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.

Turkey's New Light Bulb, and the OECD's Grim Innovation/Patent Report

It seems Professor Hilmi Volkan Demir of Bilkent University has something to be proud of. He and his research students were able to develop white light generated from using nanocrystal hybridization on a light emitting diode (LED), with tunable color properties. Apparently, this is the first time this has been done. An article highlighting this (no pun intended) was published in the Journal of Nanotechnology.

According to an article in the TDN, international interest has started coming in. With Turkish universities and government funding being a guarded and bureaucratic source for innovation in Turkey, it is difficult to tell where this may be heading, but it does give hope that the steering of Turkey's young minds may be breaking free in the right direction. The acid test will be continued management and success of future proposals, and hopefully we will see further spinouts. Then maybe all the money being spent on Technoparks may start to payoff.

Alternate Source: Todays Zaman (Turkish researchers challenge Edison’s light bulb)


But here is where I turn to some bad news about patents just released by the OECD, again the story courtesy of the TDN.
"Turkey's patent applications to the Triadic Patent Families increased by 700 percent between the years 1990 and 2003. However, with seven applications (up from one application in 1999), Turkey ranked at the bottom of the OECD patent index with Portugal and Slovakia."
This is astounding that a country with a population of 72 million people has this record of innovation. Something needs to be done to the educational system in order to stimulate more creativity (are any politicians listening?).

I also cringe when I see such reports from Capital Magazine listing the top innovative firms of Turkey (Turkish link). 142 CEOs were surveyed by IBM Turkey, Capital and Ekonomist Magazines for the report and the winners, announced in April, were Arçelik, Turkcell and Petrol Ofisi. What ever happened to two guys in a garage? Research and development departments and their perspective budgets aside, the results shouldn't really be suprising considering who were asked the questions. What do you think - where does Turkey's innovation really exist?

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Posted @ 00:29   0 Comments
Incubation or Corporate Venturing: E-mbrio Releases Incubation Results
Long ago, I shared my thoughts in a post on the founding and dealflow of E-mbrio by Teknoloji Holding (The Long Tail of Venture Capital). I slated it as an incubator based out of the confines of Teknoloji Holding, and applauded the establishment of such a firm and have waited patiently for any results.

Well, recently, I took a look at Embrio's website for any news. Apparently, after 650 applications, 1 company, SuperTeklif was chosen. Founder Murat Serdar Ozyasar presented his idea to the E-mbrio team. E-mbrio's subsidiary, DataProfil A.S, developed the sales and marketing process where SuperTefklif was repositioned as Turkey’s “first web-based authorized marketing platform", while E-mbrio developed the software and design.

But for Teknoloji Holding, has E-mbrio become a full-fledged incubator or merely a creative spin on rolling out an innovative business development platform for investing in young entrepreneurs with great ideas, taking some risks and building a portfolio? Either way, corporate venturing is a great way to spur innovation, but still hold on to control of company resources. For an overview of corportate venturing, according to Altassets analysis of the PWC and NVCA Money Tree Report, 2nd quarter corporate VC investment reached a level that has not been seen since 2002.

Just recently, I also spoke about the issues that a Turkish incubator needs to face (Is Turkey ready for Incubators?). Does an independently-founded incubator stand a chance? Or should we really be comparing E-mbrio to the likes of corporate venture capital giants such as Siemens Venture Capital, Ericcson, IBM and Cisco (as seen in the left sidebar)? Teknoloji Holding may not have the clout of these behemoths, but you can't blame them for trying. Also, we must not forget the latest trends that we are seeing in the establishment of:
  • Accelerators - Such as Siemens (left sidebar)
  • "Co-operative" Combinators - Such as Y Cominator, YEurope, and HitForge
  • VC-funded "Entrepreneur Bootcamps" - Such as Techstars.
    (For links to these, see Post: Incubators: Is Turkey Ready for This?)
These are exciting new trends and should produce interesting results going forward. We'll have to see how this will reshape the landscape, for Turkey and abroad.

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Posted @ 23:11   0 Comments
Baran Securities Finally Gobbled Up By Credit Suisse
Rumoured last December that this may be jumping the gun, Credit Suisse finally made a play for Turkish brokerage house Baran Securities (Baran Menkul). According to Reuters, "Credit Suisse, which already had an office in Istanbul, said it now held a broker-dealer licence on the Istanbul Stock Exchange (IMKB) and would offer expanded equity sales, trading and research in Turkey." On May 5, Credit Suisse began trading under the name of Credit Suisse Istanbul Menkul Değerler A.S. Exact numbers of the deal were not disclosed.

