The State of Turkish Startup Ecosystem 2020 StartupsWatch ... · to Turkish entrepreneurs looking to participate in accelerator pro-grams abroad. Undersecretariat of Treasury (Ministry

An In-Depth Analysis and Evaluation

2020

THE STATE OFTURKISH STARTUPECOSYSTEM

The State of Turkish StartupEcosystem 2020

Version: v1 // 2020

WELCOME TO THETURKISH STARTUPECOSYSTEM

A More Experienced, Stronger Ecosystem

Credits & Contact

Startups WatchIstanbul, Türkiye

http://[email protected]

Serkan Unsal Founder, CEOSenem Deniz Sagiroglu Unsal Analyst

Presidency of the Republic of Turkey Investment OfficeIstanbul, Türkiye


TABLE OF CONTENTS

Section 1 | TURKEY SNAPSHOT

Section 2 | SUPPORTING ECOSYSTEM

Section 3 | STATE OF ECOSYSTEM

Section 4 | WHY TURKEY & WHY NOW

| APPENDIX

Ali Karabey

Atıl Erken

Barış Özistek

Cem Sertoğlu

Cenk Bayrakdar

Dilek Dayınlarlı

Ebru Dorman

Enis Hulli

Haluk Zontul

Nazım Salur

Nevzat Aydın

Okan Kara

| KEY TAKEAWAYS

| CREDITS & CONTACT

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The State of Turkish Startup Ecosystem 2020

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KEYTAKEAWAYSQuick Look at the Ecosystem

Turkey, with a sizeable young population and high in-ternet and credit card usage habits, is the shining starof South Eastern Europe and the Middle East.In terms of location, Turkey is a well-positioned, at-tractive hub, only three hours by flight away from themost important cities in Europe and many key citiesin Asia.

Prior to 2010, the Turkish ecosystem had little tospeak about, but since then the ecosystem has swel-led in size and importance, quickly becoming a keyregional startup hub.

In the first half of the 2010s, thanks to growth ofbrand-new VC funds and angel investors making theirfirst investments, the Turkish startup ecosystem rea-ched annual startup investments of 100M USD. In thesecond half of the 2010s, many of these new VC fundsachieved exits and started working to establish theirsecond fund. In this period, the exit time was signifi-cantly shorted compared to the pre-2010 years.

As the Turkish ecosystem enters the 2020s, the pre-sence of more experienced ecosystem participantswill help it to quickly reach its potential. And for tho-se that want to play a part in this burgeoning com-munity, our doors are always open.


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01

Youth-Driven, Digitally ActiveHotbed of Innovation

TURKEY SNAPSHOT

Turkey had an official population of83 million in 2019, with half of thatpopulation under the age of 32.4,giving the country the largest youthpopulation in the EU area. ⁽¹⁾

This growing population is bothdigitally connected and active,evidenced by being the 10th largestmarket for Facebook, 6th largestmarket for Instagram, 6th largestmarket for Twitter, 3rd largest marketfor TikTok and the 8th largest marketfor YouTube globally. Furthermore,Turkey was the 7th largest top marketfor mobile apps, as determined by thetotal number of app downloads.⁽²,³,⁴,⁵,⁶,⁷⁾

Turkey is currently the 19th largesteconomy in the world with an averageannual GDP growth rate of 5.5%between 2003-2019. ⁽⁸⁾

Turkey also places 7th among the top34 upper-middle-income economiesin the Global Innovation Index 2019with human capital & research, andcreative outputs as the top strengthcharacteristics of the country. ⁽⁹⁾

According to European InnovationScoreboard 2019, Turkey is a“Moderate Innovator”. Turkeyperforms relatively well on Non-R&Dinnovation expenditures, SMEsinnovating in-house, and SMEs withmarketing or organizationalinnovations. Average annual GDPgrowth, enterprise births, and totalentrepreneurial activity are wellabove the EU average. ⁽¹⁰⁾

In 2019, e-commerce grew by 18%over the previous year, reaching 14.6BUSD. From 2015-2019, the averageannual growth rate was 13%. In 2013,online shoppers made up only 23% ofInternet users in Turkey. In 2019, thisratio had reached 68%. ⁽¹¹⁾

In 2015, e-retail sales accounted for2.9% of all retail sales in Turkey; e-retail reached 6.2% in 2019. In 2019,this ratio was 6.7 in developingcountries and 12.3 in developedcountries, with Turkey eclipsing bothSpain and India. ⁽¹¹⁾


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Chart 1 - TheNumber of Startup Accelerators in Turkey

02START-UP SUPPORTINGECOSYSTEM

Prior to 2010, there were only 6 active startup acceleratorprograms in Turkey. By the end of 2019, this number hadreached 57, an 8-fold increase in 9 years.

