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.

Summary: METU/ODTÜ Holds Entrepreneur/Investor Summit
At the beginning of November, I happily attended the Entrepreneur-Investor Summit hosted by Middle East Technical University (METU/ODTÜ) at the Ritz Carlton in Istanbul. I went there with many ideas and goals in mind. However, what I took away was somewhat different from my expectations.

First and foremeost, who attended the event? A fine list of panelists can be found on the Metutech site. However, the attendees constituted:
  • International Banks - The EIF, the EIB and KFW presented their foci on helping other banks fund entrepreneurship through loans. Only the EIF through the EIB acts as Fund of Funds to the venture space.
  • European Angels - The midmorning panel consisted of a discussion on the merits, successes and opportunities of setting up an angel investor network. This included The European Business Angels Network (EBAN), and the Italian Business Angels Network (IBAN) as well as The London Business Angels. All stressed the need for increased legislation on the taxation or tax incentives for angel investments - which could in turn aid innovation and entrepeneurship. Only a handful of Turkish Angels were believed to be present in the room.
  • Entrepreneurs - Since the Summit was preceded by a business plan workshop online and presentations to a panel of angels for evaluation, it is only natural to see some entrepreneurs in the audience. Apparently, 18 entrepreneurs were able to present, but no word on if any got funded.
  • Innovation/Entrepreneur Consultants - A few European firms attended and sat on panels to discuss their particular methodology behind becoming innovative, how to present a business plan, and how to succeed at finding investors.
  • Academicians - Of course, with ODTÜ organizing the event, there were quite a few academics in the audience asking poignant questions. The event was also organized with the help of International Relay Centers (IRC) Anatolia, TTGV, KOSGEB, and MetuTech.
  • Turkish Finance Brokers - There were a few representatives of Turkish Brokerage firms in attendance. They were looking for both corporate venturing opportunities with entrepreneurs, or investors for their own funds. Perhaps they just wanted to hear about the current status of innovation, entrepreneurship, and news on the incubation/venture/private equity space. It is hit or miss whether they found what they were looking for.
  • Government Representatives - The event was delayed as we waited for the arrival of the Secretary of the Ministry of Industry - Hilmi Guler, who then preceded to go on and on about the development of energy in Turkey and how it vaguely applies to increasing innovation and entrepreneurship. Perhaps showing the readiness for foreign investment in Turkey was the goal here. Needless to say, the entrepreneurs and guys in Turkey's garages present in the conference hall couldn't have cared less. TUBITAK spoke (in Turkish) about the number of patents and published works - much of what can be seen on their website. TTGV, frankly, gave a very enlightening presentation on TTGV's work and increased spending (despite their small budget). Mete Çakmacı of TTGV confirmed my supspicions when he stated, "{In Turkey} Entrepreneurs have naive expectations {about obtaining funds and the requirements of that investment}, they want a 'life-style' business."

Notice anyone missing? Exactly. In all the sessions and panels, only one representative from an official Turkish venture capital firm was on a panel, and I have heard since the conference only a few were in attendance. Suleyman Yilmaz, CEO of Kobi A.Ş sat on the last panel. His firm comprises of 20 million YTL with the backing of TOBB, KOSGEB and various Chambers of Commerce from 15 cities.

In Mr. Yilmaz's presentation, he was fairly pessimistic regarding the current entrepreneurial environment. Some of his statistics were no different than any other VC. Of the 800 applications since the beginning of the fund, 3 investments were made. The translator mentioned that 400 of those applications/business plans were in very bad shape. Disappointingly, Mr. Yilmaz did not stick around for questions after the panel.

Suprisingly, there were those at the conference who believed that only 2 or 3 venture firms existed in Turkey, which is definitely debateable. However, not suprisingly, the consensus of the presenters confirmed that on the demand side there is a lack of activity and an investment gap between the incubation stage and growth stages. This was summarized as a gap between €100K - €3/5 million. Anthony Clarke, Managing Director of GLE Growth Capital (as well as Chairman of British Business Angel Association (BBAA) and President of European Business Angels Network (EBAN)) stated, "There is not only an equity gap, but we have a management gap." For the investor, the supply side barriers are simply that management teams are just not good enough in most business plans and the variety of risks to invest in some countries are simply too great. Here's a link to Anthony Clarke's PPT "Angels and Angle Co-Investment Funds" via the Metutech website.

