Why Price Matters

Notice a pattern in my blog titles? 🙂

This is the age of TechCrunch and Business Insider.  Numbers with a lot of zeroes are sexy, so tech startups are sexy. Again.  The last link is not to be taken as a suggestion that I think there is a bubble.  I don't think there is.  Not like in 1999.  Topic for another post.

But, the high valuations and the amplification of tech media is whetting the appetites of entrepreneurs in our region, causing eventual disappointment on both sides of the table.

Our region has historically had difficulty creating large technology companies.  I am excluding Turkcell, etc., as I view them more as regulated utilities.  Turkey has not produced a single global technology success story, yet.  I think that is an anomaly and it will change, but so far, it's the reality.  The largest tech exit in Turkey was GittiGidiyor, at $220m.  We now have a handful of tech companies valued over $100m, and some of those will get to large exits at some point.

Entrepreneurs should understand that this is the framework we have to work within.  

Now, combine this fact with the expectation you'll see at every early-stage tech investor: at least a 10-20X return on her investment, if all goes well.  They expect this because their portfolio will need these 10-20Xs to deliver the promised returns to their investors.  That's how the math works.  Without these homeruns, the portfolio will deliver mediocre returns, at best.

This is the math you, the entrepreneur, should have in mind in your dialog with any investor in our geography.  Until we see $billion exits, we'll assume your company will be exit at much lower valuations, setting the stage for more modest valuations, compared to silicon valley stories you read about.

 

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