Venturing Mind

OLED: Flexible devices, transparent screens and organic lamps

2010-12-07T11:09:00.000-08:00

From design perspective if you could improve your TV or the screen of your cell phone, what would you change? Maybe you would make it thinner, lighter, or increase its resolution. If you are a futurist, you would make it bendable, round, triangular or any other shape you like. If you are an environmentalist, you would build it with components that are easily disposable in nature. You would most likely prefer lower power consumption.

Well, all these features are possible. Not in 2020, but today! The technology that makes it possible is OLED (Organic Light Emitting Diodes). Although currently not very popular due to its high production cost, OLED screens are already used in various devices such as cell phones, PDAs, and digital cameras [1].

As for TVs, Sony made one, 11 inch (28cm, small screen for a TV) XEL-1 TV in 2007. The TV was on sale for $2,000! LG is working on bringing 32-inch and 42-inch OLED televisions next year. Considering that their 15 inch OLED screen was on sale for $2,500 in 2009, these TVs will not be cheap for an average consumer yet!

15-inch, ultra-thin OLED screen by LG.

Although extensive use of OLED will take some, it promises great uses in the following areas:

1) Curved, non-flat surfaces

You can have your screen placed on any shaped object. Flat surface is not needed with OLEDs. One picture is worth thousand words, so please see the image below:

Flexibility of OLED screens.

2) Wearable devices

The image below shows a prototype Samsung cell phone that can be wrapped around your wrist. The phone has an OLED screen.

Concept smart phone designed by Erik Campbell

3) Transparent devices

Since OLED devices can be manufactured so thin and transparent, they can be placed on auto windshields. In other words, your dashboard can be replaced with a transparent screen on your front window.

Lexus 2010 RX has a white OLED display supplementing the main 8" display. Volkswagen has a new hybrid car concept (L1) that an OLED display in the dashboard. A company named Novaled is working with European car makers on interior OLED lighting solutions. They say that a car that uses their panels might be on the market by 2012. Epson showed a beautiful 8" OLED for automobile dashboards. Epson is also talking with auto companies to embed this in their cars.

Epson’s cool looking OLED car dashboard

OLED’s transparency finds use in other areas such as TV and computer displays. Again let’s demonstrate this with a picture of HP’s LiM concept desktop using a 19 inch OLED screen.

HP LiM desktop with OLED screen

4) Lamps, panels and other light sources

OLEDs naturally emit light. This enables OLED to be used as light sources, lamps. Since power consumption is lower for OLEDs than all the other lamps available in the market today, they promise to take significant share in light source markets. Another advantage of OLED is that it does not contain bad metals such as mercury, thus making it more environmental friendly. As our environmental concerns arise, this will be a significant edge for the sales of OLED lamps.

Several companies including Philips, GE, UDC, and CDT are producing OLED displays using ink-jet systems - "printing" the OLED materials. This can prove to be a quick and cheap way to make organic light panels. There are three companies that already offer OLED panels: Philips, Osram and Japan's Lumiotec. These are just “design samples” that carry a very high price [2].

OLED Lighting Manufacturing Roadmap, March 2009

A lot of companies (Philips, Kodak, Konica Minolta, Universal Display, ModisTech, Pioneer collaborating with Mitsubishi, OSRAM, GE, Samsung, LG Chem, UDC, and China's Visionox) are working towards OLED lighting products. Both OSRA and Philips sell panels online, but these are very expensive samples and not real commercial products yet.

Philips OLED lamp

OLED market’s future:

OLED displays represent a fast growth opportunity in handset display market. The growth rate is estimated to be at a 41.4 per cent CAGR from 2009 to 2015, compared to 8 per cent for 2009 to 2013 for all types of displays for handsets.

Global OLED shipments for mobile devices

Flexible OLED technology will account for the vast majority of mobile displays and become main-stream for TVs within the next five years, according to Sang-Soo Kim, CTO of Samsung Mobile Display. Kim said OLED for mobile screens started in 2007, moving from 2.1 million in 2007 to about 45 million units this year, including the 4-inch display in Samsung Galaxy S phone. Kim said he expected OLED displays to grow to 45 million units, or an 8.2 percent penetration of the market this year, growing to 600 million units and a 53 percent penetration by 2015 [3].

