After kicking off 2022 with the best first quarter ever, the Turkish startup ecosystem has had a buoyant second three-month period of the year, shouldered partly by gaming ventures that clinched a record amount of investments.
According to the ecosystem monitor, startups.watch, an all-time high of $333 million (TL 5.9 billion) of capital poured into 13 Turkish gaming ventures from January through June, helping Turkey past its peers to make it the most invested country in Europe.
This has helped the total value of deals in the first half of the year already top the whole of 2021’s $265 million from some 52 announced deals.
Best showcasing the ground that the Turkish gaming industry has covered over the recent years, the figure was almost 24 times higher than that of the whole of 2020, not to mention the enormous leap compared to $8 million in funding in 2019, $2 million in 2018 and $1 million in 2017.
The first-half investments in gaming ventures have seen Turkey leave behind the likes of the United Kingdom, Norway, Finland and Sweden, all prominent names in the industry, to make it to the top of the list in Europe.
Overall, Turkish startups raised a record of nearly $1.4 billion from 140 investment rounds from January through June, spearheaded by ventures engaged in financial technology and gaming.
Yet, the second quarter was much more silent with 79 deals and $114 million worth of investments compared to a record of nearly $1.3 billion in the first three months. It marked the weakest three-month period since the first quarter of 2021.
Almost 90% of the funding in the first half went to six startups, namely Getir ($768 million), Dream Games ($255 million), Insider ($121 million), Spyke Games ($50 million), Param Group and Rubibrands ($23 million).
Istanbul shines in gaming
The traditional event organized by startups.watch to announce the data that shed light on the outlook in the industry was held in Istanbul this Wednesday.
The figures also showed startups at the seed stage managed to clinch 124 investment deals in the first half of the year, raising a record $168 million. Seventeen of these included equity-based crowdfunding deals.
In contrast, seed-staged ventures secured $59 million from 139 deals in the same period a year ago.
"Istanbul has become the fourth most invested city in Europe in the first half of the year, after London, Paris and Berlin," said Serkan Ünsal, startups.watch founder.
"It ranked first in Europe when it comes to gaming investments and topped London, Oslo, Helsinki and Stockholm," Ünsal noted.
Foreigners join 1 out of every 4 deals
The data showed that foreign investors participated in one of every four deals in the first half of the year.
They were mostly engaged in deals that included fintech and gaming ventures, in addition to artificial intelligence (AI), Software as a service (SaaS), NFT and metaverse.
Startups engaged in financial technology accounted for 23 investment deals from January through June, securing some $63 million. Fintech, where mobility gained pace with recent regulations, turned out to be among the industries where most of the new startups were established.
SaaS ventures raised $134 million and AI-oriented startups drew $135 million from January through June.
Having been promoted to the "Super League" in Europe, Turkey left behind countries such as the Netherlands, Estonia and Austria. In the Middle East and North Africa region, it came in second, just after Israel and above the United Arab Emirates (UAE).
Buyouts maintain pace
The first half of the year was marked by 29 acquisitions and secondary transactions, led by Alictus, Airties, Volt Lines, Infofab Health, SEM, Paym.es, Paket Taxi, PulpoAR, DUCKT and Park Palet.
Among others, 51 out of 140 deals in the January-June period included company or corporate venture capital (CVC) among the investors. Corporations are becoming more interested in establishing a fund in the form of a venture capital investment fund.
Thirty-six of the deals in the first half were accomplished by startups with female founders, marking the highest rate (26%) in the last five years. Yet, only 15% of ventures established in January-June were set up by female entrepreneurs.
Peak Games: Startup factory
Peak Games has been a major example of how the gaming sector grows after fragmentation and how working at startups improves the ecosystem.
Peak became Turkey’s first unicorn – a term for startups that pass the $1 billion mark – after its acquisition by U.S.-based gaming giant Zynga in a $1.8 billion deal in mid-2020.
It features a story of how a successful startup turned into a school, leading to the birth of multiple new ventures. It proved to be such a factor that 80 former Peak members went on to set up 65 different startups. Twenty-eight of these are engaged in gaming.
Looking at the figures, it turns out that Peak is a venture that works like a startup factory.
Venture capital funds to shape future
Some 86 funds worth $1.3 billion have been established in Turkey in the last five years. Around 75% of the funds set up in the last 1 1/2 years were in venture capital investment fund/venture capital investment trusts format.
Yet, the size of most of the funds is below $20 million, while there are only two active venture capital funds worth over $100 million, namely Revo Capital and Earlybird DEF.
Addressing the startups.watch event, Capital Markets Board (SPK) deputy head Ali Ihsan Güngör stressed the importance and the role of venture capital investment funds in the rise of many giants, particularly from the Silicon Valley.
