This document summarizes the state of innovation and entrepreneurship in Turkey. It finds that while Turkey has strong potential due to its large population of educated youth and emerging middle class, it has fallen behind globally in innovation and remains overly reliant on traditional industries. Barriers to greater innovation include lack of funding, risk aversion, weak intellectual property protections, and an unstable political climate that hinders reforms. However, recent government initiatives and growing private sector interest in venture capital have the potential to help Turkey become a global leader in innovation if these barriers can be addressed.
1. Is Innovation a Turks' Game to Create New Wealth? A. Mete Çakmakcı J.P. Morgan Asset Management Breakfast Meeting June 7th, 2011 - İstanbul
2. Making Sense of Turkey “… After a glass or two, what at first seemed clear becomes obscure. By the time the bottle is empty, everything appears murky and confused. Yet through this evocative haze, truths about Turkey may be most profoundly understood … … Rakiled me to wonder why so much of its potential remains unrealized. Turkey is undoubtedly the country of the future, but will it always be? … … By the time they drain their final glasses and step out into the darkness, they have often concluded that their country is either the “golden nation” destined to shape world history or a hopeless mess certain to remain mired in wretched mediocrity…” Reference: Stephen Kinzer, “Crescent and Star: Turkey between two Worlds", Farrar, Strauss and Girous, 2001. 2
4. A future mutual partnership? A place of limitless exotic fun? A curious tease? An economic partner from a safe distance? Where is the Brand Equity? 4
5. Catching up or Lagging Behind? Turkey is labeled under “catching up with moderate growth” Source : European Innovation Scoreboard 2008 5
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8. Many return with business ideas.The Story : Demographics 6
21. Country’s share in total manufacturing exports of the region (%) Share of manufacturing in Country’s total exports (%) Source: TEPAV, UN Comtrade data Largest Manufacturer in the Region 15
22. Rising sectors Star sectors Traditional sectors Failing sectors Market share in 2009 No «Star» Export Industries Source: UN COMTRADE, TEPAV calculations 16
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24. Bad news is, still high exposure to troubled regions and markets, not much exposure to Far East and South America 17
25. Number of product groups with above $ 500 million exports (HS4 classification, 2 digit, 2008) Source: TEPAV, UN Comtrade data Export Diversification 18
28. Factor-driven economy Efficiency-driven economy Innovation-driven economy low-cost inputs productivity unique-value Source: WEF Where does Turkey stand? Turkey was a transition economy from efficiency-driven to innovation-driven in 2009. In 2010, WEF downgraded Turkeyto efficiency-driven. Upgrade to an innovation-driven economy? Need for a large set of reforms in a wide set of areas Education, judiciary, public administration, infrastructure investments Risk: no-reform political climate The period ahead will be even less conducive for reforms: elections in 2011, 2012, 2013, 2014, 2015 …. Mid-Income Trap 21
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31. 28 active TDZs support 1515 firms employing 13,000 R&D staff generating 540 Million USD in exports. (mostly software companies)
32. 76 R&D centers facilitated 1,9 Billion TL in R&D spending by the private sectorSource : OECD STI Scoreboard, 2008 23
35. Funding for Innovation : VC Turkey has an open capital regime, for most sophisticated institutional investors local context is irrelevant. But, with no historic data it is impossible to wager for risk of investing in Turkey... INVESTORS Local dept is non-existant No tax incentives to investors Mostly international institutions MANAGEMENT REGULATORY FRAMEWORK The regulator is not willing Team profiles are generic Often chasing after same investors and deals INVESTEES Low skills to develop projects Strong unregistered activities Extremely sceptical of external finance 26
37. Current opportunity profile requires more “hands on” investments People with people skills and a vision for the business are required Management Skills 28
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39. No question that there is ample supply of local talent with some international experience/exposure
40. Most team profiles have strongrepresentationfromI-Bank and consultancy careers
41. Job is more than deal making – it’s about growth and exit
43. Profession is more art than science – should look for diverse skill implants and spin-out teams – localempathy is important (“talk to talk, drink the tea”)
50. Of 86 public transactions, 65% were within 0-25 M USD31
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52. So far the largest private investor in PE/VC is the İş Group in İş Girişim
53. Garanti is an investor in İstanbul Venture Capital Initiative
54. Many Turkish Blue Chips (including big manufacturing and services conglomorates) expressed interest in setting up their own funds. (some are already recruiting management)
67. A public private partnership built upon the market credibility of the investors
68. Fund size is 160 M EUR. As of June 2011, 41 M EUR have been committed; 71,5 M EUR are under negotiation (24 M EUR is anyday for signature)
69. Full commitment is expected before the end of investment period at the end of 2012 – «iVCi 2» is under discussion
70. iVCi helped create strong awareness in the market, providing a mentoring facility for new/emerging teams
71. iVCi Strategic Network is currently chaired byMr. Ali Sabancı, a highly visible enterpreneur and investor.34
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73. Turkey has extensive experience on localization of special purpose administrative structures
74. It might be time to consider setting up a proper “free financial zone” with its own regulator in line with other government priorities inside Istanbul