This potential growth is mostly backed by heavy research in traditional lightning companies as well as imaging and optics companies and OLED technology providers. The proof comes with a closer look into filed patents on OLED: A recent study says over 1,800 patents got filed in developed nations (EU, JP and US) on only white OLED for lightning applications. The study also estimates the explosive growth in OLED lighting patents to continue over the next 5 years and that government funding, government legislation and commercialization will help drive OLED lighting into homes [4].

Distribution of OLED patents in various fields and sectors

Conclusion

With its high growth rate in various markets and obvious advantages over competitive products, OLED is definitely a technology that needs to be watched for future investments. It will present creative opportunities for uses of electronic devices in many areas. Although the price is a major concern at this time, like in other display technologies the price will diminish to acceptable levels for consumers via technological advances and increasing mass production.

REFERENCES:

[1] List of devices currently using OLED. http://www.oled-info.com/devices

[2] Introduction to OLED displays and TVs. http://www.oled-info.com/

[3] Samsung Expects 1 Billion OLED Displays in 5 Years, PC Magazine, May 2010

[4] OLED lighting patent filings see explosive growth since 2000. Analysis by Craig Cruickshank at Cintelliq, UK.

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The right frame of mind for seed fund seekers

2010-12-04T14:39:00.000-08:00

If only we had the right frame of mind each time we start a project, odds for success would be much higher. Imagine someone taught us the right way of investing in stocks before trading in the market or driving like a professional before getting into a metropolitan traffic. Most times though this is not the case. Instead we start with limited experience, often fail and learn, and then possibly attain the right frame of mind.

Finding investors for a budding business is no different. Having missed numerous funding opportunities and benefited from few, I realize now that I did not have the right frame of mind for funding a technology start-up when I set on the exciting road of entrepreneurship. Today I still may not! Regardless, now I would like to share with you my frame. By doing so I hope that some other entrepreneurs, most likely founders of technology businesses, gain a better perspective in their approaches to seek equity funding.

Equity investors are different from relatives or banks. You do not meet one at a family barbeque, see its ad on a billboard or visit its customer service representative to discuss your business needs. Once found and reached, you will find that they are different from business owners and mostly importantly you. Many entrepreneurs ask themselves “how come I cannot get the attention of a serious investor?” or “why is it so hard to get money from a venture capitalist?” Understanding the aforementioned differences, I believe, is the key to having the right frame of mind to secure equity based funding.

Let’s first discuss finding the investors. Many seek investors as they seek jobs. They have a written ‘plan’ and submit it to angel and venture investors via mail, fax and websites. This direct approach may be futile as investors look for familiarity. Like in other businesses they prefer working with people they know or hear about. You can be in a fortunate position to know an investor from a prior work experience or through a relative. If you are not one of those, I highly advise that your first task should be to reach intermediaries first rather than investors. Your doctor, though not an investor, may help you connect with that investor that puts money in medical device companies. Your accountant may be counting the beans for an angel who likes start-ups like yours. If you do not know anybody connected to an investor, then go to universities and chambers of commerce. University research environment is my personal favorite as respectable professors have already contacts and working relationships with investors. You can explain them your endeavor and ask them if they can refer you to an investor. Suggest them if they would like to be more involved in your business. It might cost you some shares but it might be well worth it! The gist of my approach here is to go to investors through references rather than trying to reach them directly.

If finding intermediaries is proving to be difficult for you or for some reason you still want to contact investors directly, I highly suggest you having a target. A lot of investors would say that they would be interested in investing in your field. Check if they actually put money in any company that is in or close to your field. Try to understand why. Was it because they had a serious interest in the field or was it a one-time flair that looked irresistible because of hot-shot management of that particular firm? Contacting investors specializing in your field will save you a lot of time and frustration. Besides there is a good chance that your investor will become an active participant of your business after the investment gets secured. You want more knowledgeable people on your side at all times.

