A Turkey VC Analysis: A Request for Answers Continues…

A Turkish Private Equity Web Log

In an effort to cover the Turkish Private Equity Industry - for the promotion of Entrepreneurship, the private equity asset-investment model, and the communication thereof.

13 December 2006

As seen in Mike Wright and Ken Robbie’s book, ”Management Buy-outs and Venture Capital” (1999), a comparative analysis is presented concerning the private equity industry in Eastern Europe. “Venture Capital in Transition Economies: Hungary, Poland and Slovakia” (1997) written by Judit Karsai, Mike Wright, Zbigniew Dudzinski and Jan Morovic offers an objective and tantalizing analysis of an industry in its infancy, and therefore could be used as an analytic benchmark for Turkey. The report draws comparisons between the 3 countries in the following areas:

Cultural, legal and institutional factors,
Industry level and firm level governance,
Screening of investments, valuation and due diligence,
The ability to exit.

All of these areas could be directly applied to a report on Turkey, its neighbors in the Mediterranean, or the Turkic/Caucus region. In those three countries analyzed, 2 major problems occurred: 1) access to finance was limited, in addition to an environment of privatized government-owned companies having financial difficulties, and 2) issues involving corporate governance existed. Specifically:

“In all 3 countries, there continue to be major infrastructure impediments to the development of venture capital including specific legislation to permit venture capital firms, the development of reliable sources of information on potential investees, and the development of stock and corporate asset markets.” (Karsai, Wright, 1997, P. 110)

One can only guess to the immense benefit that this report aided those investors who pursued opportunities in Central and Southeastern Europe such as the SE European OPIC George Soros Fund [sic], the Intel Fund and just recently Cisco’s investment. In addition, when you simply look at the population of Turkey and its VC activity, and then compare it to Greece, Bulgaria, the countries of Eastern Europe, and even France, Germany, the UK and Israel, it tells a frightening story just how VC conditions in Turkey are simply not as they should be. More importantly, it shows the potential that exists for future innovation and investment so long as education is continually stimulated and evaluated.

I can’t help but be reminded of Sortipreneur’s Israel Envy as he speculates on the “powerhouse” of VC activity occurring in Israel. Surely, the differences between Israel and Turkey, though stark, need to be examined. He states that early-stage Turkish VC really needs a “strong nod from the Turkish government” and I couldn’t agree more, but as will be discussed in a future post, the direction that is currently being taken by the Turkish government is somewhat misguided and really needs a swift kick.

Another resource, pertaining to these issues, that I have only recently found, but unfortunately not had the opportunity to read, is “The Growth of Venture Capital: A Cross-Cultural Comparison” edited by Associate Professor Dilek Cetindamar of Sabanci University. Published in 2003, she offers various works on 6 different countries including Israel and Turkey. Follow-up results of the above studies and status of the venture cycles in these countries would of course be beneficial and an area for future study.

So, in order to maintain these efforts, I therefore propose a similar study to be conducted in the next year on the countries of Turkey (outside the EU), Greece (within the EU) and Bulgaria (and/or another subject thereof). A formal proposal can be submitted upon request. I urge all those interested in a sponsorship of such an analysis to contact me at this site. Once a team and/or grant can be assembled, a method of distribution can be discussed. I await your replies.

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