Panel: Evaluating Cross-border Venture Capital Investments / Startup Istanbul 2019

I'd like to welcome next to the stage— actually, we've got 2 more panels that will go next, both being led by the same moderator, a longtime friend of Startup Istanbul. Many of you know him and love him just as I do. Please welcome Ozan to the stage, who's with SG Impact Accelerator. And welcome back Fethi from Esses Ventures and also Cem from Alarco Group. So please welcome them all. Startup Istanbul, welcome. Please stand. Come on. Let's go.

How's that, Cem?

You dressed up, man. You dressed up.

Great.

I think Bill made a really nice exaggeration saying that people really like me. A lot of the startups, they first approach me and say, we kind of don't like you, but you give valuable advice, which is perfectly fine by me. I've developed a thick skin over the years. So my name is Ozan. I'm very happy to be here with Startup Istanbul. I'm very happy to be with the panel as well. My job is to kind of be on time, that's one, and get some valuable information from these guys that they haven't written about, they haven't talked about elsewhere. And there's a reason for the hat, there's a reason for the jacket, I'll get to that in a minute. So I used to work in Turkey for a while, then I moved to Middle East, worked for King Abdullah University, and then moved to San Francisco.

Wow.

I run accelerator programs around the world. And last week I was taking a week off, but I was also thinking about what I should be talking to these guys. And I was lucky because I had the chance to go to a Golden State game, which sucks terrible.

Yeah.

If you're fans of Golden State Warriors, you might want to consider your options this year. But I also had the opportunity to kind of sit there and understand and feel that it's a different life outside of the Turkish startup ecosystem. And you mentioned it in your opening speech. Of course, also in the morning, we had a really brief and brutal explanation of why Silicon Valley is Silicon Valley, why you should not too much focus on what's going on there because it's a completely different planet, but you should focus on getting your startups up and running, and as Bill said, you should sell shit. And this guy has been doing a lot of cross-country, cross-border investments, and I think you guys are investing together as well in that sense.

Yeah.

Yeah, you've been investing together for a while?

Well, we've first of all been very close friends for like maybe 15 years, right? I think you are for me, but I don't know if I am for you. So 15 years, very similar backgrounds. like a very asset-heavy business background from family, but we've been investing together and we started investing, I think, 3 years ago, right? More or less, yeah. This was— it purely came out of, I mean, we didn't plan to invest together in tech in the beginning, but as we started meeting new startups, we both liked investing in these companies because we liked the vibe. I mean, I was in London, you were in London, I hated wearing a suit and a tie going to work.

I still love suits.

You like it?

Yeah, you have a tie somewhere.

Yeah, so that's how we started. I mean, there's no official, like, contract or anything in between us, but we're partners in crime, let's say.

So you guys started with your own personal funds to kind of feel what's going on?

Yeah, I start— so I was actually— my background is actually in real estate. So when I was in London, I was working, I worked in 2 different real estate companies. And while doing that, on my free time, I was meeting new startups because we were receiving a lot of, we were seeing a lot of startups in our holding company, which there wasn't a mandate or a team to look at that. So I said, why not? I'll just go and, I'll just go and see these companies, you know?

Mm-hmm.

And that's how it actually started. And I started investing on my, on my own, on my own, creating my own portfolio. around the world. In fact, the first company we invested was in Africa, right? I believe so. So we started like that, and then I said, you know, this is what I want to do. And flash forward to 2018, I founded the venture capital arm of the company, and now here we are.

I mean, do you see that in your opening speech? You said we're not afraid to go global. That's why we started doing this, like, we can prove that we can actually build value, add value. And what are the kind of differences that you've seen in London starting with, or in Africa, or in Silicon Valley where some of your portfolio, actually most of your portfolio is coming from? What are the kind of critical things that you see as differences when you go and feel the vibe?

Yeah. I mean, when I look at it, I don't see it as, you know, only Turkey or only London or only US. This is not a regional game anymore. You have to be present in many different ecosystems. You know, that's why actually, you know, we invest, yes, we invest in Africa, but we also now, like tonight, I'm going to Africa to meet the, to be on the board meeting. And this is how you can actually add value. Like this was a healthcare company called mPharma. Similarly, we've invested in a company called Alto Pharmacy in the US.

Yep.

