I am a product of a rationalist education. After my schooling, my career progressed in a way that made me more of a disciple of the rationalist cult.  As a strategy consultant, we were brought in to be analytical, usually getting rewarded for overly complex models and frameworks that our clients used to make decisions (or, more often, validate decisions they would like to make).

My rational mind was also in the driver’s seat when I launched my first startup in 1999.  It was the first time I was facing critical decisions about the strategy and tactics around a company, and I found it easy to build analytical frameworks for those decisions.

1999 was a horrible year to start a digital business.  From the peak of the dot-com bubble, we hit the crash head-on.  The next few years were full of anxiety, tough choices and blood, sweat & tears.  It was then that I realized that in a lot of the decisions we were making as a team, my co-founders and I were also relying quite a bit on our intuitions.

Following my exit, I returned to my hometown of Istanbul and started to get to know the startup landscape there.  I found myself falling back into my analytical habits.  Perhaps, the lack of familiarity made me suspicious of my intuitions.

Now that it’s been 12 years since I have been back, I find that my intuition is playing a larger role in how I make decisions.  As a VC, we spend a lot of effort looking at data and building frameworks around sectors, markets, and companies.  However, I keep getting amazed how well my intuitions generally guide me.  A lot of my regrets were results of me ignoring my intuitions.  One of my 2018 resolutions is to focus more keenly on that inner voice.

This was inspired by a post on the great Farnam Street blog.

Digital Turkey

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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.

Drama in VC Land

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Since the dot-com boom in the late 90s, the venture capital industry has become a popular pop culture topic.  The mythology around young executives getting to place bets on the future of technology with other people’s money has a certain appeal.  Add to that the irrational exuberance of the 90s, the stories of overnight fortunes and the drama of the crash that followed, and the public interest in the industry was firmly cemented.

Since then, the fascination has only grown.  We’ve had the Hollywood take on how tech innovation and VC works in The Social Network.  VCs such as Peter Thiel, Jim Breyer, Fred Wilson, Marc Andreessen and Bill Gurley have become household names.  Charismatic founders like Steve Jobs, Elon Musk, Mark Zuckerberg, Reed Hastings, Jeff Bezos, Travis Kalanick and Evan Spiegel are now celebrities.

The price our industry pays for this popularity is what we are now witnessing, with scandals like those at Rothenberg Ventures, Binary Capital and 500 Startups,  and the fight on the board at Uber becoming front page news.  This public drama has its toll on VC firms and startups involved.

I’ve been thinking that what we see in Trump’s White House must be making the writers’ job at House of Cards very difficult.  Now I am thinking the same about the writers at Silicon Valley.


Cities are What Counts in Emerging Markets

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.

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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 (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.


Forecasting Out

In the business of financing technology businesses, one of the most tricky areas is how you treat the forecasts in the pitch decks.  Typically, you are taking a very limited, usually heavily biased, data set and using it to provide a baseline for forecasting a much longer trajectory.  If you are familiar with probability, you’ll know that while this is possible, the result will have a very low confidence level.  Therefore, you need to discount these forecast very, very heavily.

I was reminded of this when I read the Bloomberg New Energy Finance press release on Electric Vehicle sales forecasts.  The headline is that Electric Vehicles will Accelerate to 54% of New Car Sales by 2040.  I a sure there’s sound methodology behind this work, and the resulting graph looks great:

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Now, please consider that Tesla Roadster, the first street-legal, serially produced EV with a viable range was introduced in 2008. When you are taking a 1% market share figure and growing it to 54% over 25 years, a tiny variance in that slope can end up with a vastly different figure.

As a VC, you come across enough forecasts to intuitively discount the out years.  This is not really a science but more of a sense.  However, it can make a massive difference in the eventual exit size and how much capital the business may end up consuming.

Bezos Day 1 Letter

bezosIf you are a founder, please read Jeff Bezos’s letter to Amazon shareholders.  He does a great job of distilling why it’s so difficult to build a great company.

What he describes as a Day 2 company would include the majority of businesses around us, including many market leaders.  He describes Day 2 as sometimes taking decades – extreme slow motion.

It is very, very difficult to stay in Day 1 mode.  I am not even sure Amazon’s succeeding there, as it’s also tough to tell.