Given the popularity of fintech in Turkey, eight bankslaunched fintech-focused accelerator programs in the lastperiod. Also, 15 technoparks started new acceleratorprograms, both locally and internationally.Except during the summer break, the likelihood of comingacross a startup demo day every week in Turkey was very

high, demonstrating the high level of activity within theecosystem.

Furthermore, in 2017, KOSGEB launched a broad grantprogram to support organizations establishing acceleratorprograms abroad as well as startups looking to take part insuch programs. This program helped to enable Turkishstartups to get high-level training and mentoring from abroader global experience base, thereby jumpstarting theirglobalization operations into international markets.

Accelerators

Startup Growth Fueled byBroad Private & Public Support


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Chart 2 - TheNumber of Co-working Spaces in Turkey

Chart 3 - TheNumber of Technoparks in Turkey

Co-working spaces have become the hip working andgathering hub for entrepreneurs and freelancers alikein recent years. While the co-working space model firstemerged in Turkey in the early 2010s, the concept onlybegan to gain popularity in 2015 when a handful ofsuccessful examples demonstrated the economic viability

of the concept, emboldening copycats to quickly diversifyand multiply available co-working spaces across theecosystem. By the end of 2019 the total number of co-working spaces in Turkey had reached 44, with over 5,000startups, scaleups, and freelancers renting space in thesecommunities.

Co-working Spaces

The establishment of technoparks inTurkey started in 2001, and now hasreached 61 technology parks across

the country at the end of 2019.

In Turkey, technoparks have been thegathering place for technology andinnovation-based companies, from

idea stage startups to tech firms withbillions of Turkish Lira in exports

annually.

These technoparks house more than5,000 startups, scaleups and grown-ups, employing in total over 50,000

people.

Technoparks


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GovernmentThe Turkish government is a very active and strong supporter of thestartup ecosystem in Turkey, offering a variety of programs and policies toenable the establishment and growth of startups. A few of thegovernment’s key entrepreneurial policies are as follows:

Startup Support Organization or Pro-gram

Startup Funding/Access to Capital

StartupGlobalization Support

The Small and Medium Enterprises Development Organization ofTurkey (KOSGEB), The Scientific and Technological Research Councilof Turkey (TUBITAK), Regional Development Agencies and Ministry ofTreasury and Finance (MTF) are the top state organizationscontinuously supporting startups and investors in the ecosystem.

TUBITAK has been providing grants via its program called TUBITAKBiGG to idea-stage startups since 2012. In 2019, 568 idea-stage start-ups received grants of 200,000 Turkish Liras each, while 823 early sta-ge startups and scaleups received grants totaling 123 Million TurkishLiras. Over the same time period, KOSGEB provided grants to 417idea-stage and 160 early-stage startups. In total, in 2019, these two in-stitutions alone provided monetary support to technology-basedstartups, scaleups and grownups equivalent to 32.5 Million Dollars.⁽¹²⁾

Since 2016, KOSGEB has been providing support grants to accelerati-on programs abroad to help the globalization of Turkish startups, andto Turkish entrepreneurs looking to participate in accelerator pro-grams abroad.

Undersecretariat of Treasury (Ministry of Treasury and Finance today)launched an angel investor accreditation program in 2013 and sincethen nearly 524 individuals have gone through the investor certificati-on process, thereby becoming eligible for tax incentives linked tostartup investments in Turkey. ⁽¹³⁾

The Technology Transfer Accelerator (TTA Turkey) Initiative, designedby the European Investment Fund (EIF) in cooperation with the Minis-try of Industry and Technology, the Delegation of the European Union(EU) to Turkey and the DG Regional Policy of the European Commissi-on, established two funds (ACT Venture Partners € 25M, DCP € 30M) in2015 to provide early-stage investment to deep- tech, intellectual pro-perty-based startups in Turkey.

TUBITAK and MTF launched a fund-of-funds program to support theformation of new Venture Capital funds in 2018; currently 5 fund app-lications have been shortlisted for matching funding with the final se-lection and funding process ongoing. ⁽¹⁴⁾


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Chart 4 - TheNumber of Local CVCs in Turkey

Entrepreneurship&TechnologyEducation

Startup Funding/Access to Capital

Within the last 5 years, bachelor’s degree programs in entrepreneur-ship have been accredited in four universities to go along with gra-duate-level programs in seventeen universities in Turkey. In 2019, al-most 14,000 students were admitted to 4-year Computer Science andComputer Engineering-related university undergraduate programs.⁽¹⁵⁾

Technology Transfer Offices (TTO) at universities serve as a bridge bet-ween those universities and the private sector, helping to commercia-lize research and facilitate joint projects between academia and pri-vate companies. Since 2013, thanks to grants provided by TUBITAKand the Regional Development Agencies, the total number of TTOshas exploded, exceeding 139 in 2019, with nearly 60 of them havingbeen established through public grants. ⁽¹⁶⁾

Private corporations have becomeactive players in the startup ecosystem,

organizing and sponsoring a variety ofevents, contests and accelerators to

support the formation and growth oflocal startups. Specifically, leadingTurkish banks have launched bothaccelerator programs and venturecapital funds to reach and supportstartups, while leveraging network

resources to scale their growth. Just inthe last five years, eight accelerator

programs and four corporate venturecapital funds have been established by

Turkish banks.