"In fact, as important as these initiatives will be to increase the number of $100 million-worth technology startups. In the U.S., apart from giants such as Google, Amazon, Microsoft, Meta, hundreds of technology companies are providing the actual depth. Venture capital investment funds again had a role in the birth of these technology giants," said Güngör.
Venture capital investment funds in Turkey have managed to engage in successful businesses in a short time, while data-oriented companies have managed to become the most valuable companies in the country, he noted.
"Now, we will strive for the transformation that will make this permanent by creating a reliable structure while enlarging the size of these funds and continuing investments in different verticals. It will enable many technology startups to meet with qualified investors."
Regular audit and tax advantage
Also addressing the event, Murat Onuk, a member of the board at Arz Portfolio, said doing a lot of work with little resources is a part of the technology companies’ culture.
Onuk also highlighted the chance to pass on the experience he gained during his time at Microsoft to the investment firm.
"There are people working in investment companies and startups in the United States, as well as companies such as Facebook, Microsoft and Google. They are learning to move the data-oriented business to wherever they go. We also carried the experience we have when creating the Arz Portfolio," he said.
"The SPK has done a great job and exchanged ideas on the arrangements they have made regarding the venture capital investment funds. Thus, this enabled more qualified investors to shift to this area. Finally, with the advantages provided in terms of tax, with effective audits, the investor has been provided with an opportunity to make reliable investments."
Onuk said even an investor with TL 50,000 today gets a chance to invest in a supervised venture.
"There is not only the mathematical part of this work, which is said to have covered close to 800 ventures. You need to get to know the people and the team, as well as those with comprehensive knowledge."
Transformation brings growth
As an artificial intelligence-oriented venture, B2Metric underwent an important "shell change" during the coronavirus pandemic, its founding partner, Murat Hacıoğlu, said.
"Before the outbreak, we were working on customer forecasting at stores. However, when stores were negatively affected by the pandemic, we focused on the digital business area, which has been experiencing rapid growth," Hacıoğlu noted.
"We started to provide services to institutions with millions of customers. Türk Telekom enabled us to first gain experience through its PILOT acceleration program and to transfer the experience we gained in Turkey abroad with the investment round that was attended by Türk Telekom Ventures," he added.
Hacıoğlu said they rather than holding on to fashion concepts and expressing themselves, they learned to describe themselves in a way that defines them correctly and allows them to decouple from competitors.
"Now, we are bearing the fruits of our persistent effort to transform into a product. We are also excited to translate the support we have received from many acceleration programs and investors into growth."
Never giving up
Param Group managed to seal the biggest investment deal in the second quarter of the year and looks to become Turkey’s first unicorn in the financial technology area.
Its founding partner, Emin Can Yılmaz, highlighted the importance of the investment in the transformation of the venture that has had a long and challenging journey.
"When securing an investment, you are trading in Turkish lira. We have gone through a challenging process due to the volatility in the exchange rates. After all, nothing daunted me. Since I already come from a technology background, we developed the solution ourselves. To date, we did not need investment because we came up with a profitable structure," Yılmaz noted.
"We will use the investment not for our profitable business but for the solution of My Loan, which has new growth potential. To compete with giants at this stage, we have to have the financial depth to provide the right solutions to the customer," he added.
Yılmaz said they have secured the investment to make their offers more attractive.
"After all, we are also an organization that has obtained a license in London. We would like to expand the operation to 11 to 12 countries. In addition, it was important to have the EBRD (European Bank for Reconstruction and Development) with us to provide the right solution when it comes to the issue of the loan."
EBRD fund representative Barış Sivri said although the process, which lasts six months and takes a total of nine months, takes time and somewhat slows down the company, they would benefit a lot after initiatives such as Param.
"EBRD consultants examined Param. In the process, we have seen that Param has many services that can be offered abroad. We are now working to support the successful team on this journey," Sivri noted.
Support for brands’ journeys abroad
Rubibrands founding partner and CEO, Yetkin Güneş, said the e-commerce industry would continue to grow, noting that they managed to put into practice in Turkey a model that has been successful abroad.
"There is still a long distance to cover in e-commerce in Turkey. Through Rubibrands, we are dedicated to growing the business of brands that successfully manage marketplaces and that have gained experience in e-commerce on a global scale," Güneş said.
He noted that they have invested in seven brands to date, some of which were only Turkey-oriented businesses while others had already started selling in the U.S. market.
"Now we are cooperating to take the same success to other countries. We are looking at what to do about it. We support brands on the issue of logistics, marketing and supply chain. Currently, we serve seven brands with a team of 40 people," he added.
D4 Ventures investor Burak Çolak said the decision-making processes were easy because it is an area they had invested in before.
"As D4 Ventures, we have previously invested in Rubibrands’ overseas examples. We have achieved rapid growth in this area. We have full faith that the team will carry its success to a global scale."