If you are advertising your fund raising efforts via major funding networks such as Merar, then you have to specify your business and exactly what you will do with the money sought. It is to your advantage to limit your target audience to investors that know your business. An adventurous, wealthy but “can do it all’ type of businessman can be more hurtful to your business than those who plan not to invest. Again proven to me with experience!

Also a common mistake I see in these sorts of advertisements is the lack of specificity: With “the more the better” or “whatever I can get” mentality, entrepreneurs seek a wide range of investment dollars. An advertisement goes “seeking $10,000 to $750,000 for a nano-technology project”. Well, this says the entrepreneur has not put so much effort into planning which steps he will take to a profitable business and how much each step will cost, doesn’t it?

I will not even delve into importance of executive summary, business plan and management team as these are the main substances to an entrepreneur like pencil, eraser and back pack to an elementary school student. There are many well written sources on these subjects, so you should definitely know how to make and write SMART plans [1]. The main goal here is to show potential investors how likely it is for your business to make money. Although especially in developing countries there are many funding deals happening over napkins, I believe an average entrepreneur must have these three elements in place to get backed up by an institutional equity investor.

So let’s assume you have reached a serious investor. How can you convince them to invest in your business? I believe the investor’s anxiety needs to be calmed down in three aspects of your business in order to start talking about money: your business’ past, current and future monetary positions.

Remember I said previously that an investor is different from a business owner or more importantly you! I repeat an investor is not a business owner. He might own shares of your business for the money he provides but his mind is not same as that of a business owner. You might derive joy out of having your own business, CEO written on your business card or being the boss of your own faith, even more than making money. For an investor the main motive is to make money. He wants to know how much he will put in, for what and when he will get out. Many entrepreneurs mistakenly believe that investors should like their business, project, field, etc like they do. No, not necessarily. You have to show an investor “here is my money-making system, here is where you put the coin and pull the handle and here is when you might get out with more money than you put in”.

So how do you show this to an investor? Again you have to demonstrate with proof the past, present and future monetary positions of your company. The past involves how much money has gone it to the business. Have you done any sales yet? Are you making profit yet? For many tech start-ups it takes at least a year or two to break even. For biomedicine or medical device start-ups the time frame is typically much longer. So if no money has been made yet, has anyone invested in your business? A relative, any other investor, a bank, or you? It makes perfect sense to me if an investor does not want to invest in a company since its founders have not put their own skin into their business. If you believe in your business so much, how come you are not behind it with your hard earned cash or a loan with collateral on your home? This is a plausible question you might hear from an investor. After all why would you share your business with somebody else, if you certainly believe that it will be a cash cow within few months? You have to be ready to answer that question!

Regarding the past of your company’s monetary position, the best proof that can be provided to an investor is a prior investment of another investor (besides your own investment), which is also known as entrepreneur’s chicken-egg problem! You need prior investment to convince an investor that you are investable, you need an investor to get investment, so which one comes first? May be the easiest way to break this circle is to get a small investment from a professional or a group of professionals in your business. This can be in the form of labor, services, materials, parts, office location, etc. if it cannot be in cash. A research lab testing your device, a company giving rooms and office supplies for your daily operations, or a college professor dedicating few hours of his and his PhD students’ time for writing algorithms for your software, all for few shares in return can be valuable to create credibility for your business. The point is to show investors that there are other people believing in your business.

As for the current monetary position of your company, obviously you are in a better state if your business is already generating positive cash flow. However, more often this is not the case for start-ups at seed stage, so those should work towards generating revenue with their own resources before seeking a major amount of investment. If you are three years down the line for generating significant revenue, your chances of securing venture funding is close to zero unless you have a flaming hot management team with very successful previous engagements and/or the backing of some very wealthy individuals.

What if you are few months away from breaking even? You have much better chances but here again comes your management team and business plan. You need to have a very detailed plan on how your team members will spend those precious few months to generate profit as soon possible. Some engineers tend to mesmerize themselves with the complexity and coolness of their projects, strive to make it superior to competitors’ systems. This technical superiority brings competitive edge and is definitely valuable for the business as long as it makes money soon! Therefore, it is very important for investors to see elements of business urgency in founding engineers or even better addition of experienced business and sales people in their teams.

