Investing as a generalist

I was recently speaking with an investor in the US who asked which sectors we invest in in Turkey. I often get similar questions about what business models or stages we invest in.

In a market like the US where many successful tech startups are founded each year and there’s a lot of competition to fund these startups, many investors specialize in specific sectors (like fintech or biotech), business models (like e-commerce or marketplaces), or stages (like seed and early stage). This gives them a competitive edge in evaluating startups in their target subset and lets them differentiate themselves as a source of capital.

While this approach makes sense in deep markets like the US, I don’t think it works in a more shallow market like Turkey. The reason is that there are few tech companies that go on to reach the $100M+ valuations necessary for a venture capital model to work in Turkey.

By my calculations, 15-20 tech companies that eventually reach a $100M+ valuation have been founded in Turkey over the last 15 years. I may have missed some companies but the number is in that ballpark. That’s 5-7 such companies over a fund’s traditional 5 year investment window. Assuming a fund makes 10-20 investments during this time, that’s enough to pick from only if you’re sector, business model, and stage agnostic. If you only focus on a certain subset of companies across one or more of these dimensions, you make it much less likely that you’ll get into enough winners to build a successful fund.

As a result, we take a generalist approach to our investments in Turkey. We invest in the transport sector, but also in the fashion, hospitality, finance, and real estate sectors. We invest in e-commerce, but also in marketplaces, SaaS companies, and classifieds sites. We invest in seed and early stage rounds.

As a result of our generalist investment strategy, we’re reactive to the ideas and market approaches put forth by startup teams. We invest in teams that we believe have found or will find the right strategy in a given market rather than try to proactively determine the winning strategy for a market ourselves and then look for teams taking that approach.

Also published on Medium.