What are You Cloning?

Posted on 5 Nov 2012 by cemsertoglu

As you can surmise by taking a quick look at my personal investment portfolio, one of my investment types is in Turkish adaptations of businesses that have reached critical mass and success in more developed markets. In the internet business, this is now being called cloning, and has met with quite a bit of criticism.

I will not go into why I think that is largely a meaningless debate (many definitions are too loose).

However, I do think there's an important point to keep in mind if and when you are cloning a proven business model. It is not going to be enough to clone the model, website, etc. You need to clone the essence of the business; what really made it successful.

If you are working on a Zappos clone, you need to focus on the customer service centric way Hsieh built his company. Cloning Amazon or Netflix will require relentless concentration on metrics and operational excellence. Groupon's early success (prior to Citydeal acquisition) was tapping into the community bonds in its geographies by a very human voice on the platform.

If you are not successful cloning your source of inspiration's DNA, no amount of copy-pasting will be enough.

Platforms Take a Long Time to Monetize

Posted on 4 Sep 2012 by cemsertoglu

There's a good post from John Battelle, who has been very impressive with deep, insightful analysis lately, on Twitter's decision on focusing on monetizing the interest graph. This means that Twitter will be very supportive of ventures who build on Twitter which enhance the interest graph, but antagonistic agains those who are, in parallel, destinations with their own (interest-based) community ambitions. John points out Tumblr and Instagram as recent victims.

I don't think I can blame Twitter. It now has 100m+ actice users, shareholders who have come in at massive valuations, and a responsibility to start filling underneath the financial assumptions behind thoes investments. I also think Twitter has an equally viable option to remain a true, neutral platform. But that takes longer. Look at what happened to shares of Facebook. Platform businesses take a long time to effectively monetize. If the internet was a private company, it would be laden with much more friction today.

Founder Institute Istanbul

Posted on 3 Sep 2012 by cemsertoglu

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. http://fi.co/posts/691

Investing in Turkey’s Digital Economy

Posted on 22 Aug 2012 by cemsertoglu

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
Europe.

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
market.

——————————-

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

Posted on 14 Aug 2012 by cemsertoglu

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 http://www.qprize.com

Geeks on a Plane Istanbul

Posted on 14 Aug 2012 by cemsertoglu

Dave McClure's Geeks on a Plane tour is headed to Istanbul in November. GOAP is an invitation-only tour for investors and startups that visits developing stratup hubs and fosters cross-border deals and cooperation. The application info is here.

Founder Teams: Growth and Alignment

Posted on 11 May 2012 by cemsertoglu

Last week I was a panelist at the EBAN Congress panel titled, “How to Find and Grow a Yandex”. Since the event wass in Moscow, I figured there would be someone on the panel who actually had a finger in finding and growing Yandex, but alas, we were all mere spectators. However, each of us on the panel have been fortunate enough to be involved in the building of great companies.

Thinking about what it takes, especially in emerging markets, to create exceptional companies, I was not surprised that I arrived at my usual conclusion: that it starts and ends with the Team. This is even more important in the case of the most ambitious of the startups I witness, as there a few additional complexities.

First, for the homeruns, you need excellence on all fronts. It’s not enough that a team has a brilliant technical founder, or that the CMO is a marketing genius. You need full performance from the entire team, a balance of operational excellence AND the drive to conquer the world. It’s rare that you get all of this in the initial founder mix, so a key to growing a homerun is supporting the company in its talent needs. I always think that a VC is, before all, a human-resources professional, both in trying to spot talent, supporting them constructively and helping to fill the gaps in the team.

Let’s assume that you have a fantastic team, and that the gaps are being filled effectively. Now comes the challenge that I think is particularly critical in our geographies: aligning the interest of the founders with the investors. Billion dollar exits are rare by definition. You have a smart team, so they can do the math that when the business starts to show traction, let’s say hitting metrics that would value the company in the $10-20m range. Typically, the founder team at that juncture will recognize that a significant portion of the wealth is now in their company’s stock. Assuming they are not independently wealthy, or they have had previous exits, the natural reflex at this point would be to switch to a defensive, preservationist stance. And this would typically coincide with the point where the early traction would allow them to accelerate their growth via new growth capital.

One solution at this point is to align the founder team’s interests with those of the investors by allowing some shares to be sold by the founders as a part of the round. Some investors are allergic to this, thinking it may kill the hunger and drive complacency, but I have seen many examples where the model worked effectively. I think it is an important step in the creation of a great company.

As hinted in the point above, one needs to make sure that they are not funding a “back-door exit” for founders who have decided that they are OK with a discount having lost their faith in their business, but that problem, I think, can be averted by spending a lot of time with the team. In any case, I think full alignment is usually worth the risk.

Cross-Border Mobile Extortion

Posted on 28 Feb 2012 by cemsertoglu

It’s time for MWC, the annual global mobile event that takes place in Barcelona, and we are seeing the usual flow of coverage that praises the innovations around how enhanced mobility is changing our lives.

I am not in Barcelona, but in Berlin, attending a different event. And the only thing related to mobile that I am reminded of while I am traveling is that I am paying EUR 20 per day for my WiFi connection at the hotel. If I don’t pay for this, then Turkcell, my mobile provider charges me (link in Turkish) roughly EUR 1 per minute for voice and EUR 4 for 10MB of data.

This is obviously at least an order of magnitude larger than any German customer’s price for mobile usage. So it’s not cost driven, and is purely a type of extortion to which carrier monopolies have managed to hold on.

As my smartphone becomes a more integral part of my life, the pain caused by this artifical friction increases. Which tells me this is an area primed for large disruption.

Turkish Online Advertising Gap

Posted on 22 Feb 2012 by cemsertoglu

Quintura 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 Mail.ru, 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.