And a similar company in Mexico. we just entered a couple of months ago. So what we're doing, what we're trying to do when I say the bridge is that when we invest in these companies, we can actually connect these founders. I mean, sure, they all have different regulations and everything around healthcare.

Different markets.

But at the end of the day, it's similar business models. So they can actually learn from each other when you connect them and then seeing them on their ground and you can actually, you know, be on the journey together and tell them what we see there and here. So I think that's really valuable and that's what we're trying to create, right?

Totally. Yeah.

So going to— actually, it's a good segue. A lot of the portfolio you had, as mentioned, is kind of intersection between technology and healthcare, which to me is definitely creating a social impact in the lives of many people, actually many millions of people in multi-continents. And I know you guys are both very active in the social impact space, but how do you balance your idea and your time between pure social impact and pure profit or purpose? Is there kind of a mix or due diligence?

I'll take that. Well, I should, I guess, first introduce myself because I'm not a common face in this event. I attended Startup Istanbul 2 years ago in the Wyndham, and this is actually my second time, and it's my first time here as a speaker. So—

Welcome.

Thank you very much. It's great to be here. I'd like to thank Aslı and Burak for organizing this event. great celebration of entrepreneurship, and it's an important event for Istanbul and for Turkey. So thank you for all your efforts. I'd also like to thank my friend Fethi for supporting Startup Istanbul. I'm Turkish. I studied in Turkey and I lived here for 18 years, and then I went to the United States. I'm a civil engineer by training.

We'll forgive you for that.

Thank you, man.

Appreciate it.

So after civil engineering, I actually worked in construction and project financing in London.

Yeah.

So very similar to Fethi, I come from a family business background whereby we have interests in energy, infrastructure, real estate, tourism, and manufacturing. These are all very asset-heavy businesses, and I was actually involved in these businesses as a corporate employee in London. But I realized I actually also wanted to focus on things that have uncorrelated return or uncorrelated profile to these asset-heavy businesses. And that's when 3 years ago, we both at the same time started to invest in technology.

Scalable technologies.

Yeah. And to answer your question around healthcare and impact, I think impact is a bit of a loaded word. We hear it all the time. I think what it actually is, is social contribution. And when we invest, we look at multiple things. It's not only profit. So we obviously look at financial returns as every other investor, but we also look at social contribution. Is the business that we're investing in actually adding value to the lives of the people in those communities? Fethi gave an example of mPharma, which is the company that we are going to Kenya tonight for their board meeting, and what mPharma do is they aggregate the demand of mom-and-pop pharmacy shops across Africa, and by aggregating the demand of these medicines, they can actually lower the cost of drugs for the end consumer by up to 40%. So that's a real contribution to society where in Africa, some of you might know, the cost of acquiring drugs is actually sometimes higher than in the developed markets. Yeah. That's a big problem. So they're actually solving a problem, but it's also socially contributive. We also want to make sure our investments don't harm the environment. Might contribute to it, but at least don't harm it. Fourth, we want to make sure we're learning and growing. And we also want to make sure our networks are expanding with each additional investment that we make. And so that we can capture additional opportunities in those spaces. And finally, we want to make sure we're actually enjoying. So those are the multiple things we actually look at.

I think, yeah, like the mPharma company, and so another example could be the Alto Pharmacy case that we invested. It's a digital pharmacy business where you can actually buy prescription drugs and These drugs are delivered to you the same day. So what this is—

Mark's a customer, by the way.

Was.

Yeah, I used to be a customer when I was doing this.

Great service.

It works. So if we take an example of that, let's say you're an old person, 78 years old, who actually need to go to the pharmacy to get your prescribed drug. You need to wait in the line. And maybe you're a disabled person, patient. You need to go. You wait there. It's a whole headache, and it takes— many hours of your time. But with Alto Pharmacy, you can just do this when you're at home, right? We just, with one click, doctor approves it and you can get it done. So I think that's what's important and beyond financial returns, which is actually making an impact on the society.

I agree on that piece, especially when there's, with populations rising, elderly population rising, Average lifespan is increasing. Families are a little bit dispersed. I mean, unlike Turkey, a lot of people are living in different places. Convenience becomes an issue, but it's not just convenience. It's the impact you put into one's life because they're not traveling all the way. It really is a big issue when you travel a couple of hours to get something and then you can't get it and you go back. It ruins the whole—

And when you get it, it's very expensive.