Startup-Friendly Corporations

In 2010, there were only two Corporate Venture Capital (CVC) entities specifically established to invest in early stagestartups. By the end of 2019, this figure had ballooned to 26, thanks to the relaxation of regulations and availability of

incentives designed to encourage private corporations to establish CVC funds. In 2019, 30 private companies also madedirect investment into startups without a separate CVC entity.


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STATE OF THEECOSYSTEM

Until 2010, bootstrapping wasconsidered the funding norm forstartups in Turkey. The firstgeneration of successful externallyfunded startups such as Markafoni,Peak Games and Trendyoldemonstrated to the ecosystem thathigh-flying startups have thepotential to raise capital from agrowing network of angel investorsand venture capital funds in order togrow bigger, faster. Now, the VC-backed startup has become the newnorm.

Essentially, as the interest inentrepreneurship and startups grew,local VC funds began to emerge andthe number of angel investorsmultiplied. This growth was furtheraccelerated by governmentincentives, helping to reduce the riskof startup investing for individuals,one of those programs being theangel investment accreditationlaunched in 2013. Through thisprogram, The Ministry of Treasury andFinance (MTF) not only accreditedangel investors, signaling to startupsthe trustworthiness and intent of suchaccredited investors, but alsoprovided tax benefits to thoseinvestors for every startup investmentmade.

Moreover, the MTF also began toaccredit angel networks as well,providing much needed transparencyand standardization to theecosystem.

As of March 2020, MTF has accredited524 angel investors, of which 300 areactive, while the number of active,accredited angel networks hasreached 11. ⁽¹³⁾ The most well-knownangel investor networks, bothaccredited and non-accredited, areprovided left:

Investors

List 1: List of Angel Networks in Turkey

03


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Chart 5 - Turkish VC Fundraising Activity *As of April 2020

STATE OF THEECOSYSTEM

As for local VC funds, their establishment dates back to thebeginning of 2012, led by 212 Ventures and Revo Capital.Since then, the investment appetite and total number oflocal VC funds have drastically increased. Many of thesenew VC funds came to the end of their investment period

cycle at the end of 2017, and thus many of those fundsworked to establish their second fund between 2018-2020.The most well-known seed and Series A VC funds andinvestment companies are as follows:

With the arrival of new regulations creating the frameworkfor equity-based crowdfunding this year, crowdfundingplatforms also started making the necessary preparationsto enter this new market, i.e. Startupfon.

List 2 - List of Local Funds and Investment Firms in Turkey


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Chart 6 - Exits and Secondary Transactions in Turkey

List 3 - Top 5 Exits (2010-2020) List 4 - VC Funds&Their Exits

In the past period, following a series of high-profile exits,many VCs have begun to return profits from theirinvestments. These exits have also helped to fuel thefundraising efforts of their second funds. The mostprominent of these exits are as follows :

Peak

PeakZynga,$1.8B, 100%

TrendyolAlibaba,$728M, 82%

YemeksepetiDelivery Hero,$589M, 100%.

Gram GamesZynga,$250M+, 100%.

GittigidiyoreBay,$218M, 100%

Most of the startup exits in Turkey have been throughacquisitions. During the early 2010s, most of the exits weredriven by bootstrapped startups, however this trend hasshifted since 2015, with VC-backed startup exits taking thelead role.

The five biggest acquisitions in Turkey between the years2010 to 2019 are as follows.

M&A Activities

01

02

03

04

05


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Chart 7 - Disclosed Equity FundingRounds by Angels and VCs in Turkey

Chart 8 - Disclosed Equity FundingRounds Activity by Size

Starting in 2010, with the establishment of VC funds andangel networks, accreditation of angel investors, and theincrease in accelerator programs, startup investmentspeaked in 2017.

In 2013, super-angel Hasan Aslanoba personally left amark on the ecosystem with both a wide rangeinvestments with large ticket sizes; then in 2017, deal sizeand amount hit a peak as multiple VC funds pushed tomake their final investments before closing.

During 2018 and 2019, many VCs were focused onestablishing second funds. Between 2018 and 30 April2020, the total VC fund size of these newly establishedsecond funds equaled 260M USD. Overall, the total VC fundsize established during this period surpassed 350M USD.This goes to show that an ecosystem built on moreexperienced funds is now here to support entrepreneurs.

