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


Turkish Online Advertising Gap

AdsQuintura blog reports today that the Russian online ad market size has reached almost $1.4b in 2011.  This represents a 56% jump YoY.  These are fantastic numbers for the market.  No wonder the country has produced two massive internet companies Yandex and, that have primarily ad-based revenues.

In comparison, the online ad market in Turkey is estimated to be around $400m in 2011 (The IAB figures for 2010 were 271m Euros).  Furthermore, my personal estimate is that at least $250 of this is Google, which leaves a paltry $150m for any local company that is going after ad dollars.

This is a problem that impacts the ultimate quality of original Turkish content, which is monetized at lower rates than other geographies.  It certainly explains the dearth of online content businesses that have reached any significant scale (the Nokta sites, Eksi Sozluk, Mackolik and SporX are the exceptions here).  And finally, it points to a huge opportunity as one would expect this gap to close.

As one of our investment themes, we will be watching solutions that enable more effective monetization of content, beyond ad networks, and lean producers of high-quality content that can attract online ad dollars. 

Sequels and Startup Clones

I was just browsing Google Zeitgeist 2011, and noticed that 7 out of top 10 movie searches in Turkey were sequels.  I thought, "ah, shame on the Turks, for not rewarding originality".  Then I made my way to the list top grossing movies globally, and immediately apologized from my fellow Turks: All but two of the global list are sequels. In fact, the top seven are all sequels!

Thinking of this phenomenon reminded to a popular topic in internet ventures.  In our industry, adaptation of successful, proven business models, in new markets or verticals is often scorned.  Entrepreneurs are chastised for their lack of originality and innovation.

I think there's a key difference between sequels and internet clones.  Film is a creative industry.  Formulaic churning of unoriginal content in a creative industry may very well be a strategic business choice by content companies, and while it may make business sense, it certainly erodes value from the "creative" industry.

In my opinion, internet businesses have no obligation to be creative.  Their objective is value creation: preferably, defensible, sustainable, "thick" value.  There may be a thousand eBay clones around the world, but if each marketplace is reducing commercial friction among buyers and sellers, then each of the one thousand  clones is creating value.

Anyway, food for thought…

Here's the sappy Google Zeitgeist clip:


Local Marketplaces and Network Effects


I am sensing a tipping point in the usage of LinkedIn among Turkish professionals.  My invitation volume from Turks has increased by at least an order of magnitude since the beginning of the year.  While I have historically been very promiscuous with my LinkedIn connection acceptances, I am now changing my behavior and have modified my privacy settings to make it more difficult to friend me.

I have been watching the ratio of Facebook and LinkedIn users closely.  Today Facebook stands at 800m users and Linkedin at 116m.  That ratio suggests that with ~30m Turkish users on Facebook, Linkedin should enjoy a crowd of 4m.  I don't know what that number is but Google AdPlanner suggests traffic numbers at less than 1% of global traffic.  That tells me the traffic and attention upside on LinkedIn for Turkey remains enormous.  

Combine that with the facts that LinkedIn is enjoying the recent growth I mentioned (albeit anecdotally) in the first paragraph and it is already ranked 61 on Alexa Turkey, and one would expect LinkedIn to break into the top 25 properties by Turkish traffic fairly soon. Game over. LinkedIn has won. was the first company to try to capture the Turkish professional networking opportunity.  After the Xing acquisition, the mindshare that it enjoys has all but disappeared.  That was followed with a few attempts to provide similar utility to Turkish professionals, but no one was able to reach critical mass.  Now LinkedIn has arrived and the window of opportunity has been shut.

This should be a lesson to ventures in areas with significant global network effect.  In local markets, there will exist a window of opportunity to build a marketplace and get to critical mass, at which point you can exit the local venture before the global players prioritize your market.  If you are too slow, you will not be able to realize value before the global network effect kicks in.

Turkey’s Bright Internet Future


Last week Sina Afra had a good post on why Turkey has turned into a hot internet market, as a follow on to Robin Wauters's post on Trendyol's new round in Techcrunch.

All of this attention is obviously triggered by the tremendous year Turkish internet industry has had.  We have enjoyed a landmark period where we've seen two large exits in the $200m range to global strategic buyrs (GittiGidiyor-eBay and Markafoni-Naspers), and numerous investment rounds from top VCs like Tiger Global, Kleiner Perkins, Intel Capital, ePlanetEarlybird and Hummingbird.

The interest is certainly not limited to the names mentioned above.  I have probably had more conversations with global VCs about Turkey in the last 6 months than the last 6 years combined.

Sina does a good job going through some of the reasons why Turkey is so hot.  He focuses on:

  • Large internet population: estimated at 35m, 5th in Europe
  • High growth e-commerce penetration, with huge upside remaining
  • High engagement, evidenced by the huge Turkish population on Facebook
  • Favorable demographics – 70% of online population <34 years of age
  • Strong payments and logistics infrastructure, critical for e-commerce

I fully agree with all of Sina's points, and I won't spend more time on these.  Turkey's getting all kinds of investor attention in every asset class and I think the country's merits on the macro level are evident to most.

However, I do want to point out some additional key actors who have contributed to the growth of the internet sector in Turkey.

First is talent.  There is an increasing number of young, smart, well-educated entrepreneurs launching technology ventures in Turkey.  For the best and the brightest,with plenty options in traditional careers, launching or joining a startup is much more of a viable career path today.  SocialWire (aka Iletken), Peak Games, Gezlong, and are a few examples that quickly come to mind.

Second is the growing diaspora of Turkish entrepreneurs, investors and professionals around the world, interested in and supporting the Turkish internet sector.  They understand the dynamics and the promise of theTurkish market and their influence, experiences and conections have been helpful to many Turkish ventures.

Third is the Turkish interent user. When you observe the meteoric growth of Turkish ventures like Grupanya, Markafoni, Trendyol, YemekSepeti and Nokta, you realize that the Turkish internet user is hungry for high-quality offerings, both in media and services. If a venture is able to offer first rate service, the uptake is extremely fast.  Sometimes the recipients of this attention are global players, but local ventures almost always get a first shot at attention.

I continue to believe we are in the early chapters of the Turkish internet story.  I look forward to helping build the next generation of Turkish internet winners.

UPDATE: With this post, I realized I'd missed Ari's post on the same topic last week.