However, customer obsession is one way you can try to stay in Day 1 mode, and avoiding proxies and celebratory narratives will help you along the way. However, it won’t help you feel good.

Entrepreneurship rarely feels good.

Online Retail Turning a Corner

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We have a love-hate relationship with online retail companies.  My partner Evren is the founding investor at Trendyol, Turkey’s online fashion champion.  We have backed Vivense, the leading online seller of furniture that is growing rapidly with healthy metrics.  Trendyol is now one of the biggest Turkish tech success stories and Vivense has become the leader in its focus area of hard furniture.

Our experience, laced with blood, sweat, and tears, has shown us how difficult it is to build a sustainable and healthy online retail business, and we have also passed on a very large number of online retail startups.

Recently, I am sensing a change in how the world views online retail. In the recent months, we have seen some major moves in the sector:

  • Emerging Markets conglomerates are investing into retail e-commerce.
  • Amazon has made a rare market-entry driven acquisition in MENA.
  • The leading local e-tailer in India, Flipcart, has raised a massive new round is rumored to be contemplating buying its largest local competitor, Snapdeal.
  • Walmart paid $3b for, which, at the time, was little more than a large repository of know-how and ambition.
  • Unilever acquired DSC for $1b, showing the potential in smart vertical integration in certain e-commerce niches.
  • It finally looks like Birchbox is profitable (read: perhaps sustainable), providing new hope for subscription models.
  • Trendyol is now nicely profitable, without compromising from its rapid growth.
  • Leaders like Amazon (generalist) and Zalando (fashion specialist) are trading at all-time highs.

I think these headlines are a sign that strong execution, operational excellence, and adequate funding are coming together in select pockets to show that retail e-commerce can work.


simpleWe get approached by ~1200 companies per year and spend some time with about 400 of them.  One of the key filters for us to identify opportunities we may be interested in is how quickly we can grasp the basics of the business’s economics; i.e. how value gets created.

In most cases, the best way to observe this is the income statement.  That is why it’ s important to show some granularity primary line items in the income statement. Viewing the income statement across a meaningful time span, you can start connecting the dots and get a feel of how the business creates value.

However, in some cases, we look at income statements in which the value chain is not obvious.  We view this as a bit of a red flag.  We try to work with the founders to dig and understand the value drivers, but experience shows that if a founder is having difficulty explaining the fundamental economics and the way value is created within a few lines on her business plan, it’s likely that their model is flawed, or worse, they don’t fully understand it themselves.

Warren Buffett warns that a business you invest in should be simple and understandable.  We agree.


Startup Selection Bias

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It is not sexy to write about the $40m acquisition of an 8-year old company with $4m EBITDA. The headline about Snap’s 60+ P/S ratio gets more attention.

The entrepreneurial mythology is full of epic stories, such as those of Apple, Google, Facebook and Amazon.  Yet, the reality is much more boring, as represented in this chart. The selection bias around what you hear about is a trap in the entrepreneurial journey.

We frequently find ourselves in valuation discussions with founders where we think the asking price for the round is expensive.  What keeps us grounded is the data represented in the chart above.  Mind you that the exit sizes in Europe, and especially, Emerging Markets are lower than the global figures.

As an entrepreneur, you would be well-advised to keep in mind that your exit will likely be smaller than what you read about.

Mobile User Characteristics


Mobile first emerged as a favorite buzzword, as penetration and traffic patterns have made mobile optimization and native apps must-haves for almost all consumer-facing businesses. However, mobile comes with its unique characteristics when it comes to customer behavior.

Here’s a quick take on these distinct characteristics:

  1. Limited Real Estate. With no search gateway like Google, you are constantly reminding your user to ask herself whether she’d like to keep your app on her mobile or uninstall.
  2. Low tolerance. The product performance expectations are very high for responsiveness and accuracy. If you disappoint, you lose users.
  3. No returns. When a mobile user clicks away from an app, there is no back button, so it’s usually an exit, not a detour.
  4. Low attention & multitasking. App usage is usually an activity that accompanies another one, such as commuting, waiting for a meal, or sitting in a meeting.
  5. Targeted usage. When a user fires up your app, she usually has a specific thing she is looking for. Social apps are an exception to this.
  6. Shorter sessions. The engagement time of mobile users is about half that of web users.