I would like to thank my friends at Reform Kurumsal for passing on the Credit Suisse news courtesy of Reuters. I guess it only makes sense that Baran Securities became the top search term on Grandstanding Traction this week, with many visits by catalogued IPs from Credit Suisse. I should have known something was afoot. On a side note, I will be adding this post and updating my previous post, "Investment Banks Clamor Toward Turkey; Scoop Up Brokerages and Licenses." Congratulations to all!

Source: Credit Suisse Press Release - May 10th, 2007
Alternate Source: IMKB Listings of Members - Brokerage Houses

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Posted @ 23:22   0 Comments
Ebay Buys Stake In Gittigidiyor.com
That's right. This last week, Web 1.0 auction goliath Ebay just purchased a stake in the Turkish brand of Internet auctions - Gittigidiyor.com. There is no official word yet as to what percentage stake was acquired or for how much. My contacts at AccessTurkey's iLab Ventures, who had a funding round with Gittigidiyor are remaining tight-lipped about their exit.

According to the Ebay press release, Gittigidiyor.com has more than 400,000 listings and is one of the leading players on the Turkish online trading market. GittiGidiyor.com was founded in 2000 by Serkan Borancili, Burak Divanlioglu and Tolga Kabatas and is headquartered in Istanbul - employeeing more than 60 employees.

The press release also mentions that Turkey has over 17 million internet users and growing. This represents a quarter of the Turkish population. In addition, Turkey represents Ebay's 37th market entry to obtain a local presence.

Unfortunately, since Gittigidiyor is a privately-held company, we have no indication of financials. iLab Ventures acquired a stake in Gittigidiyor.com in February of 2006 and has other Turkish Internet companies in their portfolio. My question is whether this is the start of a Turkish Internet shakeout of other international acquisistions, since the IMKB has not proven to be a great exit ground or fund raising venue for Turkish Internet startups. So far, no one is grandstanding yet pertaining to this exit. We'll have to wait and see, but congratulations are definitely in order.

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Posted @ 21:53   1 Comments
Is Turkey Ready for Incubators? - An Answer
In my previous post, I posed the question, "Is Turkey ready for the concept of business incubation?" I'd like to point out the listed incubators on the Grandstanding Traction sidebar as current proof, but I'll summarize my feelings on the question as such:
  1. Discipline: First of all, the Turkish entrepreneur needs to have structured ideas in the form of business planning, or atleast understand how to convey ideas in both the technical and business sense. Finding entrepreneurs with this knowledge and level of written implementation may be hard to come by. Once an entrepreneur receives funding, they must understand that it is not a golden parachute. Pursuing cash flow, profits and an exit for investors must be in the cards. If an incubator were to throw $5000 at someone, this may actually not be taken seriously - in addition to the loss of 2-10% equity. It will be up to the investor to have a hands-on approach in coaching, motivation and dispute resolution - because the idea of equity financing is still a foreign concept. To some, this may even appear foolish. A larger loan from a bank might seem cheaper to an entrepreneur despite the loss of mentorship.

  2. Friends and Family: In the Turkish business world of family oligarchs, the funding of business aspirations through family bootstrapping is very prominent. According to a study by the OECD in 2000,
    "99.8% of all enterprises were SMEs employing 76.7% of the workforce. Some estimates slate that the informal economy could also represent 50% of SME activity. Nonetheless, despite the employment, SMEs operate with comparatively little capital equipment, generate relatively low levels of value added, make only a small contribution to Turkish exports and receive only a marginal share of the funds mobilised by the banking sector."
    Thus, the fundamental weaknesses of the sector were stated as insufficient know-how and very low technology. So, as I've said before, the enterprise with the ability to look past the culture of family ownership toward 3rd party investors will perhaps enjoy greater chances of expansion. For an incubator to step in and invest so little compared to the value of a father's money, for example, might be a difficult hurdle to overcome for a Turkish entrepreneur. Again, it is the concept of parting with equity that may be difficult. However, needless to say, there are still a lot of opportunities out there for SME investment, provided the pipeline, whereas good due diligence is still important at the end of the day.

  3. The Turkish Angels/VC Network: The network of Turkish VC's is a small but tight group of wealthy individuals. In some cases, syndications with other VC's are simply a phone call away, while the ability of a VC to fund using their own money can be a suprisingly easy, alternative step for an entrepreneur. In the end, whether it is through a large fund, an incubator, or an angel investor, the ability of the entrepreneur to convey a differentiated idea that displaces competition while generating cash flow will definitely find funding. The crux of the problem is that the existance of private sector venture capital in Turkey has only emerged in the last 10-15 years, and even then, the top-end of private equity M&A is where most of competition for deals lies. Some colleagues have even mentioned the rush toward the high-end deals and the mid-cap, leaving a giant vacuum, and therefore minimal competition, of venture capital funding. Thus, for an incubator (or an accelerator), finding dealflow is crucial. Whether it is through contacts, universities, or business plan competitions, access to innovative Turks at the forefront of development is the deal maker or breaker. This must be considered about all else before renting that office, hiring that assistant and putting the name on the door.

