1. A Local LP Perspective on TURKEY VC/PE Market ‘A Qualitative Interim Epilogue’ A. Mete ÇAKMAKCI Technology Development Foundation of Turkey The PEI Turkey Forum – Partnering for Growth 24 November 2009, İstanbul

2. The PEI Turkey Forum : TTGV 2009 2 The Story Life in İstanbul is a strong attraction for national and international talent Still affordable to live in İstanbul Istanbul has become an Eurasian hub (proved by recent growth of THY) Government plans to develop İstanbul as the financial center as well as many other including creative industries and software. Demographics : A blessing or a curse? Quality of education, growth performance still remain as challenges So far strong labor elasticity for the expanding services With recent increase in personal wealth, Turkey is becoming a hard to ignore emerging market Public funded many mega infra-structure projects, recently BOT models and privatization is picking-up to maintain a modern infrastructure Investor and private enterprise friendly political climate Economic reforms continuing, particularly in healthcare and social security

4. Legal status is “foundation established under law” which qualifies TTGV for government funding under Turkish law

5. Program agency operating the public soft loan scheme towards private manufacturing sector innovation projects

6. Investor in TURKVEN TPEF-1, İşGirişim A.Ş., iVCi (İstanbul Venture Capital Initiative) andTeknolojiYatırım A.Ş.

7. Recently introducing pilot scale programs towardspromotingclean/renewable technologies in the industry. (soft loans)

9. Only Turkish investor in TURKVEN TPEF-1 and İş Girişim (first local funds)

10. In contact with CMB, the regulatory authority

11. Partnered with EIF to setup iVCi, actively involved withthe fund raising activities both from public and private investors

14. BUT, for many local investors, a workable local regulatory framework is critical. CMB is the unwilling regulator

15. A competent regulator MUST appreciate, the business exists as long as there are willing and able investors

16. Like most other cases, improperly designed tax incentives are blocking proper regulation for VC/PE in Turkey

17. Interests of independent minority investors are lost in the mix

19. According to Turkish regulation İş Girişim is established as an open ended, publicly traded corporation.

20. TTGV’s upfront capital contribution was 3,7 M USD

21. As of end of October 2009, TTGV’s share of all İş Girişim exits totaled to 5 M USD

22. As of end of October 2009, cash returned to TTGV is 0,89 M USD (%24 of what it should have been.)

23. İş Girişim’s closing price last Friday at IMKB was 2,38 TL per share, while its per share active net totals is 5,86 TL.

25. So far the largest private investor in PE/VC is the İş Group in İş Girişim

26. Garanti is an investor in İstanbul Venture Capital Initiative

27. Many Turkish Blue Chips (including big manufacturing and services conglomorates) expressed interest in setting up their own funds. (some are already recruiting management)

28. “Minority psyche” is big barrier for most to commit to a fund

29. Unrealistic expectations on representation in investment decisions

30. Concerns on branding

32. We can speculate that the original ideology of the Turkish VC/PE was to mobilize/benefit those funds

34. Usually hard to come up with second and third best with a generic investment logic (“herd effect”)

35. SME dominated economy, notoriously shallow capitalized and very opaque in operations (shadow book keeping)

36. For most family owned businesses “cashing out” or “letting in” is a big taboo

37. Suprisingly Turkish companies havesophisticated business skills,technology vision (from investment perspective) and capacity(often cited in international comperative studies)

39. The PEI Turkey Forum : TTGV 2009 12 A Trivial Radar Excercise Majority Ownership INTERESTING Minority 5 M EUR Mega Investment Size

41. Garanti Bank and NBG Groupjoined later as investors with a final closing size of 160 M EUR

42. EIF contacted many other potential investors, however they demonstrated a strong lack of strategic vision though most indicated interest and intend to develop operations in VC/PE

43. iVCi has an independent Investment Committee, first investment is now closed and several are in the pipeline

45. No question that there is ample supply of local talent with some international experience/exposure

46. Most team profiles have strong representation on I-Bank and consultancy careers

47. Job is more than deal making – it’s about growth and exit

48. Recently deal terms are shifting to more conservative (I-Bank)

49. Profession is more art than science – should look for diverse skill implants and spin-out teams – local connections are important (“talk thetalk, walk the walk ANDdrink the tea”)

52. The market was not moving the way TTGV intended under its presence

53. In 2005, TTGV set up Teknoloji Yatırım A.Ş.

54. Genesis of a good Turkish team is emerging slowly, learning the hard lessons but keeping the spirits up

55. It is not really the money, but the networks and delivering to the enterpreneurs

57. It might be time to consider setting up a proper “free financial zone” with its own regulator in line with other government priorities inside Istanbul

58. Sector needs a professional association

59. TurkVCA is MIA since 2004

60. Concerns over high visibility