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Pei Turkey Forum Cakmakci

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  • 1. A Local LP Perspective
    on TURKEY VC/PE Market
    ‘A Qualitative Interim Epilogue’
    A. Mete ÇAKMAKCI
    Technology Development Foundation of Turkey
    The PEI Turkey Forum – Partnering for Growth
    24 November 2009, İstanbul
  • 2. The PEI Turkey Forum : TTGV 2009
    2
    The Story
    Life in İstanbul is a strong attraction for national and international talent
    Still affordable to live in İstanbul
    Istanbul has become an Eurasian hub (proved by recent growth of THY)
    Government plans to develop İstanbul as the financial center as well as many other including creative industries and software.
    Demographics : A blessing or a curse? Quality of education,
    growth performance still remain as challenges
    So far strong labor elasticity for the expanding services
    With recent increase in personal wealth, Turkey is
    becoming a hard to ignore emerging market
    Public funded many mega infra-structure projects, recently BOT models and privatization is picking-up to maintain a modern infrastructure
    Investor and private enterprise friendly political climate
    Economic reforms continuing, particularly in healthcare and social security
  • 3. The PEI Turkey Forum : TTGV 2009
    3
    TTGV : Who are we?
    • A public private partnership established in 1991 with a mixed government-private sector representation and 41 full time staff
    • 4. Legal status is “foundation established under law” which qualifies TTGV for government funding under Turkish law
    • 5. Program agency operating the public soft loan scheme towards private manufacturing sector innovation projects
    • 6. Investor in TURKVEN TPEF-1, İşGirişim A.Ş., iVCi (İstanbul Venture Capital Initiative) andTeknolojiYatırım A.Ş.
    • 7. Recently introducing pilot scale programs towardspromotingclean/renewable technologies in the industry. (soft loans)
    • 8. Often cited as a best practice
  • The PEI Turkey Forum : TTGV 2009
    4
    Experience in VC/PE
    • Partnered in around 850 projects from around 580 companies (almost 85% SMEs) with TTGV cash contribution total exceeding 290 M USD
    • 9. Only Turkish investor in TURKVEN TPEF-1 and İş Girişim (first local funds)
    • 10. In contact with CMB, the regulatory authority
    • 11. Partnered with EIF to setup iVCi, actively involved withthe fund raising activities both from public and private investors
    • 12. Founded Teknoloji Yatırım, the only dedicated early stage generalist technology investment vehicle in Turkey
  • The PEI Turkey Forum : TTGV 2009
    5
    Structuring the Issue
    INVESTORS
    MANAGEMENT
    REGULATORY
    FRAMEWORK
    INVESTEES
    The common platform is the alignment of interests...
  • 13. The PEI Turkey Forum : TTGV 2009
    6
    Regulatory Framework
    • Turkey is fairly advanced in its economic openness. (No limitations on foreign ownership, transfers and double-taxation treaties with most well regarded host countries) = = local framework is irrelevant for sophisticated investors
    • 14. BUT, for many local investors, a workable local regulatory framework is critical. CMB is the unwilling regulator
    • 15. A competent regulator MUST appreciate, the business exists as long as there are willing and able investors
    • 16. Like most other cases, improperly designed tax incentives are blocking proper regulation for VC/PE in Turkey
    • 17. Interests of independent minority investors are lost in the mix
    • 18. Transparent governance is a major issue
  • The PEI Turkey Forum : TTGV 2009
    7
    An Illustrative Example
    • TTGV is an investor at İş Girişim A.Ş. with a share of 11,11%.
    • 19. According to Turkish regulation İş Girişim is established as an open ended, publicly traded corporation.
    • 20. TTGV’s upfront capital contribution was 3,7 M USD
    • 21. As of end of October 2009, TTGV’s share of all İş Girişim exits totaled to 5 M USD
    • 22. As of end of October 2009, cash returned to TTGV is 0,89 M USD (%24 of what it should have been.)
    • 23. İş Girişim’s closing price last Friday at IMKB was 2,38 TL per share, while its per share active net totals is 5,86 TL.