Mr. Risto Kalske from Finland and Director of SITRA, The Finnish Innovation Fund, quite interestingly told the story of how Finland built a fund of funds to spur the venture capital market which in turn spurs the innovation of entrepreneurship. This in turn - worked - and it is only now, that Finland is starting to concentrate on Science and Technology Parks. This is exactly the opposite of what Turkey has done, and in my eyes confirms that the next great step for Turkey would be to establish this Fund of Funds. Here's the link to Mr. Risto Kalske's PPT "Public Measures: Encouragement for Private Capital?" courtesy of the IRC website

Overall, What Were the Results?

  • European Angels gained a better perspective on Turkey. Unfortunately, Turkish Angels were not in attendance. A Turkish Business Angel Network has a domain registered but whether it has been formed is up to speculation (although there are 2 Angels from Turkey registered with EBAN). This is probably why Angel Network representatives did not hang around for the last session.
  • 18 Entrepreneurs were able to improve their business plans and give their elevator pitches at the coffee breaks. (It would be interesting to learn if any of these entrepreneurs got funded - in the comments of this post.)
  • For academics, METU learned what to do (or not to do) for next year. Perhaps there will now be a deeper focus on attendance, innovation building and closing the venture funding gap.
  • As publisher of Grandstanding Traction, I received a number of topics and ideas on content to publish and improve this site. (To be continued...)

To conclude, upon speaking with a prominent Director of a Venture/Entrepreneurship consultancy, it was voiced that "At these types of conferences, you never know what kind of crowd is going to show up." Pardon the Forrest Gump analogy, but indeed, Entrepeneurs (and prospective fund managers) who were looking for investors - they most likely did not find them. For Business Angel Networks looking for Angels in Turkey to band together - they probably didn't find them. For academics looking for answers toward improving innovation and entrepeneurship - let's hope they found enlightenment. In addition, let's hope the government gets the follow-up memo.

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Posted @ 20:42   0 Comments
Turkven Closes Second Fund - TPEF II
Although there is not a lot of information out there, it can be confirmed that Turkven has closed its second fund. Posted in October in the WSJ (for subscibers), the TPEF II buyout fund is predicted to be a whopping $428 million, "which is 10 times the size of its 1st fund which closed at $44 million in 2002".

For a Turkish private equity fund, this will be the largest increase in fund size ever achieved through a second fund raising. It is also interesting to note that with the crisis in 2001 and with the formation of their first fund in 2002, they may have had to overcome a currency crunch with some of their deals as well as reassurances to their LPs regarding Turkey's economic problems at the time. It's amazing to think that despite any negative issues that may or may have not occured, the demand for and outlook of Turkey has still kept investors and LPs positive. With this second fund closing, it appears that these volatile issues have passed. In addition, their relationship with Advent International will continue.

According to the International Finance Corporation (IFC) website and synopsis of the Turkven deal, their investment will comprise of some €20 million. This synopisis/project description/letter of intent is quite telling concerning Turkven's focus, strategy and relationship with the IFC. The IFC has been affiliated with Turkven since their first fund. Finally, we come to what is officially stated on the Turkven website concerning the deal.

TPEF II has commitments from over 15 global investors, who have invested in Turkven's strong track record and first mover status in the Turkish market.
So we know the IFC has committed €20 million and I can confirm that the EIF has committed €10 million as stated at the ÖDTÜ Entrepreneur Investor Summit in early November. With Turkven closing $400M+ and (according to Deloitte's PE in Turkey Report) Actera looking to close their second round at $400M+ with their fund this year (can we confirm AccessTurkey/iLab as well?), the Turkish private equity pool just got a lot larger. Once again, this proves the appetite for the Turkish PE deals and investment is very promising as conditions appear to be good. This also means we will see a lot happening in the small-mid cap buyout market in the next three years. I still must ask, "where is the venture space?" to fill the equity gap, but that is beside the point. Nonetheless, congratulations go to Turkven.

