The challenge of being a VC in Turkey

I just returned from San Francisco to Istanbul yesterday. What I originally planned to be a 3 week US trip ended up taking 2 weeks because I was able to meet each of our Northern California startups during this time. In addition, important issues were beginning to crop up at our Turkish startups so I decided that my time would be better spent in Istanbul.

On the flight back, I thought about how being a VC in San Francisco is different from being one in Istanbul. The bottom line I arrived at is that it’s more challenging to be a VC in Turkey. Here’s why.

The tech sector dominates San Francisco. It’s where people work and what they talk about. In contrast, it’s rare to find people knowledgeable about the tech sector in Istanbul. From the perspective of a VC, this makes it easier to find great startups to invest in, co-investors to share opportunities with, upstream and downstream investors to partner with, and buyers to engage with if you’re based in San Francisco. When you invest, you’re doing what everybody is doing and this gives you a greater sense of confidence. If you’re right, you’re right together, and if you’re wrong, you’re wrong together.

In contrast, when you’re investing in startups in Istanbul, you’re going against the overwhelming crowd that’s investing in traditional sectors like real estate, construction, and energy. While the lower competition may make it easier for you to find a diamond in the rough, you often question yourself as to whether what you found is really a diamond.

And the problem doesn’t go away after you invest. Even if all the company’s metrics show that it’s a diamond, and benchmarking its metrics against those operating in a similar space in San Francisco shows that it should be commanding a healthy valuation, the dearth of downstream investors in Istanbul often means that it comes well short of realizing that valuation in the local market. This is, of course, if it’s one of the lucky few that is able to raise follow on funding at all.

I believe that this gap will eventually converge. As the tech sector’s importance spreads globally, it will become more acceptable and hence easier to be a VC in Turkey. We welcome anyone who wants to join us on our path. Until then, we’re going to continue to do our best to help us get there. We’re up for the challenge.