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A Local LP Perspective on TURKEY VC/PE Market
‘A Qualitative Interim Epilogue’
A. Mete ÇAKMAKCI
Technology Development Foundation of Turkey
The PEI Turkey Forum – Partnering for Growth24 November 2009, İstanbul
The PEI Turkey Forum : TTGV 2009
2
Life in İstanbul is a strong attraction for national and international talent
Still affordable to live in İstanbul
Istanbul has become an Eurasian hub (proved by recent growth of THY)
Government plans to develop İstanbul as the financial center as well as many other
including creative industries and software.
The Story
Demographics : A blessing or a curse? Quality of
education,
growth performance still remain as challenges
So far strong labor elasticity for the expanding services
With recent increase in personal wealth, Turkey is
becoming a hard to ignore emerging market
Public funded many mega infra-structure projects, recently BOT models and
privatization is picking-up to maintain a modern infrastructure
Investor and private enterprise friendly political climate
Economic reforms continuing, particularly in healthcare and social security
The PEI Turkey Forum : TTGV 2009
3
TTGV : Who are we?
A public private partnership established in 1991 with a mixed
government-private sector representation and 41 full time staff
Legal status is “foundation established under law” which
qualifies TTGV for government funding under Turkish law
Program agency operating the public soft loan scheme
towards private manufacturing sector innovation projects
Investor in TURKVEN TPEF-1, İş Girişim A.Ş., iVCi (İstanbul
Venture Capital Initiative) and Teknoloji Yatırım A.Ş.
Recently introducing pilot scale programs towards promoting
clean/renewable technologies in the industry. (soft loans)
Often cited as a best practice
The PEI Turkey Forum : TTGV 2009
4
Experience in VC/PE
Partnered in around 850 projects from around 580 companies
(almost 85% SMEs) with TTGV cash contribution total
exceeding 290 M USD
Only Turkish investor in TURKVEN TPEF-1 and İş Girişim
(first local funds)
In contact with CMB, the regulatory authority
Partnered with EIF to setup iVCi, actively involved with the
fund raising activities both from public and private investors
Founded Teknoloji Yatırım, the only dedicated early stage
generalist technology investment vehicle in Turkey
The PEI Turkey Forum : TTGV 2009
5
Structuring the Issue
MANAGEMENT
INVESTORS
REGULATORYFRAMEWORK
INVESTEES
The common platform is the alignment of interests...
The PEI Turkey Forum : TTGV 2009
6
Regulatory Framework
Turkey is fairly advanced in its economic openness. (No
limitations on foreign ownership, transfers and double-taxation
treaties with most well regarded host countries) = = local
framework is irrelevant for sophisticated investors
BUT, for many local investors, a workable local regulatory
framework is critical. CMB is the unwilling regulator
A competent regulator MUST appreciate, the business exists
as long as there are willing and able investors
Like most other cases, improperly designed tax incentives are
blocking proper regulation for VC/PE in Turkey
Interests of independent minority investors are lost in the mix
Transparent governance is a major issue
The PEI Turkey Forum : TTGV 2009
7
An Illustrative Example
TTGV is an investor at İş Girişim A.Ş. with a share of 11,11%.
According to Turkish regulation İş Girişim is established as an
open ended, publicly traded corporation.
TTGV’s upfront capital contribution was 3,7 M USD
As of end of October 2009, TTGV’s share of all İş Girişim exits
totaled to 5 M USD
As of end of October 2009, cash returned to TTGV is 0,89 M
USD (%24 of what it should have been.)
İş Girişim’s closing price last Friday at IMKB was 2,38 TL per
share, while its per share active net totals is 5,86 TL.