Another way of increasing chances of generating significant revenue is to have customers! Even in the development stages of your project, can you have customers? They do not have to be paying customers at the moment. They can be beta-testing your product, or deploying it to only few people within their organizations for trials. Once your product gets in the field, it will be field tested, improved and talked about by other potential clients. Investors definitely appreciate a product more if some people are already using and liking it.

The last but not the least is the demonstration of the company’s future monetary position to investors. Entrepreneurs should keep in mind that equity investors make money only when they sell their shares. This might happen through IPOs, partial or complete sale or merger of a company. Regardless of the method you should define and clearly state which exit method is in your plans and how and when you will achieve it. You have to give examples of other start-ups in your field that got funded and how much time it took for their investors to cash in their shares. If you have such examples, you also have to show how your business is similar to those in investment sense.

In summary, my perception of equity investors is that they are very risk-wary. Your goal as an entrepreneur is to reduce the risks of your business to a level acceptable by investors. Obviously you should do this to improve your business not to impress investors. If your business has fairly low risk of bringing high return (typically 10x or more) on investment within less than 3-5 years [2], then your investor might be just around the corner! If you are not getting the love you want from an investor, identify which risk factor is scaring him away the most, minimize it and go through the process again.

Patience and persistence are must-have features for entrepreneurs. Good luck!

Umit Dogan Demir

REFERENCES:

[1] SMART goals by Duncan Haughey, PMP. http://www.projectsmart.co.uk/smart-goals.html

[2] Post-Crisis Equity Financing for Startups by Monica Mehta. http://www.businessweek.com/smallbiz/content/apr2010/sb20100420_472554.htm

Will Android dominate the mobile phone market?

2010-09-10T08:34:00.000-07:00

We finally did it! We were able to fit a dictionary, a calculator, a phone, a computer, several hundred CDs and several thousand books in the pockets of our pants. We even have some room left for other stuff we might find useful later on. All got achieved within budget, all reachable within few seconds.

It is becoming more obvious that our once communications-only tool is now smarter with full capabilities of the Internet. The smart phones continue taking a bigger pie in the mobile phones market. According to Gartner, smart phones accounted for 17.3 per cent of all mobile handset sales in the first quarter of 2010, up from 13.6 per cent in the same period in 2009 [1] The smart phone sales are estimated to be 30% of all mobile phones on annual basis by 2014.

Many investors wonder who will dominate this fast-growing market where competition is fiercer than ever and change accelerates every year. The landscape is especially interesting for high end smart phones as technology leaders are aware that today’s high end phones are tomorrow’s regular phones. If you dominate this high profit-margin market, you increase not only your chances of survival but also chances of dominating feature phone markets.

Nokia’s Symbian, RIM’s Blackberry, Apple’s iPhone and hordes of Android phones make up the biggest competitors in the global smart phone market. With its almost 45% market share, Nokia’s Symbian OS dwarfs the momentum building Android and iOS (iPhone’s OS).

Worldwide Smartphone Sales to End Users by Operating System in 1Q10 (Thousands of Units)[1]

*Company*	1Q10 Units	1Q10 Market Share (%)	1Q09 Units	1Q09 Market Share (%)
Symbian	24,069.8	44.3	17,825.3	48.8
RIM	10,552.6	19.4	7,533.6	20.6
iPhone OS	8,359.7	15.4	3,848.1	10.5
Android	5,214.7	9.6	575.3	1.6
Windows Mobile	3,706.0	6.8	3,738.7	10.2
Linux	1,993.9	3.7	2,540.5	7.0
Other OSs	404.8	0.7	445.9	1.2
Total	54,301.4	100.0	36,507.4	100.0

As I narrow my focus to high end smart phone market, the landscape changes a lot. Nokia the leader is almost nowhere to be seen while Blackberry OS and Windows Mobile are losing their ground to iPhone OS and Android. In fact, in the U.S. even iPhone OS has seen usage fall 8.1% in the year to May 2010, while Android usage has climbed 12.2% [2].

