Unleashing Turkish venture capital
NUMAN NUMANThe startup phenomenon that started in Silicon Valley and that has taken the world by storm has now landed on Istanbul’s shores. Turkey’s leaders have made entrepreneurship a priority. They have not only encouraged Turkish men and women to start businesses but also supported them through various programs as well as financing mechanisms. The Turkish government has recognized – as have other emerging market countries – that small and medium businesses are a persuasive solution for unemployment.
However, startups don’t succeed on their own. They thrive where there is a critical mass of talent and a community – an ecosystem that supports their efforts. Specifically, they need venture capital.
Now is the time to build Turkey’s venture capital scene. And while it is important that the Turkish government helps ensure that, it is not a job for the government. In order to prove Turkey’s mettle on the startup landscape, the country’s investors – not the government – must lead the charge.
Beyond nurturing startups, a number of countries worldwide have laid the foundations for their country’s investor ecosystems. There are numerous examples in the Middle East alone. In Jordan, King Hussein’s government has backed a number of startup seed funds. In Lebanon, the central bank has rolled out a plan that includes interest-free credit to encourage commercial banks to invest in tech startups. Called Circular 331, the Lebanese Central Bank guarantees up to 75 percent of any investment in a startup.
In perhaps the best-known example, Yozma, a government initiative out of Israel, created an Israeli venture capital industry. Yozma was a fund of funds that invested $8 million directly in nearly a dozen different funds. Yozma eased investors into the notion of risk. More importantly, it served as a model that other countries, such as Mexico, New Zealand, Singapore, and the United Kingdom, have replicated.
In Turkey there are several financial initiatives in support of startups. For the past four years, the Turkish Industry and Technology Ministry has extended about $50,000 to 300 startups annually. The Turkish Treasury has created a $250 million fund to invest in a “fund of funds.” That is, the Turkish Treasury will put matching capital for other venture capital firms to use and divest.
The Scientific and Technological Research Council of Turkey (TÜBİTAK) awards startups a number of grants for research and development. It has also allocated funds that it invests in tech companies directly. Last year, TÜBİTAK announced a “Venture Capital Funding Program.” The program, targeted at venture capital firms, pledges to put up no more than 20 percent in a given fund (up to $7.5 million).
Eight venture capital firms are on tap to participate. It is among the few programs in Turkey that focuses on developing venture capital rather than making investments in startups directly. That is significant.
Investments, not merely capital, are necessary for an ecosystem to grow. Without the right conditions, money is just paper – a transactional note. Investors turn money into an asset that can be leveraged and invested. They do that by opening up networks, mentoring entrepreneurs and investing their time into the success of the startups they invest in. That is what makes them vital.
Turkey needs an investor community specifically focused on startups; it needs venture capital. Especially as the handful of startups that have received venture capital investments mature and work toward a “return.” It is important for Turkey’s startup scene to have successful exits. The Turkish government can help. To begin, they can continue engaging with entrepreneurs and investors – listening to their challenges and working to help them overcome them. Providing business owners a forum to be heard is an enormous value-added.
Drawing up policies that provide them incentives is another. The government should represent business interests rather than take its place. Polices adopted and put forward today won’t necessarily be relevant or impactful years from now. Tech is a rapidly evolving sector to which the government must bend to its pace. Early stage investors, especially venture capitalists, are here to stay for the long term. Finally, the government should allow Turkey’s nascent venture capital community to develop and implement programs to promote seed/early stage technology investments.
Especially in the face of many challenges before the Turkish government today, handing over the reins of startup investments to investors is a necessary move. Institutional investors, not the government, have the experience, insight, networks and track record that can get Turkey’s burgeoning entrepreneurial ecosystem to the next level.