The last few months were filled with good news for our portfolio. First, Peak was acquired by Zynga for $1.8 billion, setting a new high watermark for Turkish tech exits. Then, yesterday, UiPath announced its $225m Series E round at a $10.2 billion valuation. However, the transaction announced by Vivense yesterday probably stirs more emotions with our team.

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We had known Kemal Erol for a few years when he approached my partner Evren and me for financing a management buyout of Rocket Internet’s Westwing operations in Turkey. We were keen on the opportunity in home & furniture e-commerce in Turkey as we’d been watching how Wayfair developed into a sizable business focusing on a vertical that Amazon was not prioritizing. However, we felt a Westwing buyout would be messy so offered to back Kemal in a greenfield venture, and Vivense was born.

In hindsight, 2013 was a very tough year to start an e-commerce business in the Turkish market. While the business started with a lean marketplace model, customer acquisition was still quite costly in a market with well-funded competition. We felt certain that the business would require significant capital and kept looking for co-investors to join us in backing the company. We must have introduced Kemal to over 100 VCs from around the world, focusing on those with e-commerce and emerging markets experience and appetite. In the end, it was a tough combination of sector and geography and got no bites (except for a small investment by FJ Labs). We were fortunate to be joined by a few of our LPs and private investors to give the company barely enough growth capital to scale to its impressive size it now has, of course making all investors very happy along the way. 

This is where Kemal and his team excelled. They built a lean machine to unleash the power of the large but fragmented manufacturer base of Turkish furniture, providing unparalleled choice for the furniture customer at a super competitive price. The company began growing very rapidly, serving millions of customers around the country. (My colleague Mehmed Atici shared our learnings regarding success in online furniture.)

Now the company has the European market in its sights. Of course, big plans require deep pockets, so we are excited to hand off the baton to Actera Group, a top Turkish private equity fund. They are partnering with Kemal to take the company to its next level and provide the necessary capital and support to get there. We think that the international potential is vast and that Vivense is exceptionally well-positioned to tackle it.

It’s also exciting to note that this is the first time a PE fund is acquiring a venture-backed company in our country. We are happy to see signs of completion of the capital curve for high-growth companies.

I’d like to thank Kemal, his co-founders, and the other team members who have been and continue to be part of this successful journey.

Yesterday morning Zynga announced its $1.8 billion acquisition of Peak Games. This is a story important for us in multiple ways.

Sidar, a passionate entrepreneur, was one of the first tech founders I had met upon my return home to Istanbul in 2005, as I was looking to understand the landscape. When he decided to launch Peak in 2010, my partner Evren Ucok (with his wife, Demet Mutlu, the founder of another billion-dollar Turkish success story, Trendyol) was the first investor on board and took the lead in helping the company with further financing rounds.  In 2011, we met Roland Manger, one of Earlybird’s founders, and Earlybird led the company’s $5m round.  In the process we got to discuss the opportunity we saw in our region with Roland and the seeds of our first fund were sown. It’s the genesis of the Earlybird Digital East Fund.

Meanwhile, Turkey lost its luster in the eyes of global VC firms and Turkish startups started struggling to get the attention of global players. Capital is a critical ingredient in a startup’s journey. When capital gets scarce, locally managed and deployed VC became more important.

Fast forward nine years, the Earlybird Digital East Fund has invested nearly $65m in Turkish companies, and $120m including the broader Emerging Europe region. In our capital-starved corner of the world, we are making a difference in the destinies of brilliant entrepreneurs who are beating the odds every day to create value for their customers, team members, and investors.

What could change this scarcity is big outcomes, reminding everyone of the potential of the brilliant tech talent, unusual creativity, and hunger for success that you can find in emerging European countries like Turkey.  We are grateful to the teams at companies like Peak Games, creating sustainable companies that will continue their contribution to the local ecosystems – in this case, growing Zynga’s presence in Istanbul with a world-class team, investing in talent development and reminding aspiring entrepreneurs that it can be done.

Congratulations and thanks to all who have contributed, and especially, Sidar! Elinize sağlık!

PS. Regarding the photo above, even though it’s an old one, I think it’s the one that best captures the spirit at Peak.

It’s the last day of 2018 and it’s tempting to write a wrap-up post.  I will not, particularly because it has been an embarrassing year for this blog.  Let’s see how 2019 turns out in terms of blog productivity.

Instead, I’ll write about a sentence I saw in @fredwilson’s post this morning about their experience in trying to gauge Airbnb’s market opportunity:

We made the classic mistake that all investors make. We focused too much on what they were doing at the time and not enough on what they could do, would do, and did do.

As early-stage investors in technology companies, we find it a constant challenge to extrapolate the market power a startup will have once it achieves its goals.  Those goals are usually super ambitious, to begin with.  To evaluate the second order opportunities past the obvious goals is difficult.  However, some of the biggest historic returns in VC have been the result of new markets that opened up once a venture succeeds in its initial plans.

My tool for dealing with this challenge is evaluating the first market, but weighting the market size factor lighter than we used to.  We are probably less likely to decline an opportunity purely due to market size.

Every day is a school day.  Happy 2019!

Turkey is at the core of both our investment strategy and geography.  Naturally, we have quite strong opinions on the market, both positive and negative, formed by the process of investing into dozens of companies in the region, as well as having seen the vast majority of promising startups.

However, from time to time, we come across statistics that blow us away.  Here is one from a recent Visa study on digital payments:

Nine in ten (91%) Turkish respondents have used a mobile device to make payments, and nearly three quarters (74%) say they use their mobile device for payments on a regular basis compared with the European average of 54%

We know and like Turkey’s young, digitally savvy population, but this number was a surprise to even us.

Germany has 4 cities with a population over 1 million.  China has 160! (Probably some metro area vs. city limits debate here, but that’s not the point.)  Look at the top 10 cities by Facebook usage.

No London, NY or Paris. All emerging markets (despite missing China).

The amount of aggregate attention in large cities in emerging markets is an important factor in many consumer internet businesses.  If you look at internet business models that require local execution, you’ll see that the geography you have to consider is more “city-denominated” rather than “country-denominated”.  It is not a surprise that the food delivery powerhouse YemekSepeti.com (the largest component of $5bn market cap Delivery Hero) came from Istanbul.  When you evaluate local commerce businesses such as Yelp or Groupon, looking at it city by city is more meaningful than looking at it country by country.