Exactly.

So, I mean, if you look in the States, you know, we talked— you talked about drugs being expensive in Africa, but it's actually expensive everywhere. So in the States, when you look at it in the last 30 years, average spending per household has increased around 50%. Yeah.

Especially on healthcare, it's booming.

Exactly. So there's something has to be done about this.

I agree.

True. And to add to what you were saying, and I think healthcare is an important market, and it's actually probably 20% to 30% of our portfolio. Yeah.

FinTech and payments also is another one I think you're pretty interested in.

We're looking at— well, it's— I want to stay in healthcare for a bit because I think it's quite important. 17% of United States GDP is spent on healthcare. So out of every $100 that a household gets, they spend $17 on— and this will only increase because people are becoming more conscious about longevity, are becoming more conscious about a healthy life. and also their families. When you look at healthcare, there are many verticals within healthcare. You have pharmacies, you have hospitals, you have primary care, you have emergency care.

Preventive care.

You have preventive care, you have insurance companies, you have pharmacy benefit managers, and the whole system, the incentives within the system are quite broken. And it's a huge market and it's a growing market, so we actually see a lot of value being created with new business models and with the help of technology in healthcare. That's why we actually spend a lot of time looking at it.

So one question I had for you, both of you, was like, what turns you on when you look into a sector? What turns you off when you look into a sector? And you kind of briefly mentioned that unsexy businesses, infrastructure-heavy businesses, is now turning into and becoming very open for disruption with new technology. What do you think about your next couple of years? Will you be investing in which areas? Primarily, which areas will you be more focused on going forward?

Well, I mean, to start with, we really like real businesses. So that's what we think and what we like. So according to our mandate, we actually don't invest in very high-tech businesses. Rather, we invest in tech-enabled businesses. And so healthcare is actually a good explanation, but when you say healthcare, it's more on the side where you can actually go to the patient rather than—

Consumer-facing.

Consumer-facing rather than those biotech companies, right? So we like more of those businesses where we can actually calculate the unit economics and try to understand how to get the company to scale.

You're still conservative on that side.

Exactly, because I mean, at the end of the day, this hasn't been something we've been doing for the past 20 years, right? So we want to be— we don't want to be defensive, but we want to be proactive. And at the same time, you know, evaluate their risk and reward.

Apart from healthcare, which startups should get super excited in your next areas? Is it fintech, consumer-facing, on-demand models? What would excite you?

I mean, we like to invest in—

Be careful, like they're gonna line up, I'm doing what you just told me.

Yeah, we like to invest in infrastructure businesses. And this is not like physical infrastructure, but software infrastructure. Healthcare can be one, logistics, property.

Property technology, both are coming from construction sector.

I'll give you an example of a company that really excites us.

Everybody's like this.

Well, we actually invested in a company, again in Africa, based out of Kenya called SocoWatch. And when you look at the retail sector in Africa, you see that 90% of retail is informal. When I say informal, might not have a tax number, do not accept any payments except for cash. When they want to get their goods, there is no possible delivery, so the guy has to leave his shop and actually have to travel to the distribution center whereby the wholesaler can give them their goods. And they don't have any access to capital whereby they can increase their working capital and sell more, so they can't grow.

Yeah.

And what Socowatch do is they have a phone app and they have a phone line whereby people can call, informal retailers can call, and they deliver the supplies, the FMCG goods, in a 2-hour window. And on top of that, they give them financial credits. So you have a brilliant model.

Credit history, working capital.

But what we like about this is, as Fethi was saying, when you invest in these sort of businesses, if there's an economic downturn, people need to continue eating. When there's a funding crunch, these are the companies that will be most resilient, and hence for will be able to come out on the other end of the story.

Without asking more money from you guys.

Hopefully.

All right. So on kind of a same note, you've seen a lot of startups locally and internationally, and the sectors, the reality of the business, unit economics excite you. What are the kind of top 2 things that make you regret even taking the meetings? The minute you see this, I said, I should not have done this.

Yeah, I mean, we see a lot of companies, so we get that a lot.

Don't give names.

