Turkey’s VC fund of funds

The Turkish Treasury and The Union of Chambers and Commodity Exchanges (TOBB) this week announced the launch of a fund of funds (Turkey Investment Fund, or TIF) to invest as an LP in local VC funds. The initial fund size is 150M TL (~$50M), of which 100M TL (~$33M) is being contributed by TOBB and 50M TL (~$17M) is being put forth by the Treasury. The fund size is expected to grow to 250M TL (~$83M) over the next 2 years.

This is very important news for Turkey. First, it’s a clear demonstration of the public sector’s intent to support the VC sector and hence entrepreneurship in the country.

Second, the means by which the public sector is offering this support is correct. Specifically, rather than attempt to make direct investments themselves, the Treasury and TOBB are entrusting the private sector to make these investments. By serving as an LP rather than a GP, the Treasury and TOBB are increasing the ammunition available to existing VC’s and helping cultivate new VC’s. Putting investment decision making in the hands of VC’s who do this as a full-time job makes it more likely that the funds back the best startups.

In addition to TIF, theĀ Turkish Growth and Innovation Fund (TGIF) is a second fund of funds whose plan is to support local VC’s. TGIF will be a 200M Euro (~$220M) fund backed by the Treasury, The European Investment Fund (EIF), The Small and Medium Enterprises Development Organization (KOSGEB), and The Industrial Development Bank (TSKB).

TGIF is a follow on to the Istanbul Venture Capital Initiative (iVCi). The iVCi fund was a 155M Euro (~$170M) fund of funds launched in 2007 with the goal of investing in VC funds. However, with the exception of $25M which it invested in Earlybird and 6M Euro (~$7M) which it invested in 3TS, most of the money went to private equity funds. There simply weren’t many VC’s to back from the original fund, but that has since changed.

When both TIF and TGIF reach their full potential, this will inject over $300M of new VC funding to Turkey. There’s about $200M of VC funding dedicated to Turkey right now, so this will bring the total capacity of VC funding in the country to $500M.

A lot more startups will be funded, startups with existing funding will have more money to grow, and we’ll see many more successful examples of entrepreneurship in Turkey.