  4. Minority Shareholder Rights: I've mentioned before the importance of corporate governance, and the nightmarish problems of the past. Between the judicial system and bureaucracy, shareholder rights are a pivotal concern amoung investors, both foreign and domestic. Entrepreneurs giving up equity need to realize that with VC funding comes a Term Sheet detailing the rights of the investor and what it entails. This may be a hard pill to swallow for some. Finding legal aid to put together such documents and making them valid may even give a few headaches, although manageable. An incubator, just like a VC, must be able to have all legal issues at arms length, for it might very well be somewhat of a sales pitch, not to mention a little hand-holding, guiding the entrepreneur towards understanding on these issues. But in the end, if the governmental systems show any sign of not working, all of this is for naught, and the investment climate may indeed get a little cold, and very quickly.

  5. The Exit: Again, with a good network of individuals, VC's, Angels, and pertinant industry contacts, an exit is not impossible, given the current climate. Series A, B or C may operate a little differently, with or without more syndication, but ideally, funding great ideas and individuals can still reap good rewards. But we must now look at whether the incubator is funded "privately" or through a larger parent company. Yes, we must also remember that certain large companies R&D departments may spin-off into their own incubators/think-tanks and gravitate toward their own interests. These do exist in Turkey (see sidebar). If this is the case, motivation toward an exit and grandstanding of such may be very minimal, if necessary at all. However, from a seperate privately-held incubator, the exit of incubation is no different from Silicon Valley to the Levent-Maslak corridor.

  6. The "Export of Brains": One issue has come up of late which I have discussed with a few colleagues as a viable option when funding entrepreneurs in Turkey - The export of entrepreneurs. This is not human trafficking! You may have heard of "Brain Drain", so perhaps we can call this the "Export of Brains". The idea is simple. Most Turkish VC's have existing contacts in Silicon Valley, the US, England, France, Germany, the Middle East, Israel and other countries. An incubator, given the right opportunity, with the right entrepreneur, technology, and timing, could very well incubate entrepreneurs outside of Turkey. As long as the Term Sheet is sound, investors and their "incubatees" could set up shop on Sand Hill Road, brush elbows with known industry contacts, find more funding, place them in prime location for market penetration, and even line them up for the next great IPO. Of course, for those people who believe Turkey will be the next Silicon Valley, don't let me stop you from staying put. In the end, the VC needs to find the best resources for its investments, and if that just happens to be overseas while still maintaining investment potential, more the better.
Nonetheless, with the current supply of deals and entrepreneurs in Turkey, and the current demand of deals from the quantity of VC's in the market, there may be an equilibrium (if not an oversupply of deals), with minimal competition. What happens if more VC's appear or don't appear on the scene? What happens if the government gets wise and finally educates and nurtures more entrepreneurs the right way? If this could happen, we could see a dramatic shift in Turkey's production output and innovation drive. Once more people start to understand the VC model, perhaps we could actually see more innovation coming out of Turkey, and not just cookie-cutter students studying subjects they never wanted. Until then, incubators and VC's alike have a tough road ahead, one that should demand attention.

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Posted @ 00:28   1 Comments
More on Incubators: Is Turkey Ready For This?
Strolling through various posts the other day, I came upon Venturebeat's post concerning the Incubator Buzz over Y Combinator. Y Combinator as well as David Cohen's and Brad Feld's Techstars are incubators of a new breed. The idea is simple. Entrepreneurs with viable business plans apply for a three month "training camp". If accepted, the entrepeneur typically receives around $5000 funding for the idea plus an additional $5000 each for 1-3 employees. The teams are then flown to and mentored by their investors for the three month period. Entrepreneurs must agree to give up 2-10% equity of their companies.

Interestingly enough, a European version has popped up in Vienna. YEurope (no relation to Y Combinator) coins itself as a "startup-startup" and offers the same terms. For Turkish entrepreneurs who wish to enter the gates of Vienna after only answering 31 questions - this is your chance! You need to hurry, though, YEurope's application deadline is May 15th.

Techcrunch and Venturebeat also commented on HitForge. Located in San Francisco, it is another form of incubator. At Hitforge, if you fancy yourself as an inventor, a dreamer, a coder, a guru, or simply an MBA - HitForge wishes you to apply and enter their matrix of contacts. Deemed an "Entrepreneur Co-operative", HitForge is looking for the next technical founder/designer with a portfolio and scruples toward worldly product ambitions. They claim they will put you together with other people - and together you will all share the profits - pending success.

My question: Would these concepts work in Turkey? {To be answered in the next post.}

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Posted @ 22:22   0 Comments

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