İş Girişim benefits from all tax incentives and has ~%50 cash
position
The PEI Turkey Forum : TTGV 2009
8
Investors
Turkey has an expanding war chest of international investors
So far the largest private investor in PE/VC is the İş Group in
İş Girişim
Garanti is an investor in İstanbul Venture Capital Initiative
Many Turkish Blue Chips (including big manufacturing and
services conglomorates) expressed interest in setting up their
own funds. (some are already recruiting management)
“Minority psyche” is big barrier for most to commit to a fund
Unrealistic expectations on representation in investment
decisions
Concerns on branding
Too early to speak about “retirement funds” in Turkey
The PEI Turkey Forum : TTGV 2009
9
Overlooked Potential
Turkey has another emerging community of investors with a
strong –almost religous- taste for risk
We can speculate that the original ideology of the Turkish
VC/PE was to mobilize/benefit those funds
A vehicle similar to the UK VCIT might be in order. Of all
investors active in the IMKB the recent data is
Portfolio Range (TL) Number Total Invested (TL) % of the Total
50 K – 100 K 23,937 1,124 M 4.50
100 K – 250 K 15,004 1,549 M 6.19
250 K – 500 K 4,894 1,146 M 4.58
500 K – 1 M 2,270 1,053 M 4.21
50 K – 1 M 46,105 4,874 M 19.49
The PEI Turkey Forum : TTGV 2009
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Investees
There are still many big hits and hidden gems to pursue for
investment
Usually hard to come up with second and third best with a
generic investment logic (“herd effect”)
SME dominated economy, notoriously shallow capitalized and
very opaque in operations (shadow book keeping)
For most family owned businesses “cashing out” or “letting in”
is a big taboo
Suprisingly Turkish companies have sophisticated business
skills, technology vision (from investment perspective) and
capacity (often cited in international comperative studies)
VC/PE is widely percieved as “no risk” loan for the next “big”
The PEI Turkey Forum : TTGV 2009
11
A Geography of Innovation
Most economic activity is centered around Marmara region
New industrial corridors are emerging in various regions
The PEI Turkey Forum : TTGV 2009
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A Trivial Radar Excercise
Majority
Minority
Ow
ners
hip
Investment Size
Mega5 M EUR
INTE
RESTING
The PEI Turkey Forum : TTGV 2009
13
Istanbul Venture Capital Initiative
TTGV partnered with EIF, KOSGEB and TKB to set up
Turkey’s first fund of funds as a Luxembourg SIF vehicle
under EIF management (www.ivci.com.tr)
Garanti Bank and NBG Group joined later as investors with a
final closing size of 160 M EUR
EIF contacted many other potential investors, however they
demonstrated a strong lack of strategic vision though most
indicated interest and intend to develop operations in VC/PE
iVCi has an independent Investment Committee, first
investment is now closed and several are in the pipeline
iVCi also incorporates a “Strategic Network” to promote sector
dialogue under the chairmanship of Mr. Akın Öngör
The PEI Turkey Forum : TTGV 2009
14
Management
Most investor induced funds have problems with management
No question that there is ample supply of local talent with
some international experience/exposure
Most team profiles have strong representation on I-Bank and
consultancy careers
Job is more than deal making – it’s about growth and exit
Recently deal terms are shifting to more conservative (I-Bank)
Profession is more art than science – should look for diverse
skill implants and spin-out teams – local connections are
important (“talk the talk, walk the walk AND drink the tea”)
Another reason for urgency to develop local Turkish investor
base
The PEI Turkey Forum : TTGV 2009
15
Management
Current opportunity profile requires more “hands on” investments
People with people skills and a vision for the business are required
The PEI Turkey Forum : TTGV 2009
16
Teknoloji Yatırım A.Ş.
Investing in technology innovation is a niche business,
particularly in early stage
The market was not moving the way TTGV intended under its
presence
In 2005, TTGV set up Teknoloji Yatırım A.Ş.
Genesis of a good Turkish team is emerging slowly, learning
the hard lessons but keeping the spirits up
It is not really the money, but the networks and delivering to
the enterpreneurs
Vision is to spin off Teknoloji Yatırım as an independent
operation after establishing a sound track record
The PEI Turkey Forum : TTGV 2009
17
Other Remarks
Sector needs a professional association
TurkVCA is MIA since 2004
Concerns over high visibility
Reliable data and strong representation is
needed to develop a good conduct sector and
market
Turkey has extensive experience on localization
of special purpose administrative structures
It might be time to consider setting up a proper
“free financial zone” with its own regulator in line
with other government priorities inside Istanbul
Photos : kind courtesy of METUTECH
Arı Teknokent
Arı 2 Binası A Blok Kat:7
İTÜ Ayazağa Yerleşkesi Koru Yolu
Maslak 34469 İstanbul, TURKEY
www.teknolojiyatirim.com.tr
Cyberpark, Cyberplaza
B Blok Kat:6
Bilkent 06800 Ankara, TURKEY
www.ttgv.org.tr