We get that feeling a lot, of course. But the thing we're seeing in the past couple months is that, you know, companies have been starting because the market is, you know, getting saturated, or people are just starting to raise from huge valuations where they shouldn't even raise because it's based on non-existing facts. Right? So I think that's one of the key things, because if you're at, let's say, seed stage, and you're trying to raise— you're raising more than you should just because it's supposedly a hot deal, and your friends are coming in and everyone, instead of raising, let's say, you need $1 million, then you just end up raising $3, $4 million. That's, I think, one of the key points that we look at, because at the end of the day, you can do that for this round, but You'll get stuck. If you actually don't perform, overperform actually, then in the next round you may do a down round. So following the third step, what happens is that when people are looking to see your company, they're gonna say, ah, then you didn't perform, you're going backwards. So this is not a hot deal anymore. So I think that's one of the key things we look at at the moment. And secondly, sometimes we see this, I mean, when we meet with the company, with the founder. Afterwards, we ask for the financial model, and I mean, we invest a little later than seed, so we look at that. It doesn't necessarily have to be there exact to the point, but giving all those documents actually— I'm not actually going to crunch all of those numbers. Rather than, I'm just trying to see if the guy is prepared for the next couple of years.

Yeah.

And it really gives me an idea about how the founder thinks. and how the business is going to progress. So I think being prepared is really important. And sometimes I just, you know, when we ask for this, we wait for 2 weeks and that basically kills the momentum, you know. So that would be my top 2.

I'd like to take the opposite point of view and maybe talk about a couple of the good practices.

Yes. Lovely.

Well, there's a couple, but I think we actually, the first company we invested in together, the one in Africa and Pakistan and now in India and Poland. What the founder did was actually brilliant when he was raising the A, and now actually this company is at like a $650 million valuation. So I must say we got a bit lucky for our first investment.

That was the very first investment, right?

Right.

We got lucky. We didn't know that much about what's going on at that time.

You have to have luck.

Luck comes to the prepared though, but That's not the issue.

But point being, this founder was a brilliant guy, and what he was doing is, as we were talking about the Series A, he had a very clear picture of what he wanted to do with the Series B. So actually, when he was pitching the Series A, he was selling his company on a Series B basis. And as an investor, when you look out 3 to 5 years in an early-stage rapid-growth company, it's really hard to see where they're going to be. A lot changes. There's a lot of uncertainty. So when they can paint a clear picture of the Series B, that aligns expectations, and that also kind of, as Fethi was saying, provides a structure of accountability whereby you can track against what these people were saying. So I think that's really good. Another thing is what investors look for in different rounds changes as the rounds progress. Team is always important, but in a Series Seed capacity, it's the team and the market. The question you ask is, can this team execute and succeed in this market? In a Series A, it's more like—

Can they capture a portion of the market?

Exactly. How's the traction? Is there a product-market fit? And what's the story? Is this a story we want to be a part of?

Can they 10x my money instead of just double it?

Exactly. Or what's the social contribution? And in a Series B capacity, you look at the data. It becomes all about unit economics, as Magnus was saying, growth efficiency, how scalable it is, is there a path to profitability? And the best founders we see actually know exactly where they are in their company's maturity cycle and create an investor consortium according to what they need then.

Yeah, and I think giving the next— the picture of the next step is really important too, because like I said, then when the founder says, I'm doing the A, the B is going to look like this. So when the B comes, I can actually go back and tell the guy, you know, you told me this is going to happen. So if that happened, are you overperforming or underperforming? That gives a really good indication and it gives actually the investor a checklist, you know.

And also kind of builds up the momentum for you to help them more because—

Yeah.

You told me this. That's one of the advice I give to early-stage founders. Although these guys are not going to invest in you because they're investing in different stages, you might want to start taking some portion of their time or their team's time saying, I know I'm early. I'm not raising this much, which is your basic ticket size. And this is the same advice Magnus was giving. But I would like to keep you informed about our progress. And day in, day out, every month you add like 3 paragraphs, not 3 pages, 3 paragraphs saying, here's what was my number, here's how much money I'm making now, here's new product development, like technology risk, market risk, and here's how I'm doing. And if there's an ask, Please be informed that I'm looking for this. If you know anybody, please help me out. So you do that month and month and month, and at a point, these guys will start thinking, this guy is actually delivering. He's told me he's going to increase his numbers, and he's kind of repeatedly increasing the numbers. And he's not shy of not being able to increase his numbers and doesn't go quiet or radio silent. So that's important.

