The Pendulum on Turkey


In my conversations with non-Turkish friends lately, the dominant topic has been what’s going on in Turkey.  This is of course fuelled by the stream of news on the country over the last three years, starting with the Gezi protests: questions on the stability of the government, the sliding lira, the refugees from Syria, the war at our doorstep, the crisis with Russia, the back to back elections, etc.

For us, the most easily-observable impact has been the disappearance of western VC interest from the Turkish tech market.  Attending the annual Startup Turkey event in February, we were surprised at how it was only the local or regional VCs who showed up.  By contrast, just two years ago, the same event had attracted names from a long list of firms from Silicon Valley, New York, London, Berlin and Paris.  Even though many were there on early scouting missions, the sentiment was that Turkey may be “Europe’s China” when it came to tech opportunities.

The truth is it never was.

However, neither is it “the next Syria”, as the sentiment may be today.  The pendulum always swings too far, in both directions.

A great example for this is the recent exit by the local PE firm Actera of its stake in Mars Cinemas at an EV of $800 million.  About a year after the acquisition of YemekSepeti by Delivery Hero for $589 milllion, it comes as a reminder of the size and scope of the Turkish economy, and the fact that you can build large, healthy businesses serving the needs of Turkish consumers.

As investors, it’s critical for us to keep our eyes on data and metrics, and resist getting swayed by fickle public opinion.  That’s how you build value.

The First “Turkish Unicorn”

YsOne of the most frequent questions we got when we were raising our Turkey & CEE-focused VC fund at Earlybird, was about the small number of large exits in the region, especially in Turkey.  Our thesis was that the problem was on the supply side – not enough large startups were being built.  We contended that the market was large, and part of the problem, to which we were bringing the solution, was the lack of local funding.

Today, we have the great news that YemekSepeti has been acquired by Delivery Hero for $589m, which makes it the first Turkish internet startup exit above 1 billion TL (TL 1,596,000,000) to be precise.  I have known the company since 2008, and saw it develop into one of the healthiest marketplace businesses I have ever seen in the world.

Congratulations and heartfelt thanks to Nevzat, Melih and the rest of the team that made it happen.  Your story will become a beacon for many more talented young entrepreneurs.  Well deserved!

The Danger of High-Valuation Series A Rounds

Tech startup valuations are exploding around the world.  As a result, we are seeing higher expectations from entrepreneurs here in Turkey and CEE rising, as well, with higher "asks" in seed and Series A rounds than ever before.  We find ourselves passing on opportunities we find interesting for valuation reasons, which is quite new for us.

This is not so much of a problem for seed rounds.  There are investors, mostly angels, who can live with more modest returns than a VC, so these startups do get to find funding and go to market.  However, I think it's a dangerous game to play in Series A, even if you are able to secure funding at lofty valuation.

Let's start with the reminder that, by our count, there have been only 7 Turkish internet startups that have reached the $100m valuation mark, and it took some of them more than a decade to get there.  You can do the math with the super high discount rate you should apply to a Series A stage venture, to come up with the range at which we would consider as Series A round.

How you value a Series A round is usually not based on financial metrics, but is an exercise around how much capital the company needs to get to its next set of major milestones, how big the founder team is, and what level of dilution is appropriate to make sure the team stays motivated.  As a result, almost all Series A rounds already overvalue a company, with the hope that rapid growth in a large market will allow the company to fill beneath this high valuation in time for Series B.  

What happens when this is not accomplished is the prospect of a down round.  Talking with founders, I find that most underestimate the difficulty of down rounds, which rarely happen, and when they do, are usually damaging to so many aspects of a company, that very few companies go on to become successful.

If you are a tech founder, please keep in mind that an overprices Series A round can create an existential risk for your startup.




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.


Earlybird Istanbul is Looking for a Rockstar Assistant

Now that we are in investment mode at Earlybird's Istanbul office, we are seeking a superstar Executive Assistant to help us run the shop.

This is a key role that inherently provides a wide set of paths ahead.  

What will help you get the job:

–      Bachelor's Degree

–      Excellent use of both spoken and written English , German is a bonus

-       A few years of work experience in a similar position

-       Good command of business applications, both old and new

-       Strong negotiation, organizing and time management skills

-       Excellent interpersonal and professional communication skills

-       Able to effectively prioritize work and parallel process, show initiative when needed

-       Must possess the highest level of work ethics and integrity, with the ability to maintain confidential information

–       Flexibility and "get stuff done" attitude

-       Acute attention to accuracy, consistency and a high degree of quality in work

-       Have a polished appearance, dynamic personality and excellent attendance

-       Be detail oriented and organized

-       Hard-working, reliable and committed to delivering results

-       Careful and committed to continuous development

-       Strong follow-up skills


Job Description

-       Coordinates all internal and external meetings and travel arrangements

-       Plans and prepares materials for internal and external meetings, including scheduling and distribution of agendas and meeting materials

-       Proactively identifies and resolves executive needs

-       Responsible for visitor coordination

-       Passes along information and routine matters to appropriate parties for action and follows up to assure timely completion

-       Highly self-motivated and able to operate autonomously when necessary

Please contact us with a link to your LinkedIn profile, and an email on why you are interested in the role at



Going East – The making of the Earlybird Digital East Fund

This is a guest blog by my partner Roland Manger. It was originally published on the Earlybird blog.

