Turkey’s vision for 2023 is to capitalise on its demographic opportunity to grow rapidly by about 7% per year for the next decade. Funding innovation as a way of boosting the local economy and exports is central to its aim to take its gross domestic product (GDP) to $2 trillion in 2023 from $820bn last year.
Hasan Pehlivan, principal adviser to Investment Support and Promotion Agency of Turkey (ISPAT), which was set up in 2006 to increase and attract direct investment to the country, and president of World Association of Investment Promotion Agencies, said increasing exports and investing more in research and development (R&D) would help.
Turkey is planning to increase exports to $500bn by 2023 from $152bn in 2013. It is also looking at increasing the R&D expenditure-to-GDP ratio to 3% from 0.85% in this period, of which the private sector would make up two-thirds of the expenditure with a near five fold increase in researchers to 139,000.
But while the Scientific and Technological Research Council of Turkey (Tubitak) said the local venture capital (VC) and private equity “scene has been pretty sparse until recently” (see below) the country’s demographics are promising even if the government has temporarily banned access to some media websites, such as Google and Twitter.
Half of Turkey’s population is under the age of 30 and more than 68 million people (84%) own a mobile device. Turkey’s mobile users are also reported to be the most active consumers in the world for mobile shopping, mobile banking and QR code scanning, and are third in the world for mobile wallet technology usage. Local incubator Endeavor Turkey also works to connect entrepreneurs to mentors, investors and even potential partners to keep ideas flowing and people sharing. Young people are meeting in government-funded technoparks to work together, share ideas and house their inventions.
Volkan Özgüz, a professor at Turkey’s Sabancı University and head of its Nanotechnology Research and Application Centre – Sunum, said: “Our government has been making lot of changes in recent years. The changes cover everything from supporting thematic research to tax incentives for the results of R&D, or special programmes to encourage industrial R&D centres and academic R&D centres.”
In September 2013, Tubitak for the first time provided grants to VC funds investing in early-stage (seed and startup) small and medium-sized enterprises. This followed a European Commission statement that government organisations could participate in VC funds in order to increase their effectiveness, especially in the seed funding and startup capital phases.
Tubitak provides grants of up to 20% of the fund’s total, and L15m ($7.5m) as a maximum. Local experts said Tubitak had already committed to five funds, but none was able to close in the past eight months. The minimum fund size has to be L20m, with the general partner (fund manager) providing 1% of the total. Previously, Tubitak was subsidising money going directly to startups. Another Tubitak programme supports angel investors.
Between 1991 and May 2011, the Technology Development Foundation of Turkey (TTGV) invested €200m ($250m) in 860 technology projects and financed two technoparks, one at Bilkent University and the other at Istanbul Technical University.
TTGV also committed alongside the EU-backed European Investment Fund (EIF) to the Istanbul Venture Capital Initiative (IVCI), Turkey’s first fund of funds and co-investment programme, helped start two VC firms, IsGirisim andTurkven, and committed to a third, Teknoloji Yatirim. Mete Çakmakcı, secretary general at TTGV, said it was in the process of spinning off Yatirim as an independent operation called Diffusion Partners, after it won a €26m mandate from the EIF.
Çakmakcı said: “Early outcome on the [IVCI] portfolio is very encouraging, with some good exits already.” He added that the EIF was in the process of raising a second fund of funds, called TGIF, in collaboration with Turkish agency Kosgeb. He said TTGV would not be an investor (limited partner – LP) in TGIF as, “within a few years I see TTGV launching its own fund of funds and opening the second generation to other investors. “We believe we have track record, visibility and experience to have good LP yields.”
Given the relative scarcity of VC deals in Turkey until recently, at less than $100m a year, there have been few noteworthy exits bar Markafoni’s sale to South Africa-based media group Naspers for about $200m in 2011.
The main local stock exchange, Bourse Istanbul, however, has launched its Private Market as a web-based and membership-based platform that brings together companies and investors through share trading without going public.
The EU-backed European Bank for Reconstruction and Development (EBRD), in partnership with Turkey, has also offered L962m to lend to 15,000 women-led companies in Turkey within the framework of a new programme, Finance and Advice for Women in Business. The EBRD said 18% of women entrepreneurs in Turkey used commercial banks for loans. Many relied on family.
The Turkish government wants female employment in the country to increase to at least 40% by the year 2023, a rise of 11.5 percentage points.
Turkey first introduced venture capital regulations in 1993 under the authority of the Capital Market Board.
Regulatory updates affecting the VC ecosystem over the past two years have included ones covering angels and investment companies, as well as moves to encourage corporate venturing through making dividends exempt from tax, according to Yonca Fatma Yücel at Turkey’s Banking Regulation and Supervision Agency in a presentation to the International Association of Lawyers last month.
Since February 2013, granting angel investor licences for “high income” or “experienced” individuals and offering them tax credits if they make investments through accredited business angel networks, such as BIC, Etohum, GBA, Keiretsu and SirketOrtagim. Ten investments of total value close to L3m have applied for these tax credit out of a community of 253 accredited angels, as of September this year.
The Communiqué on Principles of Venture Capital Investment Company became effective in October 2013 offering corporate and withholding tax exemptions.
Since July this year, it is possible to establish venture capital investment funds (VCIFs) in Turkey. These are investment vehicles regulated by the Capital Markets Board with a lighter requirement for portfolio management companies and are exempt from corporate tax and with no withholding tax.
In August, Turkey’s Treasury set out the eligibility criteria for its funds of funds.