As seen in the chart above, Android’s huge momentum is worth a close look. According to Google CEO Eric Schmidt’s report in June, 160,000 Android phones were being activated each day. That makes 4.8 million phones a month. iPhone’s activation rate within the same period was 4 million phones a month. In August, the activation rate for Android went up to 200,000 phones a day [3]. Numerous bloggers discussed about the “Android vs. Apple war” this year. Although the numbers have tilted towards Android’s side so far, the war is far from conclusive; therefore we still need to elaborate who will come out of this war stronger.

ANDROID’S ADVANCE:

There are various reasons why Android has advanced at the expense of others sharply. Some of these reasons are technical, while others are distribution related.

On the technical front, Android has features like Cloud2Device integration: One click and send a webpage to your phone’s browser. One click and send an address from Google Maps on the desktop to Google Navigation on your phone. Unfortunately, Apple’s talent pool missed out on features like that. Mobile phones are getting smarter. ‘Smartness’ comes from the device’s ability to benefit from Internet features. In this sense, Android, having Google as its birth-giver, is closer to development of Internet-based services than Apple.

On the distribution side, my comments are restricted to the U.S. In the U.S. there are various carriers such as Verizon, T-Mobile, and Sprint that sell Android phones. Meanwhile the only major carrier selling iPhones in the States is AT&T, with which Apple is said to have an exclusive agreement until 2012. With multiple carriers, potential Android buyers have multiple choices in terms of area coverage, cost, and service terms.

On the global scale though, Android brings variety of phones to buyers. For instance, Sprint’s 4G Evo, HTC’s Incredible and Motorola’s Droids have different features; some have keyboard, some have touch-screen, some are flip phones and some have better cameras than the others. With these choices, it is easier for a buyer to find what satisfies his needs with an Android phone than an iPhone.

I believe Android’s strongest feature and major difference from iPhone OS is its open source development environment. Open source development can make Google a sole winner if it can preserve cohesiveness of its platform and continue supporting it with new features and enhancements. There are some historical evidence of open source developers dominating their markets such as Wikipedia (the World’s largest dictionary), OsCommerce (the most popular e-commerce solutions program), Apache (the most popular web server software), and mySQL (the most widely used database server) [4].

Since Android is open, OEMs can manipulate it to suit their requirements. As a result, they can deliver multiple devices for multiple niches at multiple price points to the market. Apple delivers a limited number of devices, hoping the quality of its software will make a difference. It has successfully attracted customers that way. However, it seems the consumer market is ruled by fashion and individuality. People do not dress the same and they do not want their smart phones to look the same. By the same token, given the common, iPhone wanna-be looks of the current Android phones, Android OEMs should do better job at differentiating their hardware.

Besides, the open source environment enables thousands developers from different companies and countries to add and improve features and fix bugs in Android code. The code can become more robust and versatile than a closed-platform OS like Apple’s.

APPLE’S DEFENCE:

Although Android has many current and potential advantages over its competitors, it is still dubious for it to take over iPhone iOS in mobile sales, as iOS has also its own technical and non-technical advantages.

In my opinion, the biggest advantage Apple currently has is its worldwide brand recognition and customer loyalty. Apple brand means top-quality, unique, and innovative products for millions. This is a precious value none of the Android handset makers could build yet.

As for customer loyalty, the following numbers explain the current state the best: 80% of iPhone users want their next device to run iPhone OS while 70% of Android users want another Android device. This is in stark comparison to other major smart phone players: only 47% of Blackberry users want another Blackberry while only 34% of Windows Mobile users want another Windows Mobile device [5].

On the technical side, Apple hardware is top-notch. Well, it has been known top-notch until the “Antennagate” [6]. Other manufactures have emulated iPhone’s hardware features in one way or another meaning iPhone has still been the pioneer in this field. However, the quality gap will close or even reverse soon especially if Apple continues mishandling customer complaints.

With smart phones, another selling point is the user’s love for apps he can download to his phone. After all, being able to download variety of apps at reasonable prices makes the phone more useful and entertaining. On that front, Apple’s app store currently has a clear advantage: The store enables downloads of approximately 250,000 apps [7] The Android Market hosts 100,000 apps with higher rate of growth [8].

