Monthly Archives: December 2015

Ask “Startup of the Month”

During our Best Practices Day in October, our startups showing strong knowledge of and performance in a specific functional domain (like online marketing or field operations) shared their best practices in that domain with the other startups in our portfolio. It was a successful event, and many of our entrepreneurs requested that we hold similar events that facilitate knowledge sharing among our startups on a more regular basis.

We therefore launched our Ask “Startup of the Month” event series last Friday. Each month, we visit the office of one of our startups and our entrepreneurs get to learn from how that month’s host startup thinks about the different aspects of its business. In contrast to the content of the Best Practices Day, where multiple startups each shared what they do within a specific function, our Ask “Startup of the Month” events let our entrepreneurs learn about what a single startup is doing across all functions.

We held our first session of the event series at the office of our online female Muslim fashion retailer Modanisa. It was a valuable event where Modanisa cofounder Sami Guzel talked about the company’s hiring, online marketing, community management, budgeting, and international expansion activities.

I thank Sami and the Modanisa team for hosting our first Ask “Startup of the Month” event. I’m already looking forward to next month’s event at the office of furniture e-commerce retailer Vivense.

Cetin from Kapgel

I wrote about Kapgel, our investment in the on-demand goods delivery space, in an earlier post from July.

Cetin Oztoprak, Kapgel’s founder, was recently on CNBC-e where he spoke about Kapgel and the growth of mobile apps that deliver a local and personalized experience.

In the interview, Cetin shares some of the most interesting orders placed on Kapgel. These include an order for a quarter gold coin which is a common gift at Turkish weddings, a watermelon, and women’s stockings.

At the time of my original post in July, Kapgel was only available on the European side of Istanbul and only accessible on iOS. It now also serves the Asian side of the city, and is also available on Android. These geographic and platform expansions have helped it grow by 7% per week as Cetin shares in his talk.

Cetin concludes by sharing Kapgel’s goal of serving everyone for whom saving the average of 45 minutes necessary to go out, buy something, and come back to their original location is more valuable than Kapgel’s 4.99 TL service fee.

You can watch the full talk in Turkish below.

Celebrity wardrobes on Modacruz

I was recently browsing through our second hand female clothing marketplace Modacruz‘s app. In the “Kesfet” (“Discover” in Turkish) section, there’s a sub-section called “Unlu Dolaplar” (“Celebrity Wardrobes” in Turkish). This shows which celebrities have listed their clothing for sale on Modacruz.


The last time I checked this section a few weeks ago the wardrobes of the celebrities whose names I recognized belonged to Ece Erken and Nukhet Duru. The current version of the celebrity wardrobes section looks like this.


The names I recognize now include not only Ece Erken and Nukhet Duru, but also Ebru Salli, Ece Vahapoglu, Ozlem Yildiz, and Asena. That’s not bad for someone who doesn’t watch much TV outside of soccer and basketball games, or read many articles beyond the tech space.

In addition, the profile pages of these 6 celebrities show that 5 of them have visited the app in the last day. So they’re not only present on the app, but also engaged.

That’s a great sign for Modacruz.

Transactional services in messaging apps

Facebook Messenger recently announced that it has partnered with Uber to let Messenger users order Uber cars from within the Messenger app. The company is taking a page out of the playbook of WeChat, China’s largest messaging app that lets users engage in transactional services from within its app.

This is likely the first of many transactional services that will be made available on Facebook Messenger. For example, WeChat also lets its users order food, book doctor appointments, check in to flights, and send money to their friends from within its app. In doing so, messenger services help transactional apps gain direct exposure to hundreds of millions of users. In exchange, they have the opportunity to earn revenue for the exposure that they’re providing each app. This effectively transforms them into alternatives for Apple and Android’s app stores.

Most transactional services, like ordering cars and food, are local in nature. Messenger services need to partner with local players in each market to offer their users access to these services. This is why Facebook’s partnership with Uber in the US currently isn’t reflected when a user launches the Messenger app in Turkey. I can’t order a car as a Messenger user in Turkey.

It will be interesting to see whether global messaging apps will establish partnerships with the leading transactional service providers in Turkey before a local messaging app does. Bip is likely the leading candidate for the latter. Their Discover feature, which I’ve shared screenshots of below, suggests that they’re aware of the opportunity.

IMG_1712                 IMG_1713

TazeDirekt’s first year

TazeDirekt recently celebrated its first year in business. At the celebration event, Hasan talked about the online grocery business’ end-to-end delivery of carefully selected healthy, natural, and organic products, and excellent customer service as the key differentiators responsible for the company’s strong performance during its first year. He also shared some of the company’s metrics:

– 30% monthly growth over the last 6 months

– 10,000 active customers who have placed an order in the last month

– 15,000 daily visitors

– 104,000 mobile app downloads

Hasan concluded his talk stating that the company expects to grow 7 fold in 2016.

You can watch the full talk in Turkish below.

Profit margins and growth plateaus

Gilt Groupe is a private shopping site that offers steep discounts on specific fashion items for a limited amount of time. For example, you may find a 70% discount on a Lacoste shirt that’s valid for the next 2 days. Such sites give brands a great way to liquidate large amounts of unsold inventory through alternative channels that don’t compromise the positioning of their own full-price channel.