    • 24. İş Girişim benefits from all tax incentives and has ~%50 cash position
  • The PEI Turkey Forum : TTGV 2009
    8
    Investors
    • Turkey has an expanding war chest of international investors
    • 25. So far the largest private investor in PE/VC is the İş Group in İş Girişim
    • 26. Garanti is an investor in İstanbul Venture Capital Initiative
    • 27. Many Turkish Blue Chips (including big manufacturing and services conglomorates) expressed interest in setting up their own funds. (some are already recruiting management)
    • 28. “Minority psyche” is big barrier for most to commit to a fund
    • 29. Unrealistic expectations on representation in investment decisions
    • 30. Concerns on branding
    • 31. Too early to speak about “retirement funds” in Turkey
  • The PEI Turkey Forum : TTGV 2009
    9
    Overlooked Potential
    • Turkey has another emerging community of investors with a strong –almost religous- taste for risk
    • 32. We can speculate that the original ideology of the Turkish VC/PE was to mobilize/benefit those funds
    • 33. A vehicle similar to the UK VCIT might be in order. Of all investors active in the IMKB the recent data is
  • The PEI Turkey Forum : TTGV 2009
    10
    Investees
    • There are still many big hits and hidden gems to pursue for investment
    • 34. Usually hard to come up with second and third best with a generic investment logic (“herd effect”)
    • 35. SME dominated economy, notoriously shallow capitalized and very opaque in operations (shadow book keeping)
    • 36. For most family owned businesses “cashing out” or “letting in” is a big taboo
    • 37. Suprisingly Turkish companies havesophisticated business skills,technology vision (from investment perspective) and capacity(often cited in international comperative studies)
    • 38. VC/PE is widely percieved as “no risk” loan for the next “big”
  • The PEI Turkey Forum : TTGV 2009
    11
    A Geography of Innovation
    Most economic activity is centered around Marmara region
    New industrial corridors are emerging in various regions
  • 39. The PEI Turkey Forum : TTGV 2009
    12
    A Trivial Radar Excercise
    Majority
    Ownership
    INTERESTING
    Minority
    5 M EUR
    Mega
    Investment Size
  • 40. The PEI Turkey Forum : TTGV 2009
    13
    Istanbul Venture Capital Initiative
    • TTGV partnered with EIF, KOSGEB and TKB to set up Turkey’s first fund of funds as a Luxembourg SIF vehicle under EIF management (www.ivci.com.tr)
    • 41. Garanti Bank and NBG Groupjoined later as investors with a final closing size of 160 M EUR
    • 42. EIF contacted many other potential investors, however they demonstrated a strong lack of strategic vision though most indicated interest and intend to develop operations in VC/PE
    • 43. iVCi has an independent Investment Committee, first investment is now closed and several are in the pipeline
    • 44. iVCi also incorporates a “Strategic Network” to promote sector dialogue under the chairmanship of Mr. Akın Öngör
  • The PEI Turkey Forum : TTGV 2009
    14
    Management
    • Most investor induced funds have problems with management
    • 45. No question that there is ample supply of local talent with some international experience/exposure
    • 46. Most team profiles have strong representation on I-Bank and consultancy careers
    • 47. Job is more than deal making – it’s about growth and exit
    • 48. Recently deal terms are shifting to more conservative (I-Bank)
    • 49. Profession is more art than science – should look for diverse skill implants and spin-out teams – local connections are important (“talk thetalk, walk the walk ANDdrink the tea”)
    • 50. Another reason for urgency to develop local Turkish investor base
  • The PEI Turkey Forum : TTGV 2009
    15
    Management
    Current opportunity profile requires more “hands on” investments
    People with people skills and a vision for the business are required
  • 51. The PEI Turkey Forum : TTGV 2009
    16
    Teknoloji Yatırım A.Ş.
    • Investing in technology innovation is a niche business, particularly in early stage
    • 52. The market was not moving the way TTGV intended under its presence
    • 53. In 2005, TTGV set up Teknoloji Yatırım A.Ş.
    • 54. Genesis of a good Turkish team is emerging slowly, learning the hard lessons but keeping the spirits up
    • 55. It is not really the money, but the networks and delivering to the enterpreneurs
    • 56. Vision is to spin off Teknoloji Yatırım as an independent operation after establishing a sound track record
  • The PEI Turkey Forum : TTGV 2009
    17
    Other Remarks
    • Turkey has extensive experience on localization of special purpose administrative structures
    • 57. It might be time to consider setting up a proper “free financial zone” with its own regulator in line with other government priorities inside Istanbul
    • 58. Sector needs a professional association
    • 59. TurkVCA is MIA since 2004
    • 60. Concerns over high visibility
    • 61. Reliable data and strong representation is needed to develop a good conduct sector and market
  • Arı Teknokent
    Arı 2 Binası A Blok Kat:7
    İTÜ Ayazağa Yerleşkesi Koru Yolu
    Maslak 34469 İstanbul, TURKEY
    www.teknolojiyatirim.com.tr
    Cyberpark, Cyberplaza
    B Blok Kat:6
    Bilkent 06800 Ankara, TURKEY
    www.ttgv.org.tr
    Photos : kind courtesy of METUTECH