Two piece of news this week have cast Turkey back in the spotlight. Both developments illustrate the evolution of the fledging Turkish start-up market; the focus is expanding beyond e-commerce, attracting new investors and accelerator programs.
Firstly Berlin-based venture capital firm Earlybird Venture Capital launched a $130 million fund targeting Turkey and Central and Eastern Europe (CEE). That was followed by an announcement that Startupbootcamp, a pan-European accelerator, is to open up a program in Istanbul, Turkey’s largest city. Both developments illustrate the evolution of the fledging Turkish start-up market; the focus is expanding beyond e-commerce, attracting new investors and accelerator programs.
Turkey has Europe’s fifth largest online population (after Russia, Germany, UK and France). The country hosts the second largest Facebook population in Europe after the UK. And according to the Turkish Association of Advertising Agencies people in Turkey spend more time online than any other European nation except the UK. However, to date, exits in Turkey have been predominantly e-commerce. South Africa-based multinational media company Naspers took a majority stake in Markafoni.com, an e-commerce site; eBay snapped up marketplace, Gittigidiyor (it means “going, going, gone in Turkish); Amazon.com took a stake in flower and gift retailer; and General Atlantic invested into Yemeksepeti, an online marketplace for food delivery.
E-commerce is an area that the fund is not especially interested in, says Roland Manager (pictured on Informilo’s home page) who will run the fund and was one of Earlybird’s founders back in 1997,. “We are not rejecting e-commerce out of hand, but there is a high bar for e-commerce companies."
According to a Boston Consulting Group report in March 2012, the online retail sector grow to $9 billion by 2016, but still only account for 1.1% of all retail. By contrast in the UK, online sales are predicted to grow to 23% of all sales with a combined revenue of $230 billion by 2016.
About 60% of the money Earlybird’s fund has come from four large institutional investors: The European Bank for Reconstruction and Development, the European Investment Fund, the International Finance Corporation — a global development institution focused exclusively on the private sector in developing countries and part of the World Bank Group, and Istanbul Venture Capital Initiative — a fund of funds drawing from both private and public bodies including, and given the historical antagonism between the two countries, surprisingly, the National Bank of Greece Group.
Instead like all VCs he is looking for companies such as Hazelcast an in-memory data grid, that started in 2008 as an open-source project and was later spun off into a company. The company took a $2.5 million investment from Bain Capital and moved its operations to Palo Alto, while keeping its development center in Turkey.
Turkey's fledgling start-up sector is attracting the interest of other players such as Russia's Yandex. The search engine company, which opened its first operation outside of the Russian-speaking world in Turkey in 2011, is reported to be in talks with Turkish taxi start-up BiTaksi. Yandex would not comment on that, but Grigory Bakunov, director of technologies for Yandex said in an email: "We see quite a lot of great technology start-ups in Turkey and we are already in talks with some of them about potential partnership in different formats. A number of Turkey's universities preparing young technology engineers and entrepreneurs lead us to the belief that the country's startup market may boom quite soon."
The arrival of Earlybird as a competitor is not a threat, says Ali Karabey, managing director of 212 Limited, one of Turkey's biggest early-stage venture capital funds.
"They've been trying to raise a fund for some time now, so the fact they have done it is very good news indeed," he says. "Three years after we raised our fund, it feels good that other people have recognized that there is a need here. Turkey is short of funds.”
The data would certainly support that. Figures from Dow Jones VentureSource datastretching back over the last 10 years, show that when averaged out Turkey's tech ecosystem attracted just 0.06 the amount of venture capital per capita compared to the rest of Europe.
"One of our biggest problems is finding co-investors. With luck Earlybird will be one of those. Apart from the EBRD, 3TS seems to be the only player that has an active interest," says Karabey. 3TS Capital Partners is a private equity and venture capital firms in Central and Eastern Europe.
The continuing decline of the Turkish Lira was not something by which either investor was disturbed. The Turkish lira tumbled on Thursday to new record lows, driven in part by the ongoing political crisis in the country. The lira hit lows of 3.1061 to the euro and 2.2909 to the dollar, AFP reported. But both investors interviewed said they were not disturbed by this.
Roland he is more interested in companies that are based in Turkey rather than those that sell into the Turkish market. selling in And, he says, the weakness of the Lira means higher returns "The returns we are looking for are so much higher than the depreciation we have seen, we are trying not to let it affect us,” he says “We are not looking for a quick buck, we are in this for the long run."