Another advantage of being a pioneer is that Apple has an older OS than Android meaning the operating system is more mature, experiencing less reboots, and less applications crashing or slowing down your phone. However, just like the app store, this is another factor where Android seems to be catching up quickly.

THE SIDELINES RETREAT:

If we assume that the Apple vs. Android war will eradicate what seem to be the current sideliners of the high end smart phone market, we might be too quick to conclude. RIM, Nokia, and Microsoft are making new products to take leadership in this market. However, it is interesting to see that even executives of these companies admit their companies are not forerunners (maybe except Steve Ballmer of Microsoft!)

For instance, at Nokia World 2010, Nokia is expected to officially unveil the smart phone that will, in the words of embattled (as of September 10th 2010, ex-)CEO Olli-Pekka Kallasvuo, “kick-start Nokia’s fight back” against Android and the iPhone [9]. Although Symbian is still market-share loosing champion of the global smart phone market, it never took off in the U.S. and failed to be standardized platform for various manufacturers that support it. For Symbian, there is no App Store per se, although Nokia opened its own app store called Ovi, which is not comparable to Apple’s App Store or Android’s Market. So Nokia has re-entered the high end market with a new OS, MeeGo [10]. The upcoming N8 is Nokia’s only hope at this time to introduce a jaw dropping product like iPhone, however the leaked product has not been getting good reviews from experts so far [11].

As for RIM, the market is tougher to please these days. The latest RIM smart phone, Blackberry Torch 9800, has failed to receive good responses. The general consensus from the tech press was that the BlackBerry Torch 9800 might be enough to satisfy loyal BlackBerry users so that they do not jump to another platform, but it might not be enough to win over consumers and business professionals who are buying a new smart phones and are comparing the Torch to the iPhone or the top of the line Android devices [12]. On the corporate side, the BlackBerry’s core customer base, things aren’t looking so rosy for RIM either. While Android 2.0 and iPhone OS do not use the same “Push” messaging model or have nearly the same level of security controls and policy support the BlackBerry OS has (due to its use of a private communications network rather than the public Internet cloud) both iOS and Android now support Microsoft Exchange, which runs on the majority of corporate email systems.

With its market share dropping from over 20% to 9% over one year, Windows Mobile seems to be a less attractive choice for mobile OEMs. For instance, Dell and HP, Microsoft’s mobile device partners, are looking into using Android instead [13]. There is currently no Windows Mobile phone on the market that can compete in terms of technology and capability with either iPhone or Android phones.

CONCLUSION:

Besides the numbers and experts reviews, I believe these three companies will have trouble competing with Apple and Google within the next few years. The sideliners do not have the marketing momentum iPhones and Androids have. The consumer does not see their products cool, new or interesting the way they used to see Blackberry two years ago. They are in the game little too late. In the mobile market, few months of delay can make an innovative product just a regular device. They seem to be in the same situation where Motorola was in 2007 when the company noticed that they had no new products to offer after their star product Razr became just plain old. Maybe what they need to do is to start a completely new effort like Motorola did or merge with a company that has done it already or reduce focus to only certain niche markets.

Going back to Android vs. Apple war! Polls and estimates point at Android’s leading the competition in smart phone market in the next few years. For example, an instant poll at Fortune’s tech conference in July 2010 asked: “Who would have the dominant smart phone in five years?” The verdict was clear: 57% picked Android; 37% picked iPhone [14]. The investment bank Piper Jeffrey’s outlook for the next five years is very positive for Android, as well. They believe Android will hold over half of the smart phone market by 2015 [15].

With open source development environment bringing thousands of independent developers as well as major companies like Motorola, HTC, LG and Samsung to its enhancement, Android is maturing fast. Android’s spread to non-phone mobile devices is occurring as of today, as Android tablets are coming to the market in the second half of 2010 to join iPad’s party. The support of many OEMs with different target markets for mobile devices can make Android predominant OS of the mobile devices as Microsoft made Windows the main OS of PCs. Hopefully this time the code will be more democratic and less binding.

