Sramana Mitra: What do you see? Is it B2B or B2C? Where is the sweet spot of your entrepreneurs?
Cem Sertoglu: We have two very distinct strategies that we focus on. The first is what we call local champions. These are focused on large markets. We would probably back these companies only in markets like Turkey, Poland, Ukraine, or Romania, but not Slovakia or Estonia where the local market is not big enough. In these businesses, we look for proven business models and technology. These are models that have worked elsewhere.
Sramana Mitra: Concept arbitrage.
Cem Sertoglu: Yes, with strong local execution requirements. As long as they’re not too niche and are looking at sizable markets in their geography, we back these types of companies. This is an area where we’ve been quite successful. We were the first investors into two of the largest Turkish tech exits in the past. One is an eBay type of company. It’s the largest marketplace in the country where we sold the company to eBay in 2011.
The second one is a food delivery business called Yemeksepeti, which is a phenomenal company. It was sold to Delivery Hero in 2015. With the recent IPO, we now see that the Turkish business accounts for almost a third of the metrics within Delivery Hero. It’s a company we’re very proud of.
We’re also investors in a large retail e-commerce company focused on fashion. It’s very dominant and a clear winner in that vertical. We do think that what we experienced with these large local winners, we continue to see young companies headed in the same direction.
Sramana Mitra: You have the advantage of a pretty sizable domestic market in Turkey. I can see why that is the case.
Cem Sertoglu: Most people don’t think of Turkey as being such a large market or a strong market in that regard but Turkey has a $800 billion economy. I recently read that the PPP adjusted number is $2.2 trillion. It makes Turkey the 13th largest market in the world. You’re absolutely right.
Sramana Mitra: What about internet and mobile adoption in Turkey?
Cem Sertoglu: Very strong. Internet penetration is about 70%. The country has a very young demographic that is very technology savvy. For technology-leverage businesses, infrastructures like payment and delivery infrastructures are very strong. Turkey has the highest number of credit cards per capita in Europe – even higher than in the UK. It’s a very attractive e-business market.
Sramana Mitra: Talk to us a bit about what is happening in your ecosystem. You are doing some seed and Series A. Is there much of a pre-seed, seed, post-seed ecosystem that has come together in terms of funding environment in the Turkey and Central Europe area?
Cem Sertoglu: Different countries show different characteristics. First of all, I think it’s very difficult to talk about a large ecosystem in any part of our geography maybe with the exception of Estonia which is a small market but dense with technology activity.
Every single country in our geography is lacking in capital that’s focused on technology investments. Having said that, the trends are all in the right direction. Almost every country has adopted incentives towards business angels. Turkey is certainly an example of that. It actually has been quite successful. The amount of angel activity in Turkey has exploded with some of the incentives that the government is providing.
There are also public programs that encourage capital flow into young technology companies. I just came from Poland where they are launching a program dedicating half a billion dollars of new money. The trends are in the right direction. However, the markets are still quite capital stark, especially for checks larger than a couple of million dollars.
There are a lot of gaps in the funding curve along the way. That’s why we wanted to be more of a flexible investor. We can write checks from a couple of million dollars all the way to $10 million per investment. It gives us an advantage.