At the end of 2019, TÜBİTAK and the Ministry of Treasuryand Finance indicated the approval, in principle, of fivegovernment-supported funds. Of these five funds, two areVCs starting their second fund, one a VC’s second closing oftheir second fund, and two are new VC funds. Assumingthat these funds will be established by the second half of2020, the total amount of VC “dry powder” in the startupecosystem will approach 500M USD, which should lead to arapid increase in deals.

In terms of investment amount, over the past five years,75% of investments were for under 1M USD. Only a handfulof startups received more than 10M USD in investment.However, as Turkish startups find the courage to competein global markets, these rates are expected to improve inthe years to come.

Deals


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Due to regulative changes regarding corporate investing, in the last few years the number of companies startingCorporate Venture Capital (CVC) entities have increased dramatically. For example, in 2017, of the 10 new venture fundsthat were started, seven of them were CVCs. Given the learning curve for corporate investing, the initial CVC fund sizeshave been small but as these companies gain experience, we should expect to see larger CVCs in the near future.

The following are foreign-funded VC firms invested in Turkish startups between 2018 and 2019, which shows that manyfunds and investors believe in the potential of Turkish startups and are putting their money behind that belief.

Chart 9 - Disclosed Equity FundingRounds by CVCParticipation

List 5 - International Investors in Turkey (2018-2019)


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WHY TURKEY ANDWHY NOW ?

04

Interview


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Ali KarabeyFounder & Managing Partnerat 212

Atıl ErkenGeneral Partner at CollectiveSpark

212 has been in the forefront earlystage technology investments inTurkey, a bridge between two greatcontinents serving as the regionalbase of many global corporations,offering the right environment forstartups to launch, test and go global.

The Turkish entrepreneur ispositioned to understand and meetthe needs of global enterprises. Thelocal market enables entrepreneursfrom start to exit; four of the top 10venture capital exits in Europe since2018 have come from Turkey. Still,angel and venture capital funding,less than $1 per capita, is significantlylacking, leaving room for investmentopportunity.

A case in point is our investment indigital payments company iyzico,which grew more than 500-fold fromour initial investment and went on toattract global follow-on investorsincluding IFC, Endeavor, Vostok andAmadeus. Or Insider; the onlinegrowth management platformexpanding across 24 countries in lessthan 4 years after 212’s funding,

As an early stage technology fund,Collective Spark continues toprimarily focus on ventures comingout of Turkey in areas such as fin-tech, marketplaces, SaaS andenterprise software. From our secondfund, we have made nine investmentsin less than two years and willcontinue to grow our portfolio at thesame pace. Our portfolio companiesserve 80+ countries and haveachieved 294% average annualrevenue growth. We are co-investment friendly and haveobserved improved outcomesthrough supporting our companies onoperational aspects.

convincing Sequoia to make its firstinvestment in our region. Even duringmore uncertain macro-environments,the success stories are funded and theforeign investment funnels through toTurkey.

For the 5-year investment period of212’s first fund, from 2012 to 2017, thecapital invested in the ecosystemgrew +500%. 212 injected more than19% of the investment in 2012 aloneand continued thereafter to makesignificant contributions to theinvested capital. According toStartups.watch, total capital investedin Turkish startups was $103M in 2019a 61% increase from 2018. In 2019alone we invested $7M in fivecompanies, and of the $20m investedin Turkish startups in Q1 2020, 10%came from 212.

Turkey proves to be an excellentsource of affordable talenteddevelopers, a strong market fortesting product market fit and anever-maturing startup ecosystem. Wetruly believe in the success of Turkeyas a hub for startups and successfulexits.

The significant progress in the Turkishstartup ecosystem in the past coupleof years can be observed on all frontsfrom accelerators to angel networks,from exited entrepreneurs toincreased number of founders withengineering roots and from newcorporate investors to new venturecapital funds emerging. Thegovernment has been doing its fairshare in this pursuit through researchand development grants and mostrecently through Turkish Treasury'sbold Tech-InvesTR Program todirectly invest in venture capitalfunds.

We continue to be bullish on thetalent and the world classentrepreneurs who are superpassionate to take on globalopportunities. The strong investmentto exit ratio, recent lucrative exits andincreased appetite from larger US andEU based funds to lead or co-invest inlater stage rounds are promising signsthat show the investment gap is goingto close in the upcoming years.Turkey is the next hotspot for techstartups and now is the right time!


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Barış ÖzistekGeneral Partner at BogaziciVentures

Thanks to the talented and aspiringfounders, the Turkish tech eco-systemis in a very promising state. In thisaspect, industries such as banking,telco and automotive have reached ahigh-level of digitalization. Currently,we see a strong inclination towardstech entrepreneurship from formersenior executives of well-developedand conventional industrycompanies. This increases the successrates of the startups, and as BogaziciVentures, we are determined toprovide the necessary financialsupport and sophisticatedmentorship to the startups for theirinternational growth.

