Tapping into the Venture Boom from Abroad
A Turkish Net startup eyes American VC cash, but luring U.S. investors won't be easy
Q: I am interested in obtaining U.S. venture capital for a new business providing Internet application services in Turkey. This region has excellent opportunities for growth. What is the potential for investment here?
--Z.Y., Ankara, Turkey
A: Turkey's large, dynamic economy and geographic position as a bridge between the Middle East and Europe have long tantalized -- and frustrated -- international investors. Turkey's turbulent politics have repeatedly thwarted efforts to institute sound fiscal and economic policies, particularly to quell inflation and stabilize the Turkish lira. Those factors all work against you as a Turkish entrepreneur seeking U.S. venture capital at a time when a booming, stable U.S. economy offers so much low-hanging fruit to investors interested in Internet ventures.
Most private-equity investors prefer to keep their money close to home in companies they can monitor easily and whose structure and accounting they understand. Also, they need exit strategies, which are provided inside the U.S. by a strong, well-regulated public market and a plethora of large corporations that acquire niche players once they become established.
"Investors fear political and currency risk. Venture deals are vulnerable enough to failure without these extrinsic ways to flop," says Burt Alimansky, managing director of New York-based Alimansky Capital Group Inc. and
founder of the New York Venture Group, a venture-capital fund specializing in that region. "There are so many opportunities right here at home, why bother looking elsewhere, they say?" An international investment would require VCs to become familiar with Turkey's financial and economic system, and would involve additional paperwork.
Some entrepreneurs with international ventures locate their headquarters in the U.S. to get around these obstacles. "It's one of the best ways to secure financing for overseas companies. You put your headquarters on the East Coast or in Northern California, placing your vice-president for marketing, your CEO, and your vice-president for business development here and keeping most of your back-office and technical personnel in your home country," says Graham Anderson, a general partner with Euclid Partners, an early-stage venture firm based in New York City. "Part of the rationale is to play up on the premium of being local. You get more attention paid to you by the trade press if you're located in the U.S., and there are much better opportunities for business development here."
If locating in the U.S. isn't feasible, don't despair. Venture opportunities outside the U.S. are expanding, especially in countries where there is political stability, a tradition of business law and integrity, and an entrepreneurial -- rather than a bureaucratic -- culture, experts say.
"Examples include Chile, Brazil, South Africa, Israel, Poland, and India. Turkey may be hurt short term by the earthquake but helped long term because [the disaster] will attract international attention," Alimansky says. A project to set up a private-equity/venture-capital fund for Turkey has been slowed because of the quake and its aftermath but is moving forward nonetheless, says Gurhan V. Bilgin, who works in international business development at Demir
Yatirim, a publicly traded Turkish company whose activities include banking and stock brokering, and is involved in the project. "I have the backing of a major financial institution and am currently coordinating preliminary discussions with several potential strategic partners in the U.S. and U.K.," Bilgin says.
"As for the availability of venture capital in Turkey, it is currently limited to growth and replacement capital and for larger projects in general (i.e., $10 million), none of which is locally available yet, so the projects have to go to mostly London-based VC firms." Says Bilgin, "I'd like to change that!"
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