On a side note,

I would just like to say that Grandstanding Traction and myself are in no way affiliated with Turkven Private Equity. That should take care of any rumours regarding Turkvcanalyst. If you are interested in who I am, please drop me a line at: Turkvcanalyst(at)gmail(dot)com

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Posted @ 20:03   0 Comments
Deloitte Touche Turkiye Publishes Most Comprehensive Turkish Private Equity and Venture Capital Reports - 2007
A few people were looking for the link to this report on my freind Kutlu's blog on Entrepreneurship. So, for anyone curious about testing the waters of the PE/VC space in Turkey, the Deloitte Touche Turkiye report on Private Equity in Turkey (PDF) is a must-read. With the Turkish Venture Capital Association being non-existant (the last analysis being written in 2004), and TUSIAD being focused in other areas, this report from Deloitte Corporate Finance is the most comprehensive analysis to date. Originally I found this report on the Turkish US Business Council website (with some other good reports), but here is the real home link at DT:

The report is structured around various economical periods in the last 20 years dealing with crises as well as telling of various fundraisings, deals and exits. It is a white paper of course, so the conclusion leaves the reader with information how to contact Deloitte Corporate Finace Turkey for their consulting and M&A requirements.

One cannot argue with the appendix. It is a timeline of all deals and a valuable resource. However, as mentioned in the report, some deals and their values are estimates only and should be taken with a grain of salt. In addition, there is a feeling that data collected comes only from personal experiences and local speculators with contacts in the deals themselves. I also believe that a few academics were involved on the consulting work for this report. Once again, I will reiterate that it is a shame that the TVCA has not produced anything that resembles this study.

Deloitte should be applauded for this work. Furthermore, while I provide the link for this report, I feel that I should also provide links to two other fine DT reports of noteworthy respect.


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Posted @ 22:43   0 Comments
Blue Voyage Partners Exit AFM Cinemas
As posted in the TDN (Velios buys AFM’s 51.9 percent shares), it appears AIG Blue Voyage achieves an exit from one of their longtime investments after just re-entering Turkey. I'm a bit short of time as of late, so here are the main points from the article:
Turkish cinema company AFM sold more than 50 percent of its shares to the Velios Ltd., a subsidiary of Russian Alfa Group Consortium Tuesday evening. The estimated price of the shares is to be around $28.5 million, however, the final price will be set after closing.

This led the previous owners of the company, Akdemir family and AIG Blue Voyage Fund L.P., to sell all their shares except for the 10 percent belonging to Ahmet Adnan Akdemir, AFM founder.

A statement made to the Istanbul Stock Exchange (IMKB) said that 51.9 percent of AFM shares (owned by AIG Blue Voyage Fund L.P., Yalçın Selgur, Mehmet Berent Akdemir, M. Sedat Akdemir, Fatma Füsun Akdemir, Ahmet Adnan Akdemir and Yusuf Agah Tansev) were sold to Velios Ltd. for $28.5 million.

AFM's market value

"The market value of the company is around $59 million but for the deal we calculated it to be $55 million. $28.5 million is not the final price, it may change after closing agreements," CEO Akdemir said yesterday.

Ahmet Adnan Akdemir remained a shareholder of the company with 10 percent. "I am also going to remain in his position as the CEO of AFM Sinemacılık for at least two more years," he added.

The deal also included an optional arrangement providing that Ahmet Adnan Akdemir's remaining shares will not be able to purchased within a year but later they will also be open to a sales agreement between two parties.

Alfa Group is a Russian consortium that is operating on many different business areas, including financial services, oil and gas production, technology, retail trade, telecommunications and media. The consortium is known in Turkey for its investment on Turkish GSM operator Turkcell. As of April 2007, the group together with its telecommunications subsidiary Altimo holds 27 percent of Turkcell shares.

AFM is Turkey's nationwide largest cinema circuit with 183 screens around the country and the first and only entertainment company listed in İMKB since October 2004. Close to 38 percent of the company shares are offered publicly and 90 percent of these publicly offered shares are owned by foreign firms such as Morgan Stanley.

AFM is expected to continually expand, especially with this new Russian partner, and a burgeoning shopping center boom in Turkey. I find it interesting (and a coincidence?) that just my last post was regarding the AIG Blue Voyage Fund (AIG Rehires and Re-Enters Turkish Buyout Market with Blue Voyage Advisors). It can only be speculated that the rehires and Blue Voyage's resurgence back in Turkey may have been tipped off by the momentum of this deal.

AIG originally bought a minority holding into AFM for an estimated $7 million in 2000. Again, we can only speculate on their rate of return (if any) on this deal, since there are others involved in the exit.

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Posted @ 20:33   0 Comments

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