Venture capital investors eye further growth in Turkey

ANKARA (AA) – Turkey is unquestionably an attractive market for venture capital investors thanks to its prime location, its young, educated workforce, and the depth of Turkish entrepreneurship, according to seasoned market-watchers and an analysis of the economy’s prospects.

“Venture capital investments in Turkey are still immature and yet have been attractive with the increased interest of international angel investor networks and the activity of domestic investors,” Demet Ozdemir, Ernst & Young Turkey corporate finance company partner and growth markets leader in the area of EMEIA, told Anadolu Agency Tuesday.

Although venture capital investments in the country are lagging compared to developed economies, said Ozdemir, Turkey is a very promising market for investments with a medium- to long-term perspective.

Ozdemir also pointed to the technology and healthcare sectors as being more attractive for venture capital funds in Turkey.

In recent years, with a rising number of tech centers and incubation centers established especially at universities, Turkey has developed an entrepreneurship ecosystem for enabling the country’s competitive position, she added.

The country has many startup companies with innovative ideas but often no financial institution they can turn to for the funds needed to get their businesses up and running.

Private investors can also take part in financing new startup companies to help them prove themselves and the profitability of their business ideas.

According to Startups.Watch, Turkey's first digital enterprise and investment analysis platform, the number of venture capital investments in Turkey made by CVCs (corporate venture capital, corporations making systematic investments into startup companies), VCs (venture capital, firms focused on financing startups and small businesses with long-term growth potential), and individuals in technology-based ventures rose sharply from only 11 in 2010 to 85 last year.

- Investments from CVCs soar

Last year CVCs in Turkey made investments adding up to $25.4 million, up from $2.2 million in 2012, soaring 12-fold from the total of only four years earlier.

Some Turkish companies such as MV, Koc, and Sabanci Holding are very active in corporate venturing, and their investment arms are focused on technology in particular.

MV Holding, a founding partner of Turkcell and KVK, became a 24 percent shareholder in Cardtek, a company providing innovative end-to-end payment solutions for financial institutions, processors, and telecom operators, and is one of Turkey’s fastest-growing technology firms.

Inventram, a technology-investment company of Koc, invests in early-stage startup companies with growth potential. Mitsui & Co, one of Japan's large-scale holding companies, partnered with Inventram last November, with a 30 percent share.

Inovent, Turkey's first technology commercialization/accelerator and core fund company, founded by Sabanci University in 2006, shares the same aims: To pursue innovation.

In Startups.Watch’s investments list, there are Turkish initiatives supported by major international players such as Amazon, the European Bank for Reconstruction and Development (EBRD), and Goldman Sachs.

- Growing interest in early-stage tech firms

Ali Karabey, a founding partner of 212 Capital Partners, said Turkey needs to create 800,000 new business areas per year, which will be established by entrepreneurs.

“There is a growing interest in early-stage technology companies in recent times,” he added.

Since its inception, Istanbul-based 212 has invested in 12 companies with a total value of $22 million. These companies have managed to attract capital investments of $55 million.

As for 212’s investments last year, Karabey said they invested $5.5 million in four companies in total.

"We will actively continue to support these investments in 2017," he added.

These companies are online payment system iZiCo, supply chain optimization software Solvoyo, cloud-based online sales and channel management platform for hotels HotelRunner, and online customer experience-building platform Insider, Karabey said.

“2016 was a difficult year for our country and our entrepreneurs. I think 2017 also won’t be easy,” he explained.

“Financing and finding new investment will be a bit more difficult for newly established and early-stage companies. Nevertheless, I hope that the support of these companies will come from angel investors. Another hope is the big companies in Turkey, where there has recently been growing interest in early-stage technology companies.”

- ‘A wealth of long-term opportunities in Turkey’

"Last year's political developments may have reduced the interest in venture capital investments in Turkey, especially from international investors, but this is believed to be a temporary issue," said Ali Coskun, the director of Bogazici University’s Center for Applied Research in Finance (CARF).

“If we bear in mind that this relatively negative mood is not persistent and future consumption potential is very promising thanks to widespread use of technology and potential increases in domestic demand across many different sectors within the country, we can say that there are still a lot of long-term opportunities in Turkey,” he added.

Coskun also said investment habits may change in favor of non-interest bearing instruments mainly due to the loose monetary policies followed especially by the European Central Bank.

“However, banks and funds that support innovation across all sectors and sustainability-oriented agricultural projects in particular can really make a lot of difference in economic growth. I strongly believe that this kind of investment will also be the best choice in terms of return on capital for venture capital funds amid current economic and social conditions in the country,” he explained.

Ahmet Serhat Can, a coordinator at Bogazici’s CARF, stresses that the most notable investments have been in sectors such as technology-based e-commerce sites but many real sector companies that have matured in their own markets have also been the subject of investment for domestic and foreign risk capital companies.

“When we examine the performance of those companies, we see an increase in productivity and operational sizes in the subsequent period after the investment agreement,” he added.