Investing in Turkey’s Digital Economy

Last week I was invited to pen an article for CNBC's "Investing In:" series. Naturally my area is technology venture capital. The article is below.  You can view the original here.

Big Opportunities in Turkey’s Digital Economy

Turkey as a favorable investment destination has been a
popular topic in the investment community this year. By now, the pillars of the
Turkish investment thesis are well understood by investors, so there is
probably no need to rehash these except to note briefly:

  • High-growth, dynamic and stable economy
  • Young, growing population
  • Strategic geography with access to key markets
  • Structural reforms

However, if our goal is to identify the most attractive
investment path in Turkey, the information and communications technology (ICT)
sector is probably the foremost candidate.

According to the prime minister's office, the sector’s
growth is outpacing GDP growth significantly, with a compound annual growth
rate of almost 15 percent over the last decade. The size of the sector,
estimated at about $29 billion by Deloitte, is still significantly below the EU
average, pointing to a nice upside.

The sector is still dominated by the telecommunications
industry in terms of revenue. However, the driver of growth will probably be
the result of an offline-to-online migration in multiple sectors, similar to what
has been experienced in the United States and the European Union.

A dramatic characteristic of the Turkish market is how
connected it is. The Turkish Investment Agency estimates 50 million Internet
users. With 32 million users, Turkey ranks as the seventh country on Facebook.
The aggregate attention on digital media is immense.

However, this is in deep contrast to the commercialization
of this connected community. My firm estimates the number of people who have
ever completed a commercial transaction online in Turkey is around 5 million, a
mere 10 percent of the Internet users.

Therefore, one of the key explosions will be in e-commerce.
We have started seeing the first signs of this with extreme-growth e-commerce
startups like Trendyol, Markafoni and Grupanya, which already have millions of
dollars in monthly revenues. Bolstered by a very strong payments system (51
million credit card holders according to the Turkish Interbank Card Center) and
an effective logistics infrastructure, the wave of pure online e-commerce
companies and e-commerce arms of brick and mortar players are here.

Another key area to grow is digital content. Historically,
content has been tough to monetize effectively in Turkey. However, we are
starting to see improvements, through micro payment service providers and
effective ad networks.

One sparkling example is Peak Games, a Turkish social gaming
company that claims nearly 10 million daily active users, making it the
third-largest social gaming platform in the world. The growing Turkish sphere
of influence in the region will enable other digital content companies to grow
rapidly and play their part in the rising digital economy.

Finally, I should note the most critical underpinning of
this bullish outlook: the talent base to drive this growth. Here there are two
factors: The strong technical education system of the country, and the reverse
brain-drain that has begun shifting top-tier talent back from the U.S. and

According to the IMD World Competitiveness Yearbook, Turkey
ranks above Poland, Romania, Hungary and Bulgaria in the availability of
qualified engineers. The increasingly vibrant ICT environment in the country
has started to attract back the best and the brightest Turkish technical talent
from graduate programs and top technology companies abroad.

Last year saw the first major exit of a Turkish technology
startup to a global strategic buyer, when eBay acquired GittiGidiyor, the
leading Turkish e-commerce platform, which was followed by Naspers’ acquisition
of Markafoni.

This year, global sports digital media company Perform has
acquired Mackolik, a local sports content portal. In the years to come, we
should see increasing amount of global investment attention to the Turkish ICT


Cem Sertoglu is a partner at Earlybird Venture Capital in
Istanbul. He has a Bachelor of Arts in Economics from the University of Texas
at Austin.

Disclosure: Sertoglu is a current investor in Grupanya and a
former investor in GittiGidiyor. Earlybird’s 2007 fund invests in Peak Games.

17 thoughts on “Investing in Turkey’s Digital Economy

  1. Hi, i am going to start forex with eToro. They have a software which i want to download but it is a 100kB file
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    . . Thanks! Waiting for your answer..


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