Gilt Groupe was founded in 2007 and successfully grew to an over $1.1 billion valuation in 2011. However, it is currently rumored to be on the verge of a sale to Hudson’s Bay, the owner of Saks Fifth Avenue, for $250M. Gilt Groupe is said to have had $600M of revenue in 2014, and $125M of revenue in Q3 2015. The latter is $500M annualized. So a sale for $250M implies a 0.4X – 0.5X revenue multiple. This is a pretty low multiple even for an e-commerce company, so what’s the reason?

I don’t know Gilt Groupe’s detailed financials, so these are only hypotheses. But I think that the low multiple is a result of a combination of low product margins and the company hitting a growth plateau.

Let’s take the low product margins first. Gilt Groupe’s deeply discounted sales model makes it structurally difficult for the company to achieve healthy product margins. Let’s be aggressive and say that a brand achieves 90% product margins in full-priced sales through its own channels. If the same product is sold for 70% off on Gilt, this leaves a 20% margin for Gilt even if the brand offers its products to Gilt at cost.

We’re investors in many e-commerce businesses and a good rule of thumb is that you need at least 30% product margins as a startup to be able to build a strong vertical e-commerce business. These let you reach 40%+ product margins at scale, which imply 30%+ gross margins (after variable warehousing, packaging, shipping, and payment costs are deducted) and the ability to produce a variable profit sufficient to cover your fixed cost base. Gilt is unlikely to have such metrics.

In the absence of healthy product margins due to the structure of its discount-driven business model, Gilt was still able to reach a $1.1 billion valuation in 2011 due to its past growth and promise of future growth. Investors believed that the company’s product margins would improve as it scaled, and they likely did, but not enough to produce 30%+ gross margins when growth plateaued.

You can only sell a growth story for so long. Growth eventually plateaus in all businesses. And when this occurs, you’re left with the fundamentals of the business. It’s therefore important to have a view on the scale at which you believe a business’ growth will plateau, and how much, if any, profit the company’s business model will allow it to produce at that scale.

Things that aren’t progress

I recently came across a post by Aaron Harris, a partner at Y Combinator, entitled Things that aren’t progress. In his post, Aaron gives several examples of activities that founders engage in that give the feeling of progress, without actually taking you forward. Examples include being mentioned in the press, winning awards, getting into elite conferences, and fundraising.

I think that a more nuanced take is necessary. None of these activities are bad in and of themselves. In fact, each of these activities can be the natural result of making progress. If customers love your product and you grow fast, the press is likely to catch on, you’re likely to be invited to conferences and may even win an award, and you’re likely to have a lot of funding offers on the table.

The problem doesn’t lie in the activities, but in whether these activities are the natural result of reaching your goals or goals in and of themselves. If these activities take place as a result of you building a great product that’s scaling fast, you should welcome them. However, if you’re actively seeking to engage in these activities, in other words if these activities become goals in and of themselves, there’s a problem. In that case, your goal changes from building a successful business to maintaining the appearance of having built a successful business. The more you do of the latter, the less time you have for the former.

As an investor, I watch out for signs that a founder is spending too much time maintaining the appearance of success. It’s a great leading indicator for the eventual actual success, or lack thereof, of the company.

The Steve Jobs movie

I watched the Steve Jobs movie over the weekend. Although it has a 7.7 IMDB rating, I didn’t like it.

The movie basically shares three product launch events which Steve led. The first is of the Macintosh when Steve was at Apple in 1984, the second is of the NeXT computer at his second company of the same name, and the third is of the iMac after his return to Apple in 1998. These launch events are positioned as the pivotal moments of Steve’s life, and his conversations in the half hour leading to each launch are used to fill in his life’s details. The result is a series of heavily dramaticized conversations that make for entertaining viewing but don’t shed light on Steve and his teams’ approach to creativity, their product decision making process, and approach to marketing.

The movie focuses on the outputs of Steve’s work, not the inputs. It makes entrepreneurship seem like a glorious job consisting of stage performances and dramatic conversations. The continuous strategic decision-making, product iterations, employee interviews, and perseverance which an entrepreneur puts forth to keep his team’s morale high despite the uncertainty and setbacks aren’t addressed.

While this makes for entertaining viewing, trying to draw any other conclusions from the movie would be misleading.

Ali from Volt

Ali Halabi, the founder of Volt, recently gave a talk about his experiences launching Volt at Kolektif House.

In the talk, he shares many valuable learnings like the importance of execution over ideas, the necessity of being a full-time entrepreneur, and the challenges he faced following a tough initial launch. The 7 digit investment round Ali refers to in his talk hasn’t happened yet, but Ali continues to work hard to execute on Volt’s vision.

The talk is 11 minutes long and you can watch it below.

Freedom of thoughts, beliefs, and speech

Over lunch yesterday, we were talking about US presidential candidate Donald Trump’s proposal to ban Muslims from entering the US.

And this morning, I woke up to Google CEO Sundar Pichai‘s post entitled Let’s not let fear defeat our valuesIt was refreshing to see an important tech leader highlight the value of accepting diversity as one of the US’s key strengths. The piece reminded me of a quote from Evelyn Beatrice Hall, the author of The Life of Voltaire.

“I disapprove of what you say, but I will defend to the death your right to say it”

This quote highlights the importance of maintaining the freedom of speech. Thoughts and beliefs are the precursors of speech. So maintaining the freedom of thoughts, beliefs, and speech are one and the same. And these freedoms are what produce our diversity.

For this reason, Donald Trump has the right to express his view that Muslims shouldn’t be allowed to enter the US. Any other approach would fall short of protecting his freedom of speech, and therefore be no different than his proposal to limit Muslims’ freedom of beliefs.

However, as Sundar does, I have the right to disapprove.