References:

[1] Gartner statistics, 05/2010
[2] Android star is rising, can Apple respond? Computer World
[3] CEO Schmidt says Android activations now 200K/day, Barrons Blog
[4] The eight most successful open source products ever, Pingdom.com
[5] iPhone vs. Android, Nielsen Wire
[6] Learning the lessons of “Antennagate”, CBS News
[7] Has the iPhone App Market already crashed? Tuaw, the unofficial Apple weblog
[8] Android Market now has 100,000 apps, passes 1 billion download mark, Engadget.com
[9] Nokia to kick-start the iPhone “Fightback” with E7, All Things Digital
[10] Can Nokia compete in high-end smart phone market? Intomobile.com
[11] Nokia N8, first Symbian 3 handset, gets previewed and is deemed an embarrassment to Nokia, Intomobile.com
[12] BlackBerry Torch 9800: 'Best BlackBerry ever' fails to create buzz, Jason Hines, Tech Republic
[13] Microsoft faces an uncertain future in search, mobile OS and cloud computing, Investor Guide
[14] Letter from Silicon Valley: doing the math on Android vs. Apple, Wired.com
[15] Piper Jaffray: Android army’s victory over iPhone inevitable, All Things Digital.

Angel Investors and Venture Capitalists in Turkey

2010-09-06T13:10:00.000-07:00

As an entrepreneur having gone through angel and venture capital (VC) funding stages for my technology start-ups, I have a special interest in developments of the VC world. I started hearing about increasing amount of investment activities mainly in the information technology (IT) field in my home country Turkey although small and medium enterprises (SME) in developed countries are still suffering from lack of business loans and slower funding activities that started with latest global finance crisis[1].

That stirred up some curiosity in me! I wondered how much of these investments were backed by VCs and angels. Traditional fund sources such as family, friends and bank loans have dominated in Turkish funding world while the U.S started venture funded firms in early 1950s and England in the 80s[2]. I wondered how about in Turkey? Do we have well-established VCs and angels? Who are they and based on which criteria do they invest? Which fields and what kind of companies do they invest in? What is their investment range and in which business cycle do they hop on board with a stash of money?!

That is why I conducted some research to write this article. I want to first clear out what I consider as a VC or an angel. Not all investors that invest in some kind of enterprise are a VC or an angel. So let’s start with some basic definitions and then I will jump to introductions of respectable Turkish angels and VCs.

BASIC DEFINITIONS:

VC is a general term used to describe a form of investor characterized by long-term, equity-based investment, frequently involving start-up and high-growth firms. The capital is typically used in the development of advanced technology products and services in fields such as information technology (IT), bio-technology, telecommunications and renewable energy. VCs are held to be hands-on investors, actively intervening in company management, and seek capital gain rather than income stream.

Well, for modern start-ups the problem with VCs is they are too big! VCs typically establish a pool of funds secured from various investors, have well-paid experts to manage the pool and make measured-risk, high-reward investments. Therefore, their diligence process is lengthy and once an entrepreneur is “good enough” to secure funds from them, they want to put in typically over $3M USD (a figure valid for the U.S. market)[3]. Please see the chart below for average VC investments made in the U.S. between 1995 and 2008.

As a result, a VC usually requires a serious commitment from the entrepreneur to pursue an idea that is highly experimental. If the product does not stick, it might make sense for the entrepreneur to pursue a totally different idea or drop the business altogether. This is much easier to do if you have raised $100,000 rather than $1,000,000. Therefore, entrepreneurs need someone to bridge the gap between building the initial product and building the company. This is where angel investors step in.

Angel investors are typically well-connected, wealthy individuals. They generally use their own money and do not come with the VC constraints described above. They usually understand the experimental nature of the idea and a seed-business. The following chart shows where business angels fall in the financing chain of an innovative company.