To add to that, sometimes they might not— you might not reach the numbers. But at least we can have a candid conversation around, okay, we're 10% off, but why? And then you can actually find trust, you can build the trust, and also you can find remedy. But if you don't have a baseline to track to, and if you don't have an open conversation, how do you build trust and continue your relationship?

So, actually, I mean, while obviously doing that, it has to be that you need to know who actually you're raising from. Because if you come to, let's say, take example, me coming, you know, asking help in the biotech area, I have nothing, I don't understand about it. So if you're sending me updates about that, I don't know whether that's going good or bad. So I think you actually need to know who you actually want your investment from.

Don't waste your time or don't waste their time. They're actually not wasting time. There's a very easy feature in every email attachment is like delete, so, or like spam, much worse. So, be careful on those ones. So, we got a few times. So, you seem to be getting along well. You do investments together. Was there a deal that you completely disagreed and tried to convince the other like crazy?

Well, this is interesting, I think. I have a story actually.

Yeah, okay, go ahead. I don't know if you know what I'm going to come with, but—

Say it. Let's see. I'll stop you if I don't want to know it.

We were—

No worries.

We're just live to millions of people.

How many people in the room know about Y Combinator? Yeah.

All right.

Okay. A fair number of people, but not everyone. So Y Combinator is a startup accelerator based in San Francisco.

The first one ever built. They coined the term accelerator. It's only been 11 years old.

And they're super successful. They have amazing companies that have come out of their program. And so there's a lot of investor demand and companies that go through this accelerator right before Demo Day or during the Demo Day have a lot of demand and they just skyrocket their valuations in just a couple of days. We've seen cases where the guy was raising $12 million one day, the next day we saw him, he said, it's become $15 million now, sorry.

Yeah. He's been very modest.

Yeah. So we were at Y Combinator event and we didn't eat all day. It was a long day. It was 5 PM and we were leaving the event and we were going to go to this burger place because we heard this—

In-N-Out?

No, it was like this local joint which we heard was good. And so we actually called an Uber and Fethi and I, we were leaving the event together and the last pitch we had listened to at Y Combinator was this essentials mobility services company in Latin America based in Brazil. We loved the pitch, but we knew from our friends who invested that the round was very competitive. There was no space. But as we were walking out, I tell Fethi, hey man, look, let's just go back and let's chat to this guy. Maybe we can get along and we can add some value and he'll let us invest. We both love him. We both love the business. Fethi was like, no man, let's go eat. I'm hungry. And as we were walking to the car, I managed to convince him and we actually canceled Uber. We got charged $6.

You got or I got?

I think it was you actually.

He probably like, $6?

And yeah, so we went back in, we chatted with the founder, we got along really well. We were able to give a couple of smart ideas and we also introduced him to a couple of helpful people. And he actually allowed us to invest in that round.

Nice.

At that round, that was like a $20 million valuation. Company was already like $4 or $5 million in revenue. But now fast forward, they're raising at like 4 or 5x the multiple, a large $30 million Series A round. So—

So long story short, you owe me the burger, huh?

And you paid the $6 burger, I think, with a few marbles.

Yeah.

So here's one thing that's important. Which is not— we don't see this in Turkey, unfortunately. An entrepreneur is letting the investor to get into the round. Like, kind of let that sink for a second for those in the emerging markets. It's not the investor, it's not the founder going to these guys and begging them to cancel their Uber or asking them to drive wherever they want to go just to get closer. Instead, the opposite way, like the investors are going to the founders saying, I have something to add to you, not just the cash. So, that difference is actually really, really, really important. And I'm really sad to not see this in Turkey, really sad to hear so many terrible term sheets being shot at founders, crappy term sheets, but they have nowhere else to go, especially at early and seed stage. So, my kind of curveball question to you, which I— that's why the hat's for, What would have made you start investing in earlier stages and really, sorry for the French, kick the shit out of terrible investors? That's quite a lot in Turkey, especially on angel level, and dominate the whole market and start building portfolios from ground up. I think you're investing in young adults and kind of doing this early help so they become good leaders in their future organizations. What should we do to convince you to start investing in earlier stages and build an army of well-educated, well-led, and well-role-modeled entrepreneurs in Turkey?

Well—

Great question.

