t would not be wrong to say that 2021 was a golden year for the Turkish startup ecosystem. According to the Startupblink 2021 report, Turkey ranked 44th in the global startup ecosystem, tripling its total investment rate from 2020. In 2021, the Turkish startup ecosystem introduced concepts like unicorns and even decacorns, attracting significant global investments. Istanbul climbed to 69th place globally in startup investments, followed by Ankara and Izmir.
According to the 3rd Quarter Investment Report for Turkey published by Startup Market, 123 startups received investments in the first 9 months of 2020, while 203 startups received investments in the first 9 months of 2021. The report highlights that the gaming sector received the highest share of all these investments. However, transportation technology, e-commerce, educational technology, and fintech sectors also stood out as the most invested areas. Companies like Peak Games, Rollic Games, Trendyol, Getir, Insider, and Yemeksepeti played a significant role in shaping these statistics.
According to a report by KPMG Turkey, Turkish startup companies received a record-breaking total of $727 million in investments in the second half of 2021, making it an all-time high. We also know that in the third quarter of 2021, this figure was around $2 billion.
The rapid growth of the Turkish startup ecosystem is also leading to the development of investment culture in the country. Along with the great hope born for startups, it also leads to the increase of venture capital investment funds and daring investors. In the midst of all these positive developments, it is our task to answer the questions about what venture capital investment funds are and how they work.
Private Equity (PE):
In the Private Equity model, which is more accurately described as Private Capital rather than venture capital in Turkish, investors invest by taking a share from the startup company in need of investment and aim to profit by selling these shares at a later stage.
It is not wrong to state that the primary objective of the Private Equity model is to generate profit, which is also the fundamental aim of the investment. In this model, investors, who can be individuals or companies, are seen to act more based on individual goals and strategies, and their profit expectations. Taking a share from the startup company is possible, and it is also possible to acquire the entire company. While startups at the scale-up stage, one step beyond the early-stage, are mainly evaluated, different models of private equity investments can be observed for advanced-stage startups as well. In addition to many individual investors in Turkey, there are also many corporate companies that invest in startups alongside the development of the startup ecosystem.
Venture Capital (VC):
Venture Capital funds can be briefly summarized as an investment fund formed by the coming together of many individual or corporate investors. VC funds, which we have heard frequently lately, are of great importance for entrepreneurs because they generally focus on early-stage (seed or pre-seed stage) startups. It should be noted that the risk taken by VC funds is much larger compared to private equity investors, but unlike private equity funds, these funds focus on specific sectors, concentrate their investments on technology-focused and high-value-added ventures, and aim for high profits in the long term.
VC funds, which adopt a more strategic, corporate, and long-term perspective, are increasing in number in our country as well. The most well-known examples are 212 and Revo Capital, which are based abroad.
Corporate Venture Capital (CVC):
CVCs, established by corporate companies, can be summarized as venture capital funds that finance investments and acquisitions made by corporate companies in line with their own strategies and growth goals.
CVCs, which result from an approach that brings corporate culture closer to startup culture, aim to grow startup culture within the corporate environment without necessarily incorporating it into the corporate culture. It should be noted that CVCs have an important place globally. Google Ventures is the most important example globally, while we expect the number of CVCs to increase in our country in the near future, both to support intrapreneurship and for corporate companies, especially banks, to discover the fast and high returns of startup investment.
Angel investor is a concept that supports early-stage ventures by providing capital in exchange for a share of the venture, taking significant risks, and providing certain tax advantages to investors in a tax sense. This concept, which is most known among venture capital funds in our country, is one of the most recognized venture capital funds.
Angel investors, who can make individual investments, can also continue their investments by joining angel investment networks (referred to as angel investment networks in the regulation) similar in nature to VC funds. Angel investors need to obtain a license to benefit from the tax incentives provided by the state and meet certain conditions specified in the regulation. They can also focus their investments on specific sectors in line with the strategy and growth goals of the angel investment network they are part of. The most well-known examples of angel investment networks in our country are Galata Business Angels, Kereitsu Forum, Endeavor, and EGİAD angel investment networks.
Crowdfunding, known as “kitlesel fonlama” in Turkey, is a widespread funding system abroad. It involves collecting the capital needed by a startup through small investments gathered on the internet. Crowdfunding, which can be summarized as the collection of funds through small investments on the internet, became legally regulated in Turkey with the Crowdfunding Based on Participation Regulation enacted in 2019. With the regulation, some obligations were imposed on companies that mediate crowdfunding. For technology or production-focused startups, there is also a three-year share transfer ban starting from the beginning of the crowdfunding campaign. The most well-known crowdfunding platforms in our country are fonbulucu and fongogo.
In summary, venture capital investment funds play a vital role in supporting and fostering the growth of startups in Turkey. Different types of funds, including private equity, venture capital, corporate venture capital, angel investors, and crowdfunding, contribute to the development of the Turkish startup ecosystem and provide various financing options for entrepreneurs. These funds play a crucial role in turning innovative ideas into successful businesses.