Our newest fund is fully focused onTurkish tech companies where we seemany advantages such as reasonablecompany valuations, ideal market tolaunch the product due to high levelsof digital adoption and an idealgeographic location for managinginternational growth.

Sure enough, we cannot ignore thenew global reality due to the

pandemic, but we also cannot forgetthe fact that Turkish executives havealready mastered managing crisis’.Most of our portfolio companies,especially the ones in fintech, newmedia and e-commerce have showngrowth signs even during crisisperiod; while the others havesuccessfully shifted or added newbusiness lines in a very short amountof time and managed to get throughthese times just fine.I strongly believe that the Turkishtech eco-system will remain as one ofthe most promising domains in theupcoming years. Our new fund BVGrowth is focusing on the mostpromising 4 verticals which areGaming, FinTech, RetailTech andHealthTech where we see a hugeopportunity for the Turkish techcompanies to scale-up rapidly andexpand to international markets.

CemSertoğluManaging Partner atEarlybird

Turkey is the most important marketfor our €150m early-stage tech VCfund focused on Emerging Europe.Over the last decade, both as privateinvestors as well as VC fundmanagers, we were fortunate to havebacked the largest technologysuccess stories in the country,including Trendyol, YemekSepeti, andPeak Games. The Turkish market isunique in that it's home to brilliantengineering talent able to innovateand develop products that displayglobal appeal.

Peak Games's success with two big UShits, Toy Blast and Toon Blast, is atestament to this. These globallysuccessful products are usuallyiterated in the domestic market.However, the domestic market is alsobig enough to sustain very largeoutcomes, even if the companyultimately stays local, withoutexpanding internationally. Trendyolis a great example, achieving"unicorn" status by focusing on theTurkish e-commerce opportunity.This dual optionality that the Turkishmarket provides to its ambitioustechnology startups makes it a greatmarket for us in which to focus ourinvestments. We continue to see it asour most attractive investmentgeography.


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CenkBayrakdarManaging Director at RevoCapital

Turkey is evolving into a veryattractive and dynamic startupecosystem, representing a fertileground especially for emerging anddisruptive technologies. We believethe main pillars of this ecosystem are:talent, market, and capital incentives.Turkey has a competitive advantagewith its well known quality techtalent; and is starting to have serialentrepreneurs and experiencedstartup talent driving new companies.It also benefits from its young andresilient population, strong technicaland engineering training, attractivecost structure, dynamic labor market,and broad incentives and tax benefitsfor research and developmentinitiatives.

As a result, we have seen an increasein the number of venture capitalfunds in Turkey and their investmentactivity over the past years, coupledwith rapid development andglobalization of venture capitalportfolio companies. This createsexciting opportunities for cooperationbetween local funds and international

investors to scale Turkish companiesglobally. We have experienced thisfirst hand with our portfolio companyGetir, a grocery delivery startup whichraised $38M in the 2019 round led bySir Michael Moritz. Also one of our 2exits in 2019; Foriba, was acquired byHG Capital backed Sovos, globalleader in tax software.

We believe that the role of a VC is notjust to provide pure cash injectionbased on risk assessment; thereforewe based Revo Capital’s model on“smart money” – providing activesupport in the rapid acquisition ofnew competences by the organizationand determination to actively supportfounders on their path to globalsuccess.

While our top priority is thecompanies we support. We willcontinue to support startups withconfidence and optimism duringthese challenging times with RevoFund II with €41m capitalcommitments alongside EBRD, IFCand EIF and prominent institutionslike Enerjisa Enerji, QNB and YıldızVentures.

DilekDayınlarlıManaging Partner at ScaleXVentures

ScaleX Ventures is an early-stageventure fund out of Turkey searchingfor the next global champions toinvest in. We have been backingstartups that are building and sellingtheir technology worldwide, and ourportfolio stands out from the crowd,with notable follow-on investmentsfrom top tier VCs and an exit toAmazon. In view of this, we believethat the presence in Turkey gives usand our portfolio a competitiveadvantage.

The main reason behind thisadvantage is the technical,engineering talent which is at thehighest level globally. Turkey has oneof the largest talent pools in Europe,with the number of softwaredevelopers constantly growing.

Besides the strength and abundance,employing such technical talent isalso significantly more affordablethan its counterpart.

Over and above, we have alsoobserved a remarkable increase in thenumbers of accelerators, incubators,technology parks, events and otherinitiatives in Turkey that supportinnovation. Recently progressingpublic-private partnership andgovernment’s widening support playan important role in Turkey's thrivingstartup scene.

