ödemis, Yemeksepeti’s CIO. Today there are an estimated 38 million Internet users in Turkey. Add in the Middle East – where Yemeksepeti is expanding — and the number jumps to 115 million. Less than half of the population in these countries is online so the potential to grow is huge.

Ödemis and his partners bootstrapped Yemeksepeti with $80,000 from friends and family. The business really started taking off after telecom operators began extending Internet services to the masses in 2005. In 2008 the company raised $3 million from the European Founders Fund, which was started by Germany’s Samwer brothers.

For the latest round Yemeksepeti chose General Atlantic and Endeavor Catalyst, a philanthropic investment vehicle supporting high-impact entrepreneurs in global markets. The investment was General Atlantic’s first in Turkey. PE firms are a better match for Yemeksepeti, because it needs growth capital to further build the business, not pressure to exit, says Ödemis. “The VCs bring up exits within the first five minutes of conversation,” he says, while the PE firms are more patient and content with 3x to 5x returns.

Relations are not necessarily adversarial: In many cases PE firms are teaming up with venture capital firms to help high-growth Internet companies in emerging markets to scale. Take the case of, a fast-growing Turkish on-line fashion site. Last May it attracted $26 million from venerable Silicon Valley venture firm Kleiner Perkins Caufield & Byers and existing PE investor Tiger Global to fuel continued growth. The investment was the first in Turkey for KPCB, an investor in Google, Amazon, Twitter and AOL.

Russia’s Red Hot

While investments in Trendyol and Yemeksepeti highlight the unprecedented Internet and e-commerce growth market opportunities in Turkey, Russia, Europe’s largest and fastest growing Internet market, is also proving a strong lure.

PE and VC firms have been pouring tens — and sometimes hundreds — of millions of dollars into companies such as Ozon, KupiVIP,, Wikimart and B2B Center.PE firm Baring Vostok Capital Partners, the largest shareholder in Ozon, for example, has raised a $1.5 billion fund in Russia to invest in local Internet projects, financial services and the resources industry.Baring Vostok’s investments also include stakes in Yandex, Russia’s most popular search engine, which raised $1.4 billion in an initial public offering on Nasdaq in 2011.

Private equity investors are focusing on the new generation of companies serving Russia’s promising online consumer and business-to-business markets. With 50.8m internet users registered in September 2011, Russia has overtaken Germany as the largest internet market in Europe and a 2012 e-commerce report by is projecting that the Russian e-commerce market will be worth between $40 billion and $60 billion by 2020.

Europe’s Internet Companies Attract PE

Private equity firms are not limiting their investments in Internet companies to emerging markets. They are increasingly active in western European Internet market as well. PE firms first starting investing in European Internet companies as far back as 2005 and were visible in two very high-profile deals: a $180 million investment by Summit Partners in French flash sales site in 2007 and the acquisition of 70% of Skype by a group of investors led by Silverlake in 2010.  And industry observers say the number of PE investments in European Internet companies is increasing. (See a few examples on page 18). This is partly because Internet companies are now considered to be more stable businesses but also because Europe is producing a greater number of successful fast-growing Internet companies. (See the story on pages 4 and 5.)

Take the case of General Atlantic, which opened its first European office in 1998 and has invested over €2.5 billion to support the growth of nearly three dozen European companies. Many of those deals involved bricks and mortar companies but recent investments include Axel Springer Digital Classifieds, an online classifieds business headquartered in Germany, and Sweden’s Klarna, a pan-European e-commerce payment platform that has also attracted investment from VC firms such as Niklas Zennström’s Atomico and Silicon Valley venture capital firm Sequoia Partners.

For its part, KKR announced in May that, in exchange for a 50% stake, it would make a $150 million growth equity investment in Fotolia, a European crowd-sourced market place for microstock images and video content. Some 145,000 professional and amateur photographers license their images via Fotolia, which was founded in October 2005 by Oleg Tscheltzoff and Thibaud Elziere. With over 17 million digital images and videos to choose from, Fotolia, which operates in 15 countries, offers one of the largest image databases for individuals, graphical professionals, SMEs and big corporates.

In addition to its investment, KKR, TA
 Associates and Fotolia’s management worked with KKR Capital Markets, which acted as sole arranger, HSBC, Lloyds, GE Capital, IKB and Mizuho to put in place $150 million in senior financing for the company. NOAH Advisors represented Fotolia on the deal.

Although Fotolia, which raised growth investment from TA Associates in April 2009, is not raising new funds as part of the deal, the company said its new partners will help it to expand internationally, accelerate business development, and fund future acquisitions.

It is important to note that Europe’s largest e-commerce fundraise for 2012 came from private equity group Vitruvian Partners, which invested $64 million in Just Eat, an online takeaway ordering service founded in Denmark and now based in the U.K. which is active on four continents and used by millions of consumers.

Alongside Vitruvian, existing backers Index Ventures, Greylock Partners and Redpoint Ventures also contributed to Just Eat’s round, with Torch Partners advising. The three venture capital firms previously invested £30 million in March 2011, following Index’s original investment of £10 million in 2009.

Just Eat says it plans to use money raised in the latest round to make acquisitions.

Yemeksepeti, which is in the same line of business, was founded around the same time, but don’t try telling Ödemis that his company is Turkey’s answer to Just Eat. “Just Eat is Europe’s Yemeksepeti,” he says with a smile. The Turkish company also has big expansion plan. If PE firms are right, both will soon become even bigger household names in a greater number of countries.