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.

Labels: AIG, Alfa Group, Blue Voyage Fund, Buyout, exits, Investments, Private Equity, Turkey, Venture Capital

Labels: exits, Home Run, Investments, statistics, Venture Capital

"The health of the VC market depends on the existance of a vibrant public market that allows new firms to issue shares. Only with such a public market can VC's make a credible committment to entrepreneurs that they will ultimately relinquish control of the firms in which they invest."

Labels: exits, fundraising, IMKB, IPOs, REIT

Labels: AccessTurkey, acquisitions, exits, iLab Ventures

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.

Labels: Angel Investors, deal flow, Entrepreneurship, exits, Incubators, Venture Capital