EDEF-team-e1390303571922VC firms aren´t really interesting, the companies they invest in are. That´s why only few people noticed how profoundly Earlybird has changed. When you looked at the partner profiles on our website five years ago, you saw a bunch of Germans with a heavy Germanic focus. Yes, we helped our companies to grow and expand globally, and yes, we listed them on international stock exchanges or helped them be acquired by large US and even Asian corporates. But in most cases, this was based on German, Austrian or Swiss teams only and we felt very comfortable with that.

I must say I am very happy that we left our comfort zone and started to look at the VC opportunity in Europe in a different way.

For a number of reasons that many smart people have reported about, Berlin has become a uniquely attractive place for some of the most brilliant founders from all over Europe, sometimes even beyond to conceive great new products and build globally active companies around them. So rather than remaining a German VC supporting German companies, Earlybird became a Berlin based VC with an international team (check out the website now) working with exceptional founders from all over Europe.

Taking a different look at our world also made us realize that just East of Berlin, in CEE and Turkey, we could find a new world of smart and ambitious entrepreneurs that was largely untapped by the established VC community. A lot of preconceived notions still dominate the views even of European VCs about the opportunity in Turkey and the European East, much like the ones that US VCs had and often still have about Western Europe.

But if you aren´t a chauvinist, you have to admit that entrepreneurial talent is distributed evenly around the world. As VCs we are looking for the most exceptional of entrepreneurs regardless of where we are active, those that defy conventional wisdom and are used to dealing with difficult challenges independently of the predominant cultural bias of their home country. In most of the places we looked at, technology education traded at a premium, so the best and brightest were and still are seeking engineering degrees at home and abroad. Examining the cross-section of both really got us excited. We found ways to meet tech entrepreneurs (most of them in the making) from Turkey, the Balkans and North Eastern Europe, looked at now over 1300 investment opportunities and felt reassured by what we saw.

With the new Earlybird Digital East Fund, we are putting money where our mouth is. Three partners joined me in this quest: Cem Sertoglu and Evren Ucok have been both the most prolific and successful early tech investors in Turkey. Dan Lupu has covered large parts of CEE for Intel Capital. Several large international institutional investors and a number of successful entrepreneurs and family investors from all over the world share our view and have committed capital to the fund. Now is the time to prove them and us right.

Founder Institute Istanbul

Bu blog post, SortiPreneur'de bir donum noktasi.  Bundan sonra zaman zaman Turkce post'larim da olacak.  Takipcilerimin cogunlugu Turkiye'den oldugu icin bunun dogal oldugunu dusundum.  Bilgisayar klavyem Turkce olmadigindan, Turkce karakter konusunda hosgorunuze siginiyorum.

Bu ilk Turkce post'un konusu Kutlu Kazanci ve Elbruz Yilmaz inisyatifiyle Istanbul'da bir program acmayi dusunen Founder Institute. Onlarin agzindan:

5 kıtada 500’den fazla fikir aşaması teknoloji firmasının hayata geçirilmesini sağlayan Founder Institute İstanbul'a geliyor. Dört ay boyunca haftada bir akşam toplanan program, startup CEO'ları tarafından verilen ve girişimciliğin tüm boyutlarını kapsayan bir eğitim ve mentorluk desteğinden oluşuyor.  Bir startup fikriniz varsa veya bir startupın kurucu ekibinde olmakla ilgileniyorsanız ekteki linkten kayıt olabilirsiniz.

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.

Qualcomm Qprize 2012

Qprize's final date for submissions is coming up this Friday, August 17th.  The Qprize is a great opportunity for entrepreneurs to showcase their ventures.

The Qprize website that has detailed information as well as a link to apply. The process is pretty straightforward and offers start ups funding, visibility and validation from Qualcomm and 2/3 of the second year winners have closed Series A funding so far in addition to the QC funding.

Key highlights are:

·         Eight semi-finalists will compete in London for €100k Euros and a chance to travel to San Diego to compete for a further $150k as the grand prize winner.

·         Entrepreneurs/Companies must not have raised more than $2m for their business to date

·         Deadline for applications is August 17, 2012

·         Companies should be in the following sectors:

  • Mobile consumer/enterprise applications and services
  • Semiconductor and component technologies
  • Digital media and content
  • Healthcare technologies and services
  • Internet of things

·         Full details and application form at