On account of these, we believe thatTurkey has the potential to play asubstantial role in the global startupecosystem, and we are ready to takethe required initiatives that supportstartups and entrepreneurs in theprocess of entering foreign markets.


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Enis HulliGeneral Partner at 500Startups Istanbul

Turkey is home to a high level ofskilled human capital -in fact, thefastest growing country forprofessional developers in EMEA with16.5% y/y growth- and not enoughaccompanying VC activity - averagingonly $1 per capita. Despite the limitedaccess to VC funding, Turkey hasexperienced immense liquidity fromtechnology-related M&A from adiverse pool of acquirers coming forteams, products or just the market,either from East or West.

500 Istanbul's investment thesis reliesheavily on investing in locallyincubated ideas or teams building asolution for a global audience andmarket. The investment strategy offinding successful early-stage teamsand enabling them to connect withinternational markets proved to be astrong thesis.

Downstream investability within theglobally facing 500 Istanbul portfoliohas been a key performance indicatorfor our first fund.

Our portfolio companies have raised$300M+ from top-tier global VC firms,accounting for $50 follow-on fundingfor every $1 invested by 500 Istanbul.Combined with higher capitalefficiency and lower valuations,Turkey is prime for delivering outsizedreturns to investors compared toother EMEA hubs.

Ebru DormanChairwoman at StartersHub

Established in 2015 in Istanbul,StartersHub has invested in over 60early stage technology startups todate. Our portfolio includes successstories such as Zeplin, Meditopia andThread in Motion.Our belief in the Turkish startupecosystem’s potential to createattractive returns for investors issupported by solid foundations:

1. Strong, young technical andengineering talent with risktaking appetite, at a smallfraction of the cost in SiliconValley.

2. Government R&D support andincentives, public and privateuniversity science andtechnology parks providingfertile ground for innovation

3. Number of underfunded highpotential startups and low levelof local funding resulting inrelatively underpriced entryvaluations

4. Big local market, tech savvy andconnected nation providing agood starting point forentrepreneurs eager to go global

5. Istanbul acting as a regional hubfor numerous multinationals.B2B startups leveragingsuccessful implementations inTurkey to open MNC doorsglobally.

Why now? There is an increasingnumber of second and third timeentrepreneurs and a growing numberof experienced professionals creatingstartups. Pre-seed and seedinvestment culture is growingstronger. Government’s vision toincrease number of success storiesand investment in expanding thetechnical talent base.


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Haluk ZontulManaging Partner atDiffusion Capital Partners

Turkey, having a population of 82million with half of it below 32 yearsold, has an excellent dynamicdemographic base for start-ups.Recent triple-digit exits in e-commerce, marketplace, and gamingis a sign of a high performing start-upscene. Especially Istanbul is anattractive, multicultural place to starta technology business and offersadvantages to both entrepreneursand investors. The country’s well-known universities generate manyglobally competitive engineers thatserve the entrepreneurial ecosystem.Cost competitiveness of the laborforce and affordable living expensesmake it a reasonably efficientalternative to many start-up hotbedswhile diverse lifestyle options makeIstanbul a vibrant hub.Over the last decade, the focus ofmost investments has been businessmodel innovation rather than deep-technology endeavors due to lowcapital needs. Deep-tech investmenthas been in the form of governmentgrants close to €2.5 billion in over15.000 companies.

This public policy enabled a build-upof innovative startups solving bigproblems with protected intellectualproperty.Diffusion Capital Partners (DCP) isTurkey’s leading Venture Capital fundmanager with a focus on deeptechnology opportunities. We seek forinvestment opportunities with ascience and R&D engrainedcompetitive edge andtransformational aspirations inmultidisciplinary fields. DCP team hasthe unique experience of managingtwo funds with a deep tech focus,conducting 24 investments and 4exits. The connections withuniversities and research centersnurtured over the years providehealthy and proprietary deal flow. Webelieve current deep-techopportunities developed in these

institutions complemented withtalented founders will generateinternational success stories andattractive investment returns forfunds like us.

Nazım SalurFounder of Getir

Getir created the ultrafast deliverymodel in the world, bringing everydayitems to customers in 10 minutes. Weare proud to be the designers anddevelopers of an original businessmodel that came out of Turkey andgenerated great traction, exceeding 2million monthly deliveries in Istanbul.The global recognition, and thesizable investment Getir receivedfrom prestigious investors shouldmotivate Turkish entrepreneurs, andpave the way for additional VCinvestment into the Turkishecosystem.

