In Istanbul, it’s common for people to say, “I’m on the European side,” or, “I’ll meet you on the Asian side.”
For centuries, the city on the Bosphorus strait between the Black Sea and the Sea of Marmara has connected two continents. Today, it’s no different, Burak Buyukdemir says. The founder of Startup Istanbul is 11 years into running an ecosystem organization in this country of 82 million.
Startup Istanbul’s success hints at the number of entrepreneurs on tap in these emerging markets. More than 190,000 startups from 170 countries have applied for one of its two conferences and its accelerator program.
As the US government puts up more barriers between American investors and emerging markets, Buyukdemir is repositioning Startup Istanbul as a conduit. Some places may be on the Trump Administration’s black list, he says, but investors shouldn’t shut the door.
“Iran has great talent. There is no visa between Iran and Turkey. We get applications from Bangladesh, Cameroon, Kenya … “ he said. More than 1,000 companies have profiles on Startup Istanbul’s platform.
About 200 companies yearly take part in the accelerator program , and about 10 companies get $20,000 in investment. With a staff of nine, Startup Istanbul makes money with conferences and sponsorships while it’s waiting for investments to exit.
Startup Istanbul invested $1 million in a small portfolio of companies, including an anonymous chat app, Connected2Me, also funded by 500 Startups. None of them has had a big exit yet, but Startup Istanbul is breaking even with a staff of nine with sponsorships and revenue from two successful annual and an online accelerator program. Connected2Me claims millions of users, and 700,000 people worldwide downloaded it in January.
Among the deals that have been made or nurtured at a Startup Istanbul program: A Finnish company selling backpacks to the Finnish Army. The investors were from Jordan, Saudi and the United States, Buyukdemir says.
Many of the companies from emerging markets have business models that are not very different from their US counterparts. But their scale is sometimes much larger – and they sometimes operate outside the intense scrutiny of US media outlets.
Take, for instance, Connected2Me. The anonymous chat app had more than 30,000 signups in 2011, when it launched. But aside from Startup Istanbul, it won no investors.
Then, in 2014, Dave McClure, a founder of venture capital firm 500 Startups, visited, met Connected2Me founder Ozan Yerli, and signed on with a small round. That spurred interested from other angel investors, Buyukdemir said.
Yerli moved to Silicon Valley and Connected2Me is still going strong, even while other anonymous platforms of various kinds have come and gone. Secret’s CEO shut the firm down; YikYak also went by the wayside. Whisper is still around, with a business model that sells advertising to mainstream corporate firms and a client base that includes teenagers.
Yerli didn’t return several requests for comments; neither did McClure, who resigned as CEO of 500 Startups in 2017 after admitting several instances of sexual harassment and who has now moved on to found Practical Venture Capital.
Connected2Me is a matchmaking app, said Buyukdemir, who noted the firm is in conversations with other big global matchmaking firms. Connected2Me had 700,000 downloads in January 2020, mobile analytics company SensorTower reported. The keywords for the app include bado, horny, sexting and nude, though also connect, chatous, meet and chatter. There are some cases of pedophiles using anonymous chat apps to lure children.
The Investment Portfolio
Startup Istanbul’s experience also shows the number one issue facing angels and venture capitalists in emerging markets: the lack of exits. Early on, Buyukdemir raised $1 million to invest in companies. About 90% of the companies have failed – that’s not too surprising. Western VCs often see high failure rates. About 20 companies are zombies. About 5-6 companies are doing well; about 10 are doing what Buyukdemir calls “fine.”
But Turkey needs the kind of home run or two that helps an ecosystem establish itself: That, it hasn’t had yet. Delivery Hero bought Yemeksepeti; a couple of games startups have been acquired, and Microsoft acquired Citus, a database software company. Rent & Connect, which rents weeklong, limitless internet for $30 via a delivered, mobile hotspot, moved its headquarters to London. They are profitable and don’t need investment, Buyukdemir said.
Still a new venture capital firm, Nuwa Capital, formed the week of Feb. 12 to look for deals in Turkey, along with MENA and Pakistan.
Buyukdemir is looking north to Estonia, where one big exit, Skype, had a follow-on effect. There have now been 10 unicorns in Estonia, he says. “It’s a combination of culture, mindset, ecosystem.”