TURKEY: The New Venture Capital Hot Spot

When some 300 participants gather for the annual meeting of the European Trade Association for Business Angels, Seed Funds, and other Early Stage Market Players’ annual conference in Istanbul from April 15 to 16, they will hear about hot Turkish ventures in sectors ranging from the Internet to electric cars. Expect them to take out their checkbooks. The country is rapidly becoming the new destination for angel investors and venture capitalists, with the number of deals set to skyrocket.

The draw? A relatively healthy economy, a highly educated pool of software and electrical engineers, a supportive government that issues R&D tax credits to companies, and booming Internet usage.

The Internet audience in Turkey is one of the most active in the world, according to researcher comScore. Internet users there are ranked among the five most engaged online populations worldwide, based on the time they spend online. And as of January, comScore ranks Turkey as the fifth-largest Internet market in wider Europe, behind Germany, France, Russia, and Britain. Although global Internet brands like Google and Facebook are among the most visited in Turkey (Turkey now has the third-largest country presence on Facebook, behind only the U.S. and Canada), there is also a vibrant community of home-grown Web properties like Dogan Online (owned by Dogan Media Group), Nokta.com, and MyNet, which has attracted private equity investment from New York’s Tiger Management Corp. and is expected to make an initial public offering in the future.

Turkish companies are making their mark abroad as well. Among the speakers at the EBAN conference will be Alphan Manas, the Turkish-born, American-educated business mogul who made headlines earlier this month when he offered to purchase French auto parts manufacturer Heuliez in a €30 million deal. The transaction is expected to be finalized Mar. 31.

“The idea is for Turkey to become a brand owner for electric cars,” says Manas, who talked to Informilo on a recent trip to Paris. To achieve that goal, Manas is teaming with Turkish native Murat Gunak, the former head of design at Volkswagen, on a line of electric cars that will use the brand name “Mia.” Gunak, who also held design positions at Peugeot and Mercedes-Benz, has spent the last few years concentrating on electric autos. Other partners are expected to be brought into the deal.

Heuliez currently has the capacity to manufacture cars in some parts of Europe, but Manas says he envisions shifting some of the manufacturing to Turkey in the future. "Electric cars will not be assembled in one place but in many places," he says.

Consumers will be able to personalize the design of the electric cars and will be able to buy them anywhere. "It is a lifestyle good; the cars could be sold in LaCoste shops," says Manas. Expect the cars to be high-tech. "Maybe with an iPhone you are going to be able to control most parts of the car, including maintenance," he says.

Manas is the founder of Brightwell Holdings, a private investment company that's placing big bets in a variety of areas, including clean tech. Its other investments include Greenway Solar, a Turkish-Israeli company that aims to do business with the North African DeserTec initiative.

Manas' businesses aren't the only Turkish companies gaining global attention. Take Istanbul-based AirTies, founded by Bulent Celebi, a Turkish-born, American-trained entrepreneur. The company, which makes home networking gear, was ranked No. 4 out of 75 communications and networking vendors on the Deloitte Technology Fast 500 EMEA 2009. With 2009 revenues of $36 million, it grew 5,951% over 5 years and came in 21st in the overall Deloitte ranking.

AirTies started in wireless technology and ADSL and expanded into VoIP and IPTV. It started gaining traction with products that are compatible with broadband infrastructure in countries such as Greece, Ukraine, and Russia, which sport the type of concrete and stone buildings common throughout Europe that make wireless more challenging, and in areas where electric power outages are frequent. But business really started booming after AirTies developed a way to wirelessly distribute IPTV to different television sets in the same household with the touch of a button. That service is fueling the company's rapid international expansion. Clients now include carriers in the U.S., India, United Arab Emirates, and Western Europe, says Celebi.

In 2010, AirTies expects to do half of its business abroad, and is forecasting the number to jump to 70% over the next two years, Celebi says. Though the company has not taken any venture capital to date, he says the firm is currently in talks with several Western European VC firms about raising funds.

So are a number of other Turkish tech companies. When Pamir Gelenbe, a Turkish native and partner at Big Bang Ventures, a London-based seed and early stage venture capital fund for high-growth digital media and software companies, organized the NuBridge Venture Summit in Turkey from Jan. 21 to 22, some of the most respected venture capital firms in Europe and the U.S. showed up, including Accel Partners, Index Ventures, Wellington Partners, Tiger Global Management, VenTech, Holtzbrinck, and Endeavor Vision. Gelenbe says he is now negotiating deals with two Turkish companies, and says other European VCs have since initiated their own deals. Since the deals are still in the works, Gelenbe says he can't identify the Turkish startups. "We are hearing about a lot of deals happening," says Gelenbe. "There is really a lot of excitement around Turkey right now."

That doesn't surprise Manas, who made his fortune when he returned to Turkey after receiving his master's degree in production management from the State University of New York (SUNY) in 1987. After honing his management skills as country manager in Turkey for the Colonial Corporation, a subsidiary of apparel giant Vicks Corp., Manas jumped to the tech sector, cobbling together an initiative to bring Ericsson's Mobitex mobile data service to Turkey through a partnership with Turkcell, Turkey's largest GSM provider.

Mobicom offered portable point of sale, vehicle location, and remote metering services, but had trouble turning a profit because the cost of manufacturing equipment for the Turkish market, which operated on a different frequency than that of the U.S., was four times higher. Two other ventures proposed by Manas and financed by Mehmet Emin Karamehmet, the head of Turkcell, also failed. But the fourth one, IDDAA, a network of licensed sports betting shops in Turkey, made up for the rest, earning Turkcell a 55% stake of a $650 million dividend after five years of operation, Manas says.

Manas acted as project leader from 2000, when IDDAA was conceived, until November 2005. At that point, the 20% stake owned by his holding company, Teknoloji Holdings, was sold to Intralot for a total company value of $400 million. Manas parted ways with his partner in Teknoloji Holdings in February of 2006 and established Brightwell Holdings in the Netherlands, with offices in the U.S. and the U.K., taking along seven companies from Teknoloji Holdings.

Another Manas initiative, Bilyoner, a legal interactive Internet sports betting and horse racing site, currently has revenues of $300 million. Manas exited the company in 2007 when it had a $50 million market capitalization.

Today, Manas is the go-to guy for those wanting to launch or fund tech-related companies in Turkey. But, he stresses, the country needs foreign investors to help make local companies into global players. "In Turkey the most intelligent people become electrical and computer engineers," he says. "They have many good ideas but lack the funds to build companies, so investors will have no difficulties finding good projects."

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