Yeah, great question. I mean, I'll look at it from an investor point of view, first of all. And so for us, the reason we invest a little later is that you have to know what you don't know. For us, where we are powerful is the later stages because we can actually create the network because of the network we've created over the decades, the entities of our family offices that I've created, and we can actually use that as leverage. Investing in very early stage for us, wouldn't add any value to the startup. But what should happen is that we often see angels, especially in Turkey, you know, they just do this as hobby, putting up like $25K or $50K there. And they often think that's just gonna turn into $50 million somehow because—

$50K Turkish liras, by the way, not even dollars yet.

Yeah, like, I mean, that's not gonna happen. So what we actually need to do, I'm criticizing our side, of the story is that we need to create, we need to accept that this is actually an asset class.

Yeah.

Every year when these huge conglomerates, when they're doing their budgeting, they say, okay, I'm going to invest 10 units in real estate, 20 in construction, whatever. And then you actually need to say, okay, if it's 100 units, then at least this is the average in the world is around 9%, but you can actually allocate a portion And we actually need to invest in those kind of startups. This can be like, if you're a real estate company, you can say, okay, I understand real estate, so I want to— I'm going to create a real proptech fund, and I will just invest in proptech. We didn't take that route. We created this, we wanted to invest in businesses that we are not related to, because that's what we think is going to open our vision.

Right.

But definitely, definitely, we need to create this as an— see this as an asset class. Otherwise, if you don't have a mandate, if you don't have a team, I'll tell you what happens. We didn't have a team back then. I think this was what, 7, 8 years ago, and we missed the opportunity investing in Spotify. So I mean, but I can't say, you know, we would have done it because we don't know. We didn't have the ticket to go to the game. You know, we're just watching it on the TV.

Yeah.

Now we have the ticket, we're in the game, so we can actually get the real experience and the and the outcome of it. So that's what we think we need to do and we need to improve on, and I think we're starting to set an example of that. I hope people just like these entities just continue seeing this.

Anything to add?

Yeah, I mean, it is an asset class globally. Last year, $400 billion of money flowed into VC. We're coming in a— right now, it's been one of the longest periods of time whereby yields are so low.

Exactly.

And investors, sovereign wealth funds, family offices, hedge funds are going into venture capital looking for superior returns. The problem is it's not flowing here. Turkey's come a long way in its ecosystem in the last 10 years or so. Last year we had 3 exits in Turkey, all strategic global investors, Knock on wood.

Oh, yeah.

Coming into Turkey to invest in these companies. And actually, they were amongst the largest M&A exits last year in Europe. So look, there is some change and there is some growth, but we actually have a funding gap between the angel stages that you mentioned and the later stages. And we all have to be patient and allow the ecosystem to grow and build. And ultimately, I think we'll see global success stories coming out of Turkey as well.

And it has to be sustainable. I mean, like you said, last year, the 3 big M&A activities was like, if you look at the top 10 M&A activity in Europe, the 3 came out of Turkey.

It's great.

So this is actually great because when you look at the other countries, they're like 2 maximum. So I mean, it gives you that there's a story to be created, but the value has to be sustainable. So this year we need to continue, next year we need to continue. As you continue this, there will be stories where people will look up for and say, you know, it's actually possible to do this in the region.

And also probably the stories you're also sharing on stage, and this is actually why Startup Istanbul is actually trying to close that gap between very early stage. That's why this year there's a scale-up section. And a lot of people have come and passed over the last 3, 4, 5 years that I've been involved with. And now they're actually growing, and that's a good story to tell on the Startup Istanbul side. As us ventures supporting Startup Istanbul to tell these stories, and you being here telling, oh, we had invested in this company and now we're having like 40x, will probably make kind of second generation or third generation leaders in family offices go like, eh, I'm getting 4% over my market share. Like, what the hell is this 40x these guys are talking about?

I think—

And recently you created a family office or family gathering somewhere that I was abroad, that you brought all the large families, the second and third generation somewhere, you talked about these issues. Do you see families in Turkey kind of coming to you and like, you know, Fatih, how are you kind of, would you kind of do invest with my money as well? What do you tell them?

I mean, there is definitely interest like that, but as you said, it just comes, hey, Fatih, hey man, how are you? They meet me there, okay, let me give you $100K, invest it.

Good job.

