The Turkish startup ecosystem has managed to attract a record amount of venture capital (VC) in the first nine months of this year, the latest industry data showed, spearheaded by gaming, e-commerce, financial technologies, software and cloud technologies initiatives.

According to the industry monitor startups, a record $1.49 billion (TL 27.6 billion) in investments across 208 deals poured into Turkish startups from venture capital funds, private equity funds and corporate-led venture capitalists from January through September.watch’s report, up from $1.44 billion a year earlier.

The ecosystem would have broken the record even without a whopping $768 million that rapid grocery delivery app Getir raised from investors so far this year.

Yet, the overall pace slowed in the third quarter as challenges such as rising interest rates, market upheaval and a global slowdown in funding clouded the industry prospects.

The startups.watch’s 2022 Q3 report showed some $90 million was invested in Turkish startups through 51 deals in seed, early, and later venture capital stages from January through September.

Quarter-over-quarter, the deal size decreased by 28% and the deal count was down by 35%, the data showed.

Fintech leads the way

The deals in the first nine months were spearheaded by startups engaged in fintech, software as a service (SaaS), gaming, artificial intelligence (AI) and marketplace.

The economic downturn led to iBuyer-style startups coming forward, including Easycep and Getmobil on the smartphone side and Vavacars in automotive. The former two buy and sell refurbished electronic products, while the latter is engaged in buying and selling second-hand vehicles.

Gaming continued to be the industry with the largest number of new startups. Although the number of deals fell, the first nine months of the year still saw the highest-ever investment amount in gaming ventures.

The investment secured in the January-September period made Türkiye the third biggest receiver of capital in the gaming industry in the world.

Among others, one out of every five transactions involved foreign investors, the data showed. Seventy-three of the 208 investment deals in the first nine months included a company or venture capital funds.

The report said the size and count of the investment deals continued to fall in many countries, plagued by market headwinds.

It also highlighted that 52 out of the 208 agreements included startups with female founders.

Big rise in new funds

The report said a record number of venture capital investment funds were established from January through September. Some 81 venture capital investment funds are estimated to have been set up in the last two years, prompted by new amendments.

The global downturn is clouding the prospects for the industry in the last quarter of the year, as the number of deals is expected to lag far behind 329 agreements that were completed in 2021.

"In 2022, the number of deals in the seed, Series A and Series B stages will probably fall behind the 2021 figures," said Serkan Ünsal, startups.watch founder.

"We can attribute this decline to the fact that investors began to hesitate to invest in new ventures due to the global crisis. Although 30 out of 186 seed investments in 2022 were equity-based crowdfunding, there was a significant decrease in the number of seed investments," Ünsal told the event in Istanbul to announce the report.

He cited the significant drop in early-stage agreements, Series A and Series B, in the first nine months.

"It seems unlikely that this decline will recover in the last quarter. Those looking for Series B investments have become more dependent on foreign investors because they have few options in Türkiye at this stage. Since there is also a contraction in overseas investments, startups at this stage are less likely to receive investments," Ünsal said.

Istanbul: Shining star

Meanwhile, the startups.watch report showed Istanbul maintained its pace when it comes to investments in technology startups, driven mainly by gaming studios.

The data showed that the Turkish metropolis ranked sixth among European peers. It sits second just after London in gaming investments which amounted to $341 million across 16 deals and fourth in the world.