Turkey has an untapped pool of greattalent, yet few success stories haveemerged due to the scarcity ofinvestor-backing. Turkey accounts for

1% of the global economy, yet Turkishstart-ups and scale-ups collectivelyreceived only 0.03% of the globalinvestments in 2019, 1/30th ofTurkey's share in the global economy.I hope to see this disequilibriumnormalize to some extent, as morelong-term focused value-seekinginvestors come to appreciate thesignificant opportunity in the Turkishmarket.

In today's world, the spread of thepandemic has shifted theconsumption of goods and services todigital channels. Countries such asTurkey, with robust demographictrends but lagging in digitalization,pose additional opportunity as thecatch-up phase accelerates in thisenvironment.

Our goal now is to take Getirinternational, and make it a globalsuccess story. I hope our storyinspires Turkish entrepreneurs tothink big, and go for original ideaswith global aspirations.


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Okan KaraManaging Partner at ACTVenture Partners

ACT is a deep-tech VC investor inTurkey with a portfolio of companiesin the digital and health domains -such as targeted drug deliverytechnology for cancer treatment(RSResearch), breach and attacksimulation software in cybersecurity(Picus), AI-based wifi performanceoptimization software (Ambeent) andsafe-AI technologies for autonomousvehicles (Eatron).

Deep-tech is the new tech and deeptechnology start-ups are on the riseglobally. Turkey's deep-techecosystem has also been flourishingover the last five years, and wewitness globally competitive successstories. On the growth rate ofprofessional developer talent, Turkeyis one of the highest in Europe (by30% YoY).

The talent pool size in Turkey alone ismore substantial than many sub-regions in the European Continent,while salary levels are significantlylower than Global Hubs.Those advantages pave the way for

lower cost of scaling accompanied bynon-inflated valuations.The high-quality engineeringeducation of leading universities, therise of the status of entrepreneurshipwithin the society, and globally well-connected Turkish entrepreneurs andscientists pave the way forsustainable deal flow in deep techdomains.

Turkish deep-tech entrepreneurs arewilling to scale globally, and theCustoms Union with the EuropeanUnion allows market accessopportunities in Europe.

During the last two years, the localinvestment community has alsoenjoyed lucrative exits. For instance,one of ACT's portfolio companyTeamSQL has recently acquired byAmazon, Inc.

Overall, the local ecosystem haspassed the critical thresholds ofknow-how, know-who and know-what, and such momentum will bringtremendous opportunities for globalLPs and GPs.

As an active angel investor with 28investments, when I choose an idea toinvest in, primal thing I look for is thepotential of the entrepreneur himself/herself. I believe in the hands of theright entrepreneur any idea can fosterbecause today it is the execution thatcounts more than the idea itself. More

white collars in Turkey tend to preferbecoming entrepreneurs and create adifference in life rather than havingfancy jobs in multinational firms.These talented young, enthusiastic,passionate and ambitious individualswith good education are going todevelop the ecosystem in Turkey.

In terms of the idea; I look for specificfeatures – like the business model – itmust be scalable and tangible interms of growth. I know manypromising startup examples whichhad to throw in the towel in the firststeps of the journey because of thedifficulty of reaching financialresources. The business world shouldbe more enthusiastic aboutsupporting entrepreneurs. We needpeople with courage. We need people

not afraid of skepticism. We needsome crazy ideas to follow. That’s howwe can create a unicorn from Turkey.From intrapreneurship to mentorshipand angel investment, people whomanaged to come to a certain levelshould share their experience, know-how and resources with youngentrepreneurial minds.

Turkey has a lot of potential start-upsas an east-west destination. Half ofthe population is under the age of32.4. This is really exciting forentrepreneurship. The activitiesconducted by universities, angelinvestors, venture capital funds,incubators and technology parksalong with Small and MediumEnterprises Development andSupport Administration (KOSGEB)and The Turkish Scientific andTechnological Research Council(TÜBİTAK) funds stand out as positivedevelopments. If there are enoughfunds and capital with the right exitstrategy, the ecosystem in Turkey willgrow much faster.

Nevzat AydınCo-founder of Yemeksepeti


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APPENDIX

Startup : Product focused privatetech company with lots of blurrythings like revenue model, customerand product. Tailormade solutionproviders are not considered asstartup.

Corporate Venture : A subsidiary ofan established company created tolaunch a new product or service

Venture Capital Funds (VC): VC fundsare structures that invest in startupsand receive minority shares in return.Investment periods are limited andgenerally 5–6 years. When the fundexpires, it aims to sell its shares atmuch higher prices.

Corporate Venture Capital (CVC):CVC funds are the same as VCstructures, the only difference is thatthis fund is financed by a singlecompany. (e.g. Intel Capital)

Pre-Seed Investment : the initialround of funding used to build anddemonstrate the viability of a productidea. Pre-seed round size is generallyless than $50K in Turkey.Seed Investment : the funding roundused to reach product/market fit. Thestartups at this stage have a workingproduct and some paying customerswith some early metrics. Seed roundsize is generally $200K in Turkey.