Like, yeah, that's really the opposite of what I was just saying. You know, you have to have a mandate. If you come and say, you know, we're dedicated to this, we're setting up a, let's say, $50 million fund.

Create a Fethi bank and just deposit.

We want to invest this, you know, this amount of money. How do we create the infrastructure is the most important because when I set up Esas Ventures under the family branch, it didn't actually come out easy. It took years of work. because I had to convince the family, you know, and the first thing when we were sitting in the room, I don't forget, we had the CFO of the company. The guy said, so what returns should we expect from you? First of all. And I say, it could either be like, I don't know, 20 times or it can be zero. So the guy is trying to take the math, 20 plus 0 divided by 2 is what? You know, so I said that's not the goal here. That's not the goal because first thing, you need to create the infrastructure. Let's say you have a village. If you don't have a road, how are you going to get the food, the water there? So first you need to create the road and then the others will come. So that's actually what my business plan was depending on, create the infrastructure first and then you can expect having those high returns.

So the portfolio kind of show what's happening.

Exactly.

Exactly.

One mistake we often make in Turkey is that, you know, I, yeah, my family has a huge entity, a conglomerate operating in different sectors, but one thing we miss out is that when we think we're operating in those markets, we think we're really big in tech too, but you're zero, you know, there.

Yeah.

So you need to accept that you're actually starting from zero. You know, yes, you have some leverage behind, but you're starting from zero. You're not the big fish anymore. Yeah.

And I think you guys should take a lot of the family offices to San Francisco and kind of put them in front of the seats. And they're not going to be front-seated. They'll be back-seated. Like, they don't give— they don't know who you are. And when you put out surnames in Turkey, it really impresses people. But in the US, the scales are so big. Everybody has billions of dollars.

Yeah.

And everybody's super big.

Look, money is not a differentiator anymore in the best companies. Absolutely not.

Absolutely.

I just mentioned there are $400— let's think about that number— $400 billion going into venture capital. So like someone saying I have X amount more than someone else really isn't a differentiator anymore. And this is why we see in the best companies price and value diverge. Risk and reward is like— some company has just founded, 3 months before they have an initial product, a couple of test customers, they're valuing themselves at $100 million. Investors are paying for it because they think the outcome is binary. But in our investing career, we haven't seen the downturn in the funding cycle. We have not seen an area where like the $400 billion crunched down to $100 billion and only the best businesses that are hitting their metrics are getting further funding.

Yeah.

So we'll see that. And so we're trying to make sure that When we do see that, we're ready. And yeah.

And I think an important aspect of that, getting ready for a downturn, is you don't have a certain mandate or you don't have a certain fund cycle where you need to fundraise from others. You need to still convince CFOs and the corporates and the families. But when there is a downturn, I think you'll be more lucky because you'll still have solid businesses. to give value with. And then the valuations will be down. And I think usually VCs do make more investments or more solid investments.

Yeah.

Because the bad ones already weed out themselves and they start downroading and then that's already off. And that becomes easier for you to pick the winners. And we have a few more minutes. Like, do you guys have anything to kind of give a shout out? I usually give this opportunity to the investors, because I also want to help the founders see how important they are from the founders' investors' perspective. So if there's a very favorite company that you have in Turkey probably or anywhere else, give them a shout out, tell them why you still believe in their mission. And I think they'll also appreciate being mentioned on stage and as founders will take example of other founders.

Yeah, well, One of the companies we invested was Frontier Car Group, operating in many different markets. I think that they have been doing a very good job since inception because now they very lately did the Series D round, I guess.

Yeah.

We were in at Series A, so we actually had the chance to see how things are progressing. Back to the point where we were talking, how this guy was like preparing for the next rounds. Even when we were doing the Series A, we were getting the metrics of, you know, the Series C round is going to look like this, and obviously the exit. Because most of the time when we're investing, we actually don't ask what you think about the exit, you know, because it's very, very early stage. You just get an idea of the vision and everything, but actually when you ask what the exit route is, every investor, when there's an entry point and an exit route. And this, I think, has been very important for the last couple of months especially, right? Because what we're seeing with Uber and what's happening with WeWork, very charismatic founder, you know, people pouring in money, SoftBank coming and putting all that money inside.

$47 billion.

$47 billion.

WeWork Vision Fund's vision.

