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How Turkey became a star of European tech

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This year’s hottest new idea in online retail started not in Silicon Valley but in Istanbul.

Tech investors have poured billions of dollars into start-ups delivering groceries in just 10 minutes and its pioneer, Getir, is now valued at $7.5bn.

But back in 2018, according to Getir co-founder Nazım Salur, no venture capitalists would return calls from a Turkish start-up.

“The right funding wasn’t there,” Salur said, which led him to delay his ambitions to launch Getir overseas by almost three years. “I wanted to go in strong and win [in new markets]. That needs resources, both people and money.”

The turnround in Getir’s fortunes during the past year is part of a huge shift in Turkey’s technology industry. Since last summer, Turkish tech companies, including ecommerce platforms Trendyol and Hepsiburada and games developers Peak Games and Dream Games, have seen their valuations vault above the billion-dollar mark that is seen as a global marker for start-up success.

“The Turkish ecommerce market is at an inflection point,” said Hanzade Dogan, founder of Hepsiburada, which is now valued at $4.4bn after an initial public offering on the Nasdaq last month.

Hepsiburada ad is seen as Hepsiburda became the first Turkish company listed on NASDAQ stock exchange and was valued at $3.9 billion in the initial public offering on first day of trading.
Hepsiburada, sometimes seen as Turkey’s answer to Amazon, was founded in 2000 © Lev Radin/Anadolu Agency/Getty

Ecommerce penetration in Turkey is estimated to have risen from 3.5 per cent three years ago to about 10 per cent today, driven in large part by the pandemic effect that has supercharged online retail all over the world.

“Covid created a step change,” said Melis Kahya Akar, managing director at General Atlantic, who led Trendyol’s $1.5bn funding round alongside SoftBank this week. “All the pieces fell into place now for Turkish companies to start thinking more globally.”

But while the flurry of investment has put Istanbul on the map alongside other European tech clusters such as London, Paris and Berlin, its newfound success has been many years in the making.

“The activity started 10 years back, when it could be seen that there was something emerging,” Hendrik Brandis, a tech investor at Earlybird, which has a dedicated fund for central and eastern Europe.

Trendyol, which is now valued at $16.5bn and is majority-owned by Alibaba, started out as an online fashion retailer in 2010 before expanding into food delivery and launching a digital wallet. Hepsiburada, sometimes seen as Turkey’s answer to Amazon, was founded in 2000 and has largely been self-funded, Dogan said. “We are extremely capital-efficient.”

Local online retailers have been able to thrive in part because global players such as Amazon and eBay have struggled to make inroads in the country. PayPal lost its Turkish payments licence in 2016, at a time when President Recep Tayyip Erdogan was also cracking down on social media sites such as Twitter and Facebook.

“Some of the volatility has not been as attractive in general for the investor community,” said Kahya Akar. “I expected the digitalisation transformation to be a little bit faster.”

As a result, homegrown companies have flourished, eventually growing big enough to attract international attention. “We didn’t let the market [go] to the usual suspects,” said Dogan.

Many of today’s tech executives in Turkey cut their teeth at one of two companies: Rocket Internet, the German start-up incubator that launched in Turkey in 2011 then abruptly pulled out of the market a year later; and Peak Games, the mobile games developer that was founded in 2010 and acquired by Zynga last year for $1.8bn.

“A lot of these very smart, hungry, super-analytical people that we hired at Rocket ended up joining either Trendyol or Peak,” said Akin Babayigit, an alumnus of both Rocket and Peak, and now co-founder of London-based games company Tripledot Studios. He said the two Turkish companies turned into something like “universities” for tech talent.

A laptop screen displays Trendyol online shopping site
Trendyol is now valued at $16.5bn and is majority-owned by Alibaba © Dogukan Keskinkilic/Anadolu Agency/Getty

Babayigit said that the success of Peak, in particular, “changed everything” for Turkey’s start-up ecosystem. Games developed in Turkey were being played by millions of people, all over the world. Until then, many Turkish companies had been “trapped by having a just big enough market internally” that they did not need to worry about international expansion. “Peak Games showed people that it was possible to think global and win global,” he said.

Since its first deal there in 2017, San Francisco-based Zynga has now invested more than $2.3bn in four acquisitions with operations in Turkey, including Rollic Games, one of several “hyper casual” games developers in the region.

“I do believe Zynga was the beachhead of any foreign company investing” in Turkey, said Bernard Kim, the Zynga executive who led those deals. Kim said he likes the “very deep competitive energy” in the country. “Everyone is looking at the [App Store] charts, wanting to win.”

Another graduate from the Rocket, Peak and Trendyol schools of start-ups is Soner Aydemir, who co-founded Dream Games in 2019. The maker of the puzzle app Royal Match became Turkey’s newest unicorn — a private start-up valued at more than $1bn — in June.

“It was really easy to raise money,” said Aydemir, thanks largely to his team’s record creating Peak’s hits Toy Blast and Toon Blast. “Everyone wanted to invest in us.”

Stephane Kurgan, former operations chief at Candy Crush Saga developer King and now a partner at Index Ventures, the venture capital firm that backed Dream, said: “You have a community of game developers in Turkey who are world-class now.”

But Aydemir still has concerns about Turkey’s limitations for tech start-ups, from a lack of experience in product development to a dearth of role models for rapidly scaling up a business. “It’s a very young industry,” he said. “Other than Getir, we don’t see a great company in Turkey which succeeded to scale in the organisation.”

Other entrepreneurs complain about excessive bureaucracy, which can mean it can take six months to establish a new company, and a complex tax system, including a new digital services tax that could hit Trendyol just as hard as Amazon.

Getir’s Salur said he was “surprised” Istanbul had not produced more tech successes, given it was a “true international city”, which he blamed on some “selling themselves too early to Big Tech”.

“Great companies are built after 10 years,” he said. “The first 10 years are your primary school education. You have to have a 20-year timeframe in mind.”

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