Heirs to Richest Turks Put Fortunes Into Tech at Riskiest Moment

(Bloomberg) — As the eldest son of Turkey’s richest man, Yahya Ulker was destined to take over his family’s multi-billion dollar business. But the 29-year-old opted for a different path, supporting local startups and venture capitalists.

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After completing a business degree and a stint at Credit Suisse Group AG, he started to dabble in venture capital instead of taking up an executive role at Yildiz Holding AS, the world’s third-largest snack maker that’s been in his family for 78 years. His father, Murat Ulker, owns international brands such as Godiva chocolates and McVities biscuits, and has a net worth of $4.7 billion, according to Forbes.

In 2019, Yahya Ulker set up Yildiz Ventures with $50 million to invest directly into startups and venture capital funds. The firm has since backed several e-commerce startups including Istegelsin and VC funds such as Germany’s Earlybird Venture Capital and Turkey’s Revo Capital. He is now targeting “at least a two-fold growth in all investments” — a favorable return in a country where rampant inflation is at the highest level for more than two decades and a plummeting currency is impacting deals.

Yildiz Ventures needs to act in “an agile and courageous way” as the business environment is “changing rapidly,” Yahya Ulker said in a recent phone interview. The company is “focusing on startups in the e-commerce, retail and food sectors so that we can set a basis for creating synergies with the main businesses of Yildiz Holding.”

Private Wealth

Yahya Ulker is one of many third-generation heirs to some of Turkey’s biggest conglomerates opting for a less-traditional route to spend their fortunes. The emergence of the nation’s private wealth as a force in venture capital is timely as rising interest rates, market upheaval and a global slowdown in funding threaten the prospects of an industry after a boom in 2021.

Global venture funding slumped to $74.5 billion in the past three months, its lowest level in nine quarters, according to CB Insights. That represents a 34% quarterly drop, the biggest in a decade.

By contrast, Turkish startups attracted a record $1.5 billion in investments from venture capital funds, private equity funds and family offices in the first nine months of the year, up from $1.44 billion a year earlier, according to data from startups.watch.

Turkish venture capital funds, meanwhile, raised more than three-quarters of last year’s total amount in the first half of 2022, according to startup data platform Magnitt. The number of corporate or family office-led venture capitalists in the country has more than quadrupled over the past six years.

“Turkey’s holding companies and family offices’ engagement in the venture capital asset class is experiencing a boom,” said Cem Kemal Mimaroglu, founder of New York-based ComposeVC. The country’s venture capital ecosystem is a “late-follower” because of “rather conservative and vision-constrained corporate culture and unpredictable economy.”

Windfall

Deep-pocketed Turkish conglomerates could become a source of financial backing to rival some of the biggest global investors after a combination of cheap labor, economic growth and consumer spending have generated a windfall for the nation’s biggest companies that they are eager to spend. The nation’s largest conglomerate Koc Holding AS had $40 billion in sales in 2021, or 5% of Turkey’s gross domestic product, while Yildiz Holding had $5.4 billion.

The surge in VCs is largely due to companies seeking to benefit from tax breaks if they set up local VC funds that mainly invest in Turkey. “As a result, the local VC ecosystem has been seeing an increased dollar supply and a relative rise in valuations,” said Mimaroglu.

Koc Holding in 2010 set up the nation’s largest CVC fund Inventram with $110 million to invest. Hanzade Dogan Boyner, the founder of Nasdaq-listed online marketplace hepsiburada.com, set up a $100-million London-based fund D4 Ventures, while Inci Holding’s Vinci VC has raised $50 million since it was set up in 2018.

“While global valuations and investments are re-calibrated in 2022, Turkish startups are riding on the previous era’s waves,” said Mimaroglu. “Valuations and investments are coming down but at a much slower rate and pace than Europe and the US.”

Following the Getir, Insider and Dream Games mega deals early in the year, funding fell off sharply. As a result, Turkish VCs saw the biggest drop in the second quarter from the first three months compared with other emerging venture markets that Magnitt covers, according to Philip Bahoshy, chief executive officer of Dubai-based Magnitt.

Despite challenges such as layoffs and falling share prices, many of Turkey’s startups have been able to secure the backing of some of the world’s biggest investors.

In the nation’s biggest deal so far this year, grocery delivery app Getir raised $768 million from investors including Mubadala Investment Co., Sequoia and Tiger Global Management, giving it an $11.8 billion valuation. E-commerce platform Trendyol became Turkey’s largest startup with a $16.5 billion valuation after it received $1.5 billion from investors including Softbank Group Corp. and Abu Dhabi’s ADQ.

All of this investment is translating into deals. Getir is said to be in advanced talks to buy rival Gorillas Technologies GmbH, which would give the Turkish firm scale in key European markets including the UK and Germany. Finberg, a corporate VC fund set up by billionaire Husnu Ozyegin’s Fibabanka in 2018, reaped a return of at least 10 times its initial investment in Getir and Turkish payment startup United Payment in two partial exits, according to Finberg board member Ihsan Elgin.

Whatever the venture capital structure is, you have the potential of making in a few years the same money that traditional companies make in decades, according to Serkan Unsal, founder of startups.watch. “This is whetting the appetite of large conglomerates and family offices.”