Yeah, the big vision of selling community rather than just a real estate company. You know, so that's good, but that worked only in the venture world. When you're getting it going towards the exit side, which is, which in this case was an IPO, you know, Wall Street guys and everyone, they stop. The numbers don't make sense. So it's good to be on that ride and tell that story in the beginning, like you were mentioning, but you really have to have that path to show them.

You have to ground it in reality in the end of the day.

Exactly.

Keep your feet on the ground and keep going.

Yeah. So you really need to know that this is an actual business. I mean, just because you're raising a lot of money and growing doesn't mean you're actually going to continue succeeding. You have to have a concrete plan.

So Frontier Car Group is your shout-out. Who's your shout-out?

I don't want to shout out a name.

One, one.

I'll shout out a company that I didn't invest in. Perfect.

That I like. Okay.

And I don't know if he's here today, but Scotty.

Dude, I invested in Scott. Yeah, that's a curveball.

And the reason I want to shout out to him is because I think he's done something that other Turkish companies should be doing. And he has a great cadre of investors, a consortium of investors that are international and that continue to back him. And one thing I'd love to see more Turkish companies do is think global or at least regional in their business models and in their outlook. And to make sure they strive to get the best investors on board who can help them jumpstart their business from day one. And the best founders usually do. So I'd love to see more of that. And I think that'll propel us forward.

That's where we're going to help them.

Yeah.

I mean, I'll tell the funny story because it kind of happened in Startup Istanbul. When Tarkan first pitched a while ago, I was as brutal as I could have been, and I was much worse back then, believe me. I mean, hard to believe. And I kind of gave him a lot of feedback. He tracked me down. He found me and we worked on his deck together. I'm not telling you to come and work, help me work on your deck. I can do that, but don't rush. And then when I moved to San Francisco, he came. He had the first meeting with Justin Kan.

Yeah.

And he came to my office and he said, you know why I'm coming here? I'm here because of you. I said, what? I have nothing to do with you. Said, you killed me on stage before I went to pitching at Y Combinator. My deck became a lot better. That's how I met Justin. And I kept into it, kind of giving him more feedback. He invited me here, and I needed to kill the deck again before I go to Justin. Justin Kan, by the way, is a YC partner. He's founder of Twitch. He's this amazing family, amazing individual. And I helped him wrap up his deck. That's all I did.

That's amazing.

Took us a couple of hours. We had a lot of changes. And then he first got the investment. And then he told me, I want you to be an investor. I was like, Justin Kan, like YC founder of Twitch? And I don't have the cash. Doesn't matter. Just give some cash. So he let me in his round. And I'm probably the only Turkish angel investor in the round. But I'm not an investor. I couldn't follow up on the rest of it.

Right.

But it's really important to have that global mindset and have that audacity to kind of go to the best. Try to catch up with people. It's really important that I don't see in most of the Middle East startups, I don't see in most of the Turkish startups, I don't see most of the startups over here. We kind of let go. I mean, we want somebody to carry us on, like push us forward.

And there actually is demand, you know, looking into these companies.

Exactly.

There's a lot of startups that we need.

Like one thing again, when we were in Y Combinator, I was there in August, is that 40% of the companies were international.

Absolutely.

All over the world. So we need to go out there and tell our stories.

So I need to wrap up the session with kind of the key takeaways from the panel. I like to do that just to give you something to remember. So one, build real businesses with real unit economics, possibly in infrastructure areas, technology enabling other solutions to be coming to the infrastructure area. Focus on building Prepare your financial models. Prepare a kind of a future-looking story that includes the next round, that includes your growth to convince investors. Ask for, please, for God's sake, ask for normal valuations. Don't ask for $5 million at Series A or seed stage. That's not something that will fly well with me either. Think global or at least please think regional. Use this network of people to get to other regions, find other regional partners, find other startups that are doing kind of similar things with you, and maybe you can build something together. We also need to build this collaboration capacity. And I think on stage we actually saw really good collaboration capacity of a dedicated, concentrated effort of 2 large families convincing their CFOs without getting kicked out of the meeting, and then moving towards creating global success stories. So I'm very happy to be on stage with these gentlemen, and I hope you enjoyed it as well. So thank you so much.

Thank you, Ozan.

Thank you, Ozan.

Thank you, Cem.

That was awesome. Fantastic. Thanks, Fatih. So good.