Despite a global backdrop caused by the coronavirus pandemic, the Turkish startup ecosystem has succeeded in showing healthy growth in the first half of this year, according to the latest report on venture investments in Turkey.
The January-June period has seen some $80 million being invested in Turkey-based startups, accounting for about 80% of the total funding in full-year (FY) 2019, the H1 2020 Turkey Venture Investment Snapshot report showed on Monday.
Prepared by MAGNiTT, a startup data platform for emerging venture markets, the report highlighted that investments in Turkish startups have seen continued growth over the years, with more capital invested in fewer startup deals from January through June of this year.
According to the report, the number of investment deals came in at 29, down by 51% from 2019.
“This consolidation is partly a function of an evolving and maturing ecosystem and partly a function of investors skewing to favor large-ticket investments in more established startups against the backdrop of COVID-19 – a trend that is consistent with MENA’s (Middle East and North Africa) startup ecosystem in H1 2020,” it said.
Compared with the last five years, venture capital funding has reached a record-high level for a half year period.
“Turkey has attracted prominent PE (Private Equity) and VC (Venture Capital) funds with many having successful exits with high returns ... This success proved Turkey’s attractive investment environment where investors can realize a full cycle of investing in and divesting from an enterprise,” said Burak Dağlıoğlu, head of the Presidential Investment Office.
Billions of dollars of foreign direct investment poured into Turkey and their share in overall investments continues to increase, Dağlıoğlu was cited as saying in the report.
“While the local PE and VC markets are steadily growing in number of deals, variety of mandates and volume of funds, global LPs and GPs are looking to increase their commitments into Turkey,” he added.
Three Series A rounds
This investment amount was largely attributed to three Series A rounds in fast-delivery service startup Getir ($38 million), chat and bot solution provider SOR’UN ($9.5 million) and software developer Akinon ($5.7 million). Series A transactions accounted for 67% of total invested funds in the January-June period.
“However, we saw a steep decrease in Q1 & Q2 2020 deal transactions, indicating a general slowdown due to uncertainty of the COVID-19 period,” the report said.
The ecosystem saw a total of 54 investors in the first half, with its vibrant angel investor community representing 53% of all investors. Turkish investors accounted for 60% of the total investments in the ecosystem.
Yet, the report cited uneven growth, saying the top five disclosed funding rounds in the period accounted for over 84% of total funding in Turkey’s startup ecosystem, compared with 49% across MENA.
“With a large population, established tech & venture infrastructure, as well as access to a large base of talent, Turkey is an startup ecosystem that is an exciting market to launch from, and scale to. This was highlighted by the recent acquisition of Peak Games by Zynga for $1.8B marking a unicorn exit for the Turkish ecosystem,” said Philip Bahoshy, MAGNiTT’s CEO and founder.
The Dubai-based platform plans to continue expanding to cover more Emerging Venture Markets (EVMs), and the Turkish expansion is its second market after its launch in Pakistan last month.
“Something that we have found particularly striking is how venture markets in MENA, Pakistan, and Turkey have reacted in similar ways to COVID-19: In Turkey, similar to MENA, we see more capital invested but in fewer deals, a huge spike in typical ticket size, an uneven distribution of funding, as well as similarity in the top industries. We also see interesting divergences – like a concentration of Deep-Tech deals in Turkey,” Bahoshy was cited as saying.
E-commerce tops list
The breakdown by industry in the first half of the year is consistent with emerging venture markets, with e-commerce ranking first by the number of deals, similar to the other emerging markets. The report also cited that FinTech, which led by the number of deals across MENA, did not feature among the top five industries in Turkey.
IT solutions came in second, followed by real estate, deep tech and delivery and transport.
“Unlike other EVMs, the Turkish startup ecosystem comprised Deep Tech venture investments accounting for 10% of total deals,” the report said.
On the other hand, delivery and transport accounted for almost half (49%) of the total venture capital funding in the country in the January-June period with $39 million. This was mainly attributable to Getir’s $38 million Series A fundraise.
According to the report, the Turkish startup ecosystem ranked fifth by the number of deals and fourth in terms of total funding, compared with other emerging venture markets. The 29 deals accounted for 12% of transactions in the emerging markets. For more on the report, visit: https://magnitt.com/research/50730/h1-2020-turkey-venture-snapshot.
Turkey is evolving into a very attractive and dynamic startup ecosystem, said Cenk Bayrakdar, one of the co-founders of Revo Capital venture capital fund.
“We believe the main pillars of this ecosystem are: talent, market, and capital incentives,” Bayrakdar was cited as saying by the report.
“Turkey ... benefits from its young and resilient population, strong technical and engineering training, attractive cost structure, dynamic labor market, and broad incentives and tax benefits for research and development initiatives. As a result, we have seen an increase in the number of venture capital funds in Turkey and their investment activity over the past years,” he said.
This, he noted, creates exciting opportunities for cooperation between local funds and international investors to scale Turkish companies globally.
“We have experienced this firsthand with our portfolio company Getir, a grocery delivery startup which raised $38M ... Also one of our exits, Foriba, was acquired by HG Capital backed Sovos, global leader in tax software,” he added.
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