The entrepreneurial ecosystem doubled its share in Turkey’s national income despite challenges spearheaded by the coronavirus pandemic in 2021, a year also marked by a soaring interest in seed-stage startups, according to a report by the Turkey arm of the auditing and consultancy giant KPMG.

The "Turkey Start-up Investments Report," prepared in cooperation with Istanbul-based venture capital firm 212, highlighted the main trends, opportunities and challenges faced by entrepreneurs both globally and in Turkey in 2021.

The entrepreneurial ecosystem managed to boost its share and account for about six per thousand of Turkey’s 2021 gross domestic product (GDP), doubling the figure of 2020.

The number of investment deals in startups at the seed stage rose to 229 last year, up from 135 in 2020, the report said. The transaction volume at this stage hit $91 million, in an increase from around $67 million in the previous year.

Twofold increase

Citing the data compiled from the ecosystem monitor, startups.watch, the report underscored the continuing interest in digital platforms, a trend that has boomed since the outbreak of the pandemic, particularly noting the pioneering technology sector.

The startup ecosystem witnessed the highest investment activities in its history both on a global scale and in Turkey, the report said.

Capital of around $643 billion poured into startups on a global level in 2021, an all-time high, the data showed, nearly doubling the $335 billion registered in 2020.

Cloud computing tops list

The game industry accounted for the highest number of transactions, 51, in the 2021 fiscal year, followed by software as a service with 28 and the fintech sector with 23, the data showed.

E-commerce providers, delivery and logistics, gaming and software as a service, respectively, were the sectors that attracted the most investment in terms of transaction volume.

The number of acquisitions increased from 27 in 2020 to 45 in 2021 while, similarly, the acquisition volume also increased compared to the previous year, the data showed.

The Turkish game industry continued to grow and became one of the most important sectors for investors. Of the top 10 transactions, three were made in the game sector and four were made in delivery and logistics.

The growing number of transactions and the volume are seen as an important indicator of how the Turkish venture ecosystem is growing on a healthy track and could achieve more success in the coming years.

$1.4 billion investment

Gökhan Kaçmaz, a KPMG Turkey M&A advisory partner, stated that the activities in the Turkish venture ecosystem developed at record levels in 2021.

"With a total investment of $1.4 billion made by venture capital investors and angel investors in 252 startups, we have witnessed an unprecedented level of investment activity, reaching almost 10 times the volume of $143 million in 2020," Kaçmaz said.

"In the same period, the volume of acquisitions related to the startups was realized at the level of $2.4 billion."

229 seed investment deals

Elaborating on the investments, Özge Ilhan, M&A advisory director at KPMG, said 2021 was marked by very important milestones in the Turkish startup ecosystem.

Ilhan cited developments such as e-commerce giant Trendyol becoming Turkey’s first decacorn, a term for startups that pass the $10 billion mark, in August last year.

She also pointed to the listing on the Nasdaq stock exchange and the billion-dollar valuation of another top player in Turkey’s fast-growing e-commerce sector, Hepsiburada, the on-demand rapid delivery pioneer Getir raising nearly $1 billion through multiple investment rounds and Dream Games becoming the country’s last unicorn of 2021.

"It is worth noting that one of the main reasons for the momentum achieved in 2021 is the result of the fact that Turkish startups, the seeds of which began to be laid many years ago, have reached a certain maturity and have opened up to the world," Ilhan said.

At the same time, the year 2021 was also a record period in terms of seed investments, she noted.

"According to data we received from startups.watch, a total of 229 seed investments were made. Looking at the total number of investment rounds, we see that seed investments have a ratio of more than 85%."

"We can say that this factor, which plays a very important role in bringing the Turkish startup ecosystem to the present day, has strengthened our positive expectations for the future," Ilhan said.

Successes to maintain trend

For his part, 212 founding partner Ali Karabey also stressed the positive developments in the Turkish startup ecosystem and the surge in seed investments.

"Investments received by startups increased tenfold compared to the previous year. While there was no unicorn in Turkey until 2020, their number has reached six as of today," Karabey noted.

"One of the issues that attracts attention in this report is the increase in the number of seed investments. In 2021, seed investments reached 220, and this figure accounts for 85% of the total number of investments," he added.

"We see that startups that have received seed investments have a high chance of creating success stories by growing fast with the support of funds. We think that the success of Turkish startups will continue to increase in the coming period."