Employees of Anka Mobile, a client of Figopara, which is an online marketplace for small business loans. Photo @Pınar Gediközer/IFC

Paving the Way for Türkiye’s Digital Future

Andrew Raven

Entrepreneurship is flourishing— a key step toward tackling development challenges.

Alittle help. That’s what Koray Bahar needed.

In 2016, the Turkish entrepreneur founded Figopara, an online marketplace for small business loans. The platform would allow business owners to use pending invoices as collateral – a revolutionary idea in Türkiye – and see big banks compete for their business.

While the concept was sound, some Turkish lenders balked at joining a potentially disruptive platform. That’s when Bahar would mention that IFC was an investor in Figopara.

“We were the new guys. The IFC brand helped us a lot,” said Bahar, whose company now works with several major banks and serves 4,000 businesses. “It opened doors and the deals started turning.”

IFC’s backing of Figopara was part of a larger effort to support Türkiye’s technology scene, especially companies that have the potential to create jobs, funnel capital to small businesses, and tackle long-standing social and environmental problems. Since 2014, IFC has committed $95 million in venture capital funds that specialize in Türkiye and Eastern Europe, including $19 million since the start of the pandemic.

“Technology has the potential to make the lives of everyday people better,” said Ufuk Demirci, IFC’s global lead of venture capital funds. “That’s especially important in developing countries, like Türkiye, where it can democratize access to everything from bank loans to healthcare.”

A ways to go

Investments in Turkish startups have risen 10-fold in the last decade and the technology sector has seen the minting of several unicorns, companies worth $1 billion-plus. Those include delivery app Getir, which was valued at more than $7.5 billion following a funding round in mid-2021, Peak Games, which was acquired by Zynga in 2020 for $1.8 billion, and Trendyol, which was valued at $16.5 billion in 2021.

But capital remains hard to come by for many startups. From 2014 to 2020, venture capital investments in Türkiye were $48 per capita, according to market research firm PitchBook Data. In the United States, it was $2,253 and in Israel, $3,922.

That’s why IFC in recent years has focused on channeling money to entrepreneurs through Türkiye-focused venture capital funds. In 2020, the institution invested €15 million in a vehicle from Revo Capital that focuses on more established companies. In 2021, through its Startup Catalyst Program, IFC invested 2.5 million euros in a fund from 500 Istanbul, which targets early-stage startups. The idea is that those investments will help provide cash-strapped entrepreneurs with the funding they need to bring potentially game-changing ideas to market.

“No bank will listen to an early-stage startup. Five university students working out of their garage have no place to go,” said Sobhi Mahmassani, an IFC investment officer who specializes in venture funds. “Through investments in funds like 500 Istanbul we can reach hundreds of entrepreneurs and help set them on a path to success.”

One company that benefitted from IFC’s work is electronics retailer Anka Mobile. The Istanbul-based firm uses Figopara’s online service to convert pending invoices into working capital.

“Thanks to the service provided by Figopara, we can now access finance much faster,” said CEO Burcu Genç.

The middle-income trap

For years, Türkiye and its neighbours in Eastern Europe have leveraged low labour costs to become manufacturing and outsourcing hubs. But as they’ve become more prosperous, wages have risen and growth has slowed – the dreaded middle-income trap.

Technology is seen by many as a way for Türkiye to free itself from that and transition to a model of growth built on innovation.

That’s become increasingly important amid COVID-19. Since the start of the pandemic, a World Bank analysis found that 1.6 million people in the country have slipped into poverty.

“While growth has rebounded in the last year, the reality is that Türkiye needs to be thinking about how it can continue to be competitive over the long term,” said Arnaud Dupoizat, IFC Country Manager for Türkiye. “Embracing technology – and re-enforcing the whole startup ecosystem – is a way it can do that.”

Istanbul-based electronic payment provider Paycore is emblematic of that promise. Founded two decades ago, the company now reaches clients in 35 countries and employs more than 400 people. Its products include software that turns a tablet or phone into a point-of-sale device, a setup tailor-made for retailers.

“For businesses, including smaller ones, advanced technology leads to lower costs, better service quality, and increased production, all of which ultimately help create jobs,” said Ali Kancal, Paycore’s CEO. (Revo Capital owns 5 percent of Paycore.)

“Technology is also helping Turkish businesses expand their horizons,” said Kancal. “For companies in our region, it is opening up a global market.”
Success stories like Paycore are why IFC plans to ramp up its investments in the technology space in Türkiye, said Mahmassani.
“Getting involved with startups and venture funds is a way to have a large impact with a modest investment.”

Read more about IFC Disruptive Technologies and Venture Capital here.

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