Turkey’s tech startups make global waves

Early in 2020, Getir, a Turkish delivery startup made headlines when it received $38 million of investment, $28 million of which came from leading investors in Silicon Valley.

This news was celebrated as Turkish startups' strong potential was being recognised by global investors. However, a more historic moment was yet to come.

Amidst the economic slowdown brought on by the Covid-19 pandemic, Peak Games was acquired by the global gaming giant Zynga for $1.8 billion, becoming the first Turkish unicorn - a billion-dollar startup.

Soon after the first unicorn, came the fastest exit in Turkish startup history. Another gaming startup, Rollic Games, was sold to Zynga for $180 million only 21 months after it was founded. While the unicorn news directed everybody's attention to new models within the gaming industry, what does it actually take to build a global startup in Turkey?

Thirty years before the first unicorn

While it would be difficult to name the first technology startup in Turkey, it would be worth mentioning that not long ago, in 1992, a technology firm called Netas faced fraud allegations for simply exporting software to the UK.

Not knowing what software meant, the tax officials insisted on seeing the hardware as proof of the transaction. The company ended up recording the software onto a disk but to no avail.

Nobody would believe that a two-metre long tape within a disk could be worth $2 million. When the case was taken to the court, the allegations against the company were dismissed.

Turkey has come a long way: from measuring software in metres, to Turkey's first unicorn in less than thirty years. But how did this happen?

Starting from the 1990s, internet providers and email companies ushered the way for technology startups in the country.

A series of e-commerce businesses, including Yemek Sepeti, Trendyol and Gitti Gidiyor, were acquired by global tech firms such as Delivery Hero, Ali Baba and EBay in the 2010s - each for over $100 million.

According to a recent report by Endeavor Turkey, Turkish startups are stronger in enterprise software, e-commerce and payment systems. In the same report, among various other factors, the increasing number of support institutions, such as incubators and accelerators, are credited for the upward trend in the success of Turkish startups.

Science parks, incubators and accelerators

Public efforts have also played a critical role in the development of Turkey's startup industry, as well as the broader technology ecosystem.

In an attempt to spur technology development and commercialisation, technology development zones, or technoparks, were founded. While the efforts of creating technology development zones in Turkey date back to the 1980s, the legal framework for technoparks was established in 2001.

Modelled after Silicon Valley, technoparks in Turkey serve as mechanisms for technology development, as in many developing countries, bringing together key elements of technology production: talent, network effects born out of co-location of technology companies, and government incentives.

The firms in these zones benefit from several tax benefits, and they have access to the R&D talent through the research university with which they are affiliated. 

Today, there are 85 technoparks in Turkey, 71 of which are active, with 5,920 companies and 58,922 R&D staff. By 2020, the technology exports out of technoparks have reached $5 billion.

Besides supporting the startup ecosystem through creating a technological backdrop for startups, technoparks are embedded in the startup world through the incubators and accelerators they run.

The leading university technoparks in Turkey are Istanbul Technical University, Middle East Technical University, Yildiz Technical University and Bilkent University.

Located within or close to university campuses, next to technopark firms who carry out R&D activities, these incubation centres hold enormous potential to breed successful startups.

Yildiz Technical University Technopark's Yildiz Kulucka, for example, is the biggest incubation centre with more than 130 startups, has 87 million Turkish liras of revenue ($11.2 million) and $9 million of technology export in 2020.

Will new legislation spur startup development?

The full potential of these university-affiliated incubation centres and accelerators, however, are not fully tapped.

Startups both in the incubation centres and outside, suffer a funding problem. According to Startup Watch, Turkey is in the second league when it comes to venture capital investments. New legislation concerning technoparks was presented to Turkey's National Assembly last month.

One of the important amendments in the legislation addresses the lack of startup funding by incentivising technology firms in technoparks to either invest in venture capital funds or startups within their technoparks.

With the new legislation, it will be possible for startups in incubators and accelerators outside technoparks to benefit from tax incentives, relieving the tax burden of the startups during their early stages.

While funding is no doubt an important aspect for a startup's survival, the network effects of technoparks can be further leveraged to support startups during the period when the business model has not yet been proven.

Until reaching a break-even point, most of the startups use up most of their capital before finding their first customers. Surrounded by big technology firms, the incubators and accelerators within the technoparks have a comparative advantage in terms of connecting startups with these big firms in the technopark.

Government incentives, in this regard, can save startups by facilitating those connections.

Despite the popular imagination of young university drop-outs founding billion-dollar companies in their garages in a couple of years, a startup journey is one associated with uncertainty - it requires grit and experience to navigate the political and economic turmoils.

In places such as the US, where a disruptive startup can be built from a garage, behind the scenes there is a strong technology ecosystem and strong legal mechanisms at work.

In recent years, in Turkey, successful exits and the unicorn have provided role-models for startups proving that Turkish startups can achieve success. However, instead of a garage, it takes an entire ecosystem in Turkey with supporting institutions.