Why is it now time to invest in Turkish Startups ?

2016 has been a terrible year for Turkey to say the least.  Who knows how many bombs blasted in many different cities throughout the year including one in Istanbul Ataturk Airport.

I am in my early 40s but can’t remember a time living a peaceful life without having to worry about terror. Well, okay I lied, we lived peaceful lives as we got so used to living with terror that it became a part of our lives which we developed a great “ignorance” toward.

However, last year marked a different level of attacks with three major terror organisations to hit simultaneously using “unconventional” methods. One of them was even able to orchestrate a military coup, which failed thanks to public uprise combined with government and majority of the military standing against it. Our ignorance was replaced by a shock and immediate demoralisation.

To make the matter worse, we started the new year with an inhuman terror attack by ISIS in one of the Istanbul’s most famous nightclubs, killing 39 innocents. The message was clear, do not expect to have a good year.

The impacts of terror attacks on the economy was deeply felt throughout 2016 and early 2017. The Turkish Lira, US Dollar parity depreciated against Lira by almost 30% in one year. Consumer confidence was measured as 63 out of 100 in December 2016 and 66 in January 2017, which indicated a level of lower end of last 15 years.

Then how on earth can I suggest that it is now time to invest in Turkish Startups. Well, basically I believe that the contrarian theory is not only valid for stock investments but also for angel investments, which, at the end, is a stock investment.

Moreover most of what happened in Turkey, I think, has to do with Syrian civil war, situation in Iraq, inflow of 3mio refugees, and Turkish political hard line in Syrian conflict but it all seemed to improve in a better way for the last couple of months.

In addition to a better outlook in politics, thus an expectation of a better economic performance, there are more specific reasons I think it may be the right time to invest.

Promising Domestic Market

Turkey has a population of about 80mio, of which 67% or 54mio is below 40 years old. Half of the population lives in top 10 cities, Istanbul being the number one with 15mio people.

Active Internet users are 47mio and mobile users are 75mio most of which owning a smart phone.

Using Internet thru a desktop or a mobile is a daily routine for Turkish consumers.  There could be many supporting arguments for this but just to mention two figures below will give an idea.

Ecommerce site n11.com has made sales more than 20mio USD in one day, of course it looks very small compare to Alibaba’s 18bio USD sales on Singles’ Day but considering n11 is a local player and just started organising such one day hits, the figure indicates nothing less than a promising ecommerce outlook in Turkey.

In the financial sector, 52mio bank customers used Internet web services of banks at least once in 2016. This is only the web services, number of mobile customers doing online banking through apps has been increased by 62% vs 2015 and reached to 29.8mio in 2016.

Lower Valuations

Things were cheap in Turkey compared to many similar places around the world anyway, but when we had 30% devaluation of Turkish Lira cheap things became even cheaper for hard currency holders. Startups are not any different, you can have a 30% off now, but of course it will level up as the time passes.

Having seen valuations in Asia, I think there are many Turkish Startups which are really good deals even before and irrelevant of the currency devaluation. I have made angel investments throughout 2015 and 2016 in the valuation range from 500k USD to 1mio USD and I am not talking about no traktion, idea stage or very early stage investments.

Another fact keeping valuations low is that it seems like investors are risk averse, wow what a surprise, therefore many have stepped aside after troubling events which in turn reduced the supply of startup financing, pressured the valuations toward the lower edge.

Bad Times Are Good Times For Startups

I was in Turkey during New Year and had chance to talk to founders of a few startups where I also have equity shares. The first thing, of course, I asked them how they were doing in such a terrible year, and surprisingly the answer was not negative at all.

Ugur who is the co-founder of www.kolayrandevu.com (beauty saloon booking SaaS Startup) told me that the saloon owners were calling them to request for organising special campaigns through the site so that they could increase the capacity utilisation of their saloons. He also said that it has become easier to sign up the saloons since the owners had plenty of time to talk about the new ways of customer acquisition in the absence of customers in the saloons.

Another founder I talked to was Utku who is the co-founder of www.bionluk.com (leading freelancer marketplace of Turkey), when I said it must have been a difficult year, he said that since they offer a cheaper option to get many business tasks done through their freelancers they did not the feel the pressure of negative sentiment in the market.

So I think many startups offer cheaper or better solutions to existing services or problems, therefore bad market conditions are not necessarily bad for them. In fact it may even be better as such conditions eliminate the inertia to switch to a startup service. 

Good Eco-system

What makes a good Eco-system? Strong universities generating talent, incubation and acceleration centers, startup co-working spaces, government actions to support founders and investors, mentors, business angels and business angel networks, venture capital funds?

Well, Turkey has it all, maybe the numbers are still small compared to major startup hubs but nothing seems to be able to blow away the increasing trend even the horrific terror attacks.

Another positive trend I have been observing recently with Turkish Startups is that they are thinking more regional or global than local  which is also encouraged and supported by the all Eco-system players.

I recognised increasing deal flows and closings even in 2016 as a sign of a strong Eco-system. For example, although 500 Startups had just started its operation in Turkey, they were quick to make at least 12 investments in 2016.  One of the most active Angels Networks, BIC Business Angels, was able to close 10 deals, which was the highest since its inception in 2013.

Calculated “bets”

So I think there are very good reasons to invest in Turkish Startups and by explaining all of these I am inviting competition to my activities in Turkey but I think what is good for startups is good for investors as well. 

Last but not the least, of course there are still many risks surrounding Turkish Market such as the one created by the Presidency Referendum and authoritarian tendencies of the recent governments, however, I think at the end of the day what we do as Angel or Venture investors is nothing less than a calculated “bet”.