Series A : the funding round used toscale up a startup. Startups at thisstage have achieved product/marketfit and have repeat customers. SeriesA round size is generally $1M inTurkey. It’s usually the first round offinancing that a startup receives froma venture capital firm.

Series B, C, D, E.. : Funding roundsmade by VCs with higher valuationscompared to preceding round.

The information provided in this report is general and does not constitute financial, tax, or legaladvice. Whilst every effort has been taken to ensure the accuracy of this report, the editors andauthors accept no responsibility for any inaccuracies or omissions contained herein. Financial, tax,or legal advice should always be sought before engaging in any transaction or taking any legalaction based on the information provided. Should you have any queries regarding the issues raisedand/or about other topics, please contact the authors of this report.

All information in this report is up to date as of 01.06.2020

Disclaimer

Key Terms andDefinitions

05


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Convertible Debt : It is an ‘in-between’ round funding to helpcompanies hold over until they wantto raise their next round of funding.When they raise the next round, thisnote ‘converts’ with a discount at theprice of the new round.

Growth Equity : It’s is the type ofinvestment for growing well-established, less-risky businesses.The company does not have to beprofitable. The firm’s minority ormajority shares may be taken by thefund.

Private Equity : Private equity roundis led by a private equity firm and it isa late stage round. Th company hasgone beyond generating revenue anddeveloped profitable margins, stablecash flow.

Equity Crowdfunding : Equitycrowdfunding platforms allowindividual users to invest incompanies in exchange for equity.Typically on these platforms theinvestors invest small amounts ofmoney, though syndicates are formedto allow an individual to take a leadon evaluating an investment andpooling funding from a group ofindividual investors.

Corporate Round : A corporate roundoccurs when a company, rather than aventure capital firm, makes aninvestment in another company.

SAFE : Alternative to convertiblenotes. An investor makes a cashinvestment in a company, but getscompany stock at a later date, inconnection with a specific event.

Exit : It’s the method by which an

1. http://www.tuik.gov.tr/

2. https://www.statista.com/statistics/268136/top-15-countries-based-on-number-of-facebook-users/

3. https://www.statista.com/statistics/578364/countries-with-most-instagram-users/

4. https://www.statista.com/statistics/242606/number-of-active-twitter-users-in-selected-countries/

5. https://www.statista.com/chart/16939/tiktok-app-downloads/

6. https://tuber-mama.com/statistics-of-top-youtube-user-country-2019/

7. https:/www.visualcapitalist.com/ranked-most-downloaded-apps/

8. https://www.imf.org/external/datamapper/NGDP_RPCH@WEO/OEMDC/TUR

9. https://www.globalinnovationindex.org/gii-2019-report

10. https://ec.europa.eu/growth/industry/policy/innovation/scoreboards_en

11. http://www.tubisad.org.tr/tr/bilgi-bankasi/sunumlar-liste/TUBISAD-Raporlar/40/0/0

12. https://www.tubitak.gov.tr

13. https://www.hmb.gov.tr

14. https://www.hmb.gov.tr/duyuru/tech-investr-programi-kapsaminda-yapilan-basvurulara-iliskin-duyuru

15. https://yokatlas.yok.gov.tr

16. https://www.tubitak.gov.tr/sites/default/files/21566/teydeb_guncel_sunum_0.pdf

investor and/or entrepreneur intendsto “exit” their investment in a startup.Common options are IPO and buyoutfrom another company.

Primary Transaction : Transaction orfunding type where investors buyequities directly from the companyissuing them.

Secondary Transaction : Transactionor funding type where investors buyequities from the existingshareholders.Cash Out : Shareholders who selltheir shares personally earn money asa result of this second transaction

Buyout : The purchase of acontrolling share in a company

Unicorn : Startup valued at over $1billion

Ticket Size : Average investmentamount made by and investor.

Term sheet : A non-bindingagreement that outlines the majoraspects of an investment to be madein a startup.

Due diligence : Deep analysis aninvestor makes of all the facts andfigures of a potential investment.

ICO (Initial Coin Offering) :Fundraising mechanism in whichstartups sell their underlying cryptotokens in exchange for bitcoin andether. Unlike IPO, there is nomiddleman or central authority.

IEO (Initial Exchange Offering) : It’svery similar to ICO but there is amiddleman/central authority(launchpad).

References

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The State of Turkish Startup Ecosystem

2020

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The State of Turkish StartupEcosystem 2020

Version: v1 // 2020

Startups WatchIstanbul, Türkiye


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The State of Turkish Startup Ecosystem 2020 StartupsWatch ... · to Turkish entrepreneurs looking to participate in accelerator pro-grams abroad. Undersecretariat of Treasury (Ministry