Beyond food, beyond fashion: Turkey's journey towards a new startup culture

Turkey might not be the most obvious site for a tech hotspot, but the country is taking its first steps to growing its startup scene.
Written by Federico Guerrini, Contributor

While far from the levels of Greece, Spain, or Italy, the level of youth unemployment in Turkey remains significant. According to the latest official figures, as of November last year, it had reached 19.3 percent in the 15-to-24 age group. Women have it harder at 22.2 percent reflecting a more general gender issue in the labour market.

There is, however, one sector that's booming and where Turkey's talent for entrepreneurship and commerce is blending well with its growing technology skills base.

It is, as you may have guessed, the world of startups, a world - and a lifestyle - that seems particularly well suited to a nation in which half of its 76.6 million inhabitants are aged 30 or under, and in which internet penetration while still low (46 percent) compared to Western Europe standards (though ahead of many other countries in the MENA region).

"Everybody, from corporations to NGOs is talking about entrepreneurship now. It is not only acceptable, but also being embraced as the country's most effective tool for economic development and global competitiveness. In 2007, we were the only local organization hosting two conferences per year. In 2015, there are now at least two entrepreneurship related events happening per day," the managing director of Endeavor Turkey (the country's branch of a global non-profit that supports innovative entrepreneurs around the world)," Didem Altop told ZDNet.

Among the most well-known conferences now dedicated to technology and entrepreneurship, two stand out: Startup Turkey and Startup Istanbul, both organized by Istanbul-based accelerator Ethoum.

Just as the local scene has evolved over the last few years, the typical profile of the Turkish startupper has changed as well. While initially most would-be entrepreneurs were those who had lived or studied abroad, as both entrepreneurship grew in popularity and the country's digital infrastructure grew in capacity, it was local graduates who started developing local versions of foreign services.

"We have received around 11,000 applications in the last six years the Turkish market," Etohum's founder Burak Buyudemir says, "mostly from males aged 25 to 30, well-educated, with a university degree. Initially, in the first two or three years, a higher percentage of the applications were for launching ecommerce companies."

Everybody's not-so-secret dream, then, was following the footsteps of eBay and Amazon, with the hope of sooner or later being acquired by an established company.

It was a dream that came true for one company. In 2011, eBay bought auction marketplace GittiGidiyor, essentially a clone of the American multinational, for $220m. In the same year, Amazon acquired a minority stake in Cicekspeti, a flower delivery service.

With time, the scene started to become more and more professional and diversified. "Over the last three years, we've been very excited to see many 'white collar' entrepreneurs, or candidates with significant work experience, pursuing truly innovative ideas. And last, but not least, we are finally seeing both R&D-based scientists, engineers, and creative industry designers, pursuing more commercial initiatives," Altop says.

Although the situation has evolved and innovation is longer confined to auction sites, the wave of online retail websites is still rampant: recently, celebrity-endorsed fashion shopping site Lydiana.com now serves over 90,000 customers per day, while Yemeksepeti (also known as foodonclick), an online food delivery platform which employs more than 200 staff serving over 1.2 million registered users in eight countries.

But nowadays, there are many companies and startups that are focusing on other sectors: from gaming to software development and mobile applications.

"Most common companies we see are internet-based ones that do not need to much initial funding to thrive. A real issue in Turkey is having access to capital at an early stage. Seed money is almost non-existent: it's possible to get some early funding only through competitions, but there are no structured seed money programs," Viveka accelerator's co-founder Ece İdil Reşa Kasap told ZDNet.

Things change when it comes to angel funding, with sums ranging around $100,000. Endeavor estimates that there are an estimated total of 450 active business angels in Turkey nowadays; the most renowned angel investor networks include Arya Women's Investor Platform, BIC Angels, Etohum, Galata Business Angels, Keiretsu Forum, Metutech-ban and Sirket Ortagim.

A little off-scale is 'super angel' and former entrepreneur Hasan Aslanoba, who invested a total of $46m in 53 companies over the last two years, single-handedly doubling the total value of angel funding during the period.

The Turkish government has also done its part to help the ecosystem grow with the launch in 2013 of an incentive program that allows qualified angel investors to access significant tax deductions on their angel investments (up to 75 percent or 1 million Turkish lira).

In addition, there's a small group of local venture capital funds - Ilab Ventures, Mediterra Capital, Pera Capital, Revo Capital, and 212 Ltd - that can help startups access larger funding rounds.

Not that you always have to rely on VCs to make it big, as the story of Pozitron, a mobile money company founded in 2006 by Fatih and Firat Isbecer, shows. Starting from scratch and growing the business with zero venture funding, the two brothers were able to scale from 13 engineers in 2007 to more than 250 engineers across five countries when they were fully acquired by UK-based Monitise in 2014.

As the two Isbecers could confirm, for those who dare, the Turkish landscape is full of opportunity. Yet there are also several issues facing it, chiefly political instability.

"Turkey held municipal and prime ministerial elections last year and will hold parliamentary and presidential elections this year. The effect of election years on currency fluctuations for the Turkish lira is very challenging for startups," Altop says.

Not to mention the effect that bans on sites such as Twitter and YouTube have, like those repeatedly ensued by prime minister Recep Tayyip Erdogan, might have on startups, which often, due to being cash-strapped, have to rely on social media for their marketing efforts.

Other common complaints concern the difficulties of securing work visas for international employees and some negative cultural aspects, such as the low tolerance to failure and a strong "family effect", by which children are encouraged to choose safer careers. On the other hand, some of these weaknesses could also be seen as sources of strength.

"We are used to live in high instability and I think we can survive better during times of economic crisis," Reşa Kasap says. "What's more, since Turks have been merchants for centuries, we can say their mindset is favorable for entrepreneurship. However we still need time to shift to technology entrepreneurship."

As for the gender gap, it would be a blatant lie to say it's non-existent. "Of all the applications we receive, around 95 percent are from male entrepreneurs, and only five percent from women entrepreneurs," Buyudemir told ZDNet. His figures, although approximate, are more or less consistent with those given by the Turkish Statistical Institute.

According to EU statistics from last year, a small but significant proportion of entrepreneurs are women. However, and there are signs that the something is changing.

In October last year, the European Bank for Reconstruction and Development, together with six Turkish banks, launched the Finance and Advice for Women in Business programme, designed to strengthen the role of female entrepreneurs in the economy.

While not tech-related, the success of B-Fit, a franchise of women-only gyms across Turkey launched in 2006 by Bedriye Hülya, represents an inspiring case history for would-be female entrepreneurs.

And the "Woman Entrepreneur of the Year" award, which began in 2007, has seen increased participation in the last editions, with up to 7,000 applications received every year.

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