By Andrew Jay Rosenbaum
ANKARA
Investment in startups in Turkey is, this year, aimed more at high-tech companies with high-end products for business, experts have told Anadolu Agency.
Serkan Unsal, an entrepreneur and investor who runs the Turkish portal Startups.Watch told Anadolu Agency: "The Turkish startup scene is vibrant, but it is changing," adding that there is a lot of capital available for startups in the country.
In the first half of 2015, investment increased by 50 percent, while the amount of total early-stage investment grew by more than 200 percent, Unsal said.
The Turkish government offers a 75 percent tax deduction for this kind of investment, and that is helping greatly to increase investor interest, he added.
"But, today, more investment is shifting toward companies with high-tech products and services for businesses, and away from consumer services and e-commerce."
Ali Karabey, of the Istanbul investment firm 212 Capital Partners, said domestic investors were warming to the idea of high-tech firms:
"Venture capitalists in Turkey now have a better understanding of this type of company, which is likely to grow at a regular rate for a long time."
Typical of such companies is HotelRunner, which provides a platform to connect hotels of all sizes with reservation services and travel agencies, or Solvoyo, which offers supply-chain improvements using its own software.
Solvoyo’s chief operating officer, Nilufer Durak, told Anadolu Agency: "It is challenging for companies like ours to make our case to investors, but, in Turkey, they seem to be getting the idea better than they did before."
Durak is talking to venture capitalists about taking her company international, and in this she is like many of the successful Turkish startups -- they mature their product or service in Turkey, and then are ready to expand abroad.
About 277 companies of this type have received funding this year in Turkey, according to Unsal’s Startup.Watch, out of about 400 in total which have gotten money from investors.
The hottest area is companies offering software and service platforms (SaaS), Unsal said.
SaaS means that applications for users are hosted by others, either the vendor or a third party, and made available to customers via the Internet.
"SaaS providers are getting a lot of attention in Turkey today," Unsal said, adding: "But also companies that offer services for business, and business software producers, are getting particular interest."
About 50,000 companies of all types were started in Turkey in 2015, according to the Union of Chambers and Commodity Exchanges of Turkey (TOBB).
But only a fraction of these fit the description of startups, companies with innovative ideas that traditionally start out in the owner’s garage and grow up to be a Google or a Microsoft.
There have only been about 5,000 of these in Turkey since 2010, Unsal said. Of these, only 277 have been funded so far this year, with a total of $39.9 million paid out in 2015 for Turkish high-tech startups.
"The number of companies is far too small -- it should be closer to a thousand," Karabey said.
In fact, according to Eurobarometer (European Commission) statistics, about 82 percent of Turkish workers would like to start their own business, more than 45 percent in the U.S. or 37 percent in the EU.
"But Turks fear failure, because the consequences of starting a company and having it fail can be devastating. Even those with really good ideas hesitate to strike out on their own," Karabey said.
Those who make the leap can reap substantial rewards, as the example of Solvoyo shows.
The company has developed a platform, hosted in the Cloud, which enables companies to connect with every part of their supply chain, making getting products out much faster and more efficient.
Turkish Solvoyo CEO Koray Dogan started the company with his own money, back in 2005. But Solvoyo took in $1.25 million in venture capital investment from 2013 to 2014, and now plans to expand its staff to go international, Durak said.
"We have had significant success with retail clients here in Turkey; we get the right product on the shelf at the right time. Our software engine manages this process," Durak explained.
The company has 20 clients, and has been contracted for more than 30 projects, she added.
Solvoyo had help from the Scientific and Technological Research Council of Turkey (TUBITAK) in developing the product.
"Now that we have shown what we can do in Turkey, it is logical for us to look to other markets, and we are seeing lots of interest from investors to help us do that," she said.
Another company with a SaaS product, HotelRunner, tells a similar story.
Started with $500,000 in seed money from 212 Capital Partners, HotelRunner has taken in a total of $2 million in investment from 2013 to 2014.
"That’s partly because we are growing fast, but also because the potential for our product on international markets is clear," said CEO Arden Agopyan, one of three founders of the company, in an interview with Anadolu Agency.
HotelRunner is also run from a platform in the Cloud, and it connects hotels of all types and sizes with travel agencies and online travel brokers like Expedia.
The service is offered to hotels for free, and, in a few minutes, the hotel can be online accepting reservations on its own website, Agopyan said.
HotelRunner now has linked up 15,000 hotels, with 3,000 paying users, more than 150 online travel agencies and about 40 payment gateways, Agopyan said. The company earns a commission on transactions.
Like Solvoyo, HotelRunner is in talks with venture capitalists to expand abroad.
"Eastern Europe, and southern Asia are the target markets for us," he pointed out.
There are still some challenges for Turkish startups, even if funding availability is not one of them.
"Acquiring talent is the key challenge," Durak said. "We need engineers with special skills, and finding them is key to our future growth."
"Turkey is a good climate for startups," Agopyan said, "but gaining adoption for new ideas is still a struggle".
But the number of angel investors -- small investors who provide seed capital -- in Turkey is growing, Karabey pointed out, so it is now up to Turks with good ideas to get busy.