Source: http://en.franceangels.org/Business-Angels/The-financing-cycle

INTRODUCTION TO VCs & ANGELS in TURKEY

Let’s start with firms and groups that invest seed funds and then move to the ones that invest in later stage companies:

Inovent is a technology commercialization company. It specializes in development, commercialization and management of intellectual properties developed by universities, research institutions, technology companies and entrepreneurs in Turkey. They perform various services besides fund provision to entrepreneurs from business plan development to incubation services to intellectual property management. Their seed fund focuses on pre-seed, seed, proof of concept and initial commercialization stage deals and will typically make an investment of between 25,000TL and 250,000TL (1 TL is approx. 0.65 USD as of September, 2010)[4]. Inovent CEO Serhat Görgün expressed that they have helped found 16 startups including NanoTeco (nano technology), Maxima (machining operations), Inotek (web-based technologies), Selp (virtual webinar systems) and MetalForm (rapid resistance heating systems)[5].

Young Turk Ventures is an internet-focused investment firm led by Cem Sertoglu. The firm targets to invest between 100,000 and 4 million Euros. Although the company is agnostic in terms of target business cycle for fund-seeking companies, it is currently interested in deals over a million euro. The firm's investments include GittiGidiyor.com (via Mr. Sertoglu's involvement at iLab Ventures), YemekSepeti.com (online food delivery) and Grupanya (merchandise deals site)[6].

Teknoloji Yatirim A.S. started investing in 2007. The firm provided funding to companies developing location-based services (Infotech) and a medical device pending FDA approval (Uca Medical)[7]. They target seed-level investment opportunities requiring less than 750,000 USD for companies operating in IT, biotechnology and health services.

Galata Business Angels (GBA) operates as a not-for-profit organization and acts as a platform where member angel investors and aspiring entrepreneurs discuss investment opportunities. GBA members founded companies such as AirTies (manufacturer of routers and gateways), Mynet (web portal), and Markafoni.com (private shopping site)[8]. Membership to this premier investment group is by invitation only and members are expected to put their skins in the investment process at least once a year. Members usually invest in areas such as mobile technologies, Internet, software, and telecommunications where they have personal business expertise.

Lab-x provides full-fledged angel services from start-up incubation to funding provision by their 85-member angel network to innovation consulting services. They have investments in Paramarka.com (interactive marketing site), Kobay (research animal lab) and SMS-Groups (mobile chat provider). Lab-x actively searches successful entrepreneurs via business plan competitions in collaboration with respectable universities (such as Bilkent) and business societies (such as GYIAD)[9].

iLab Ventures invests in Internet-based businesses or traditional businesses that plan to expand by using Internet technologies. For instance, the firm provided funding for in-house development of online businesses selling insurance products (Sigortam.net) and personal retirement plans (BesOnline.net) as well as platform sites matching freelancers with projects (Treda), and chemical raw material buyers with sellers (ChemOrbis). They also became a significant shareholder of several major Internet sites in Turkey such as Kariyer.net (career finder) and GittiGidiyor.com (online bazaar). The firm director Yüksel Dibekoglu specified their target investment amount to be in the range of 0.5 to few million USD[4].

212 Venture Capital is a new and promising firm providing not only capital but also strategic support and guidance to early stage companies. It plans to work very closely with techno parks, universities, incubation centers and angel networks. The founders Numan Numan and Ali Karabey started this firm in 2010 after working in investment divisions of major finance companies such as Morgan Stanley, Goldman Sachs, and Deutsche Bank specializing in private equity and venture capital funding of technology firms. 212 Venture Capital is currently raising funds for Q1 2011[10].

Another VC that should probably be mentioned here is Big Bang Ventures as the firm, despite being located in Belgium, has made investments in Turkish start-ups[4]. Big Bang Ventures is a seed and early-stage venture capital fund for high-growth digital media and software companies. The firm typically invests from 0.5 to 3 million Euros. They invested in a performance based digital marketing company (DigiTouch) via Big Bang Ventures II fund and in a social gaming company (Peak Games) via Hummingbird Ventures fund. Please note that the firm has changed its name from Big Bang Ventures to Hummingbird Ventures, which is also the name of their third fund. The companies they invest are located in various European countries such as Pins (hosting services company in Netherlands), Shutl (on-demand immediate delivery network firm in England) and Clear2Pay (payment processing technology developer in Belgium)[11]. According to the firm director Frank Maene, Hummingbird Ventures has allocated a big chunk of its 50 million Euro fund to Turkey and is planning to announce their biggest to date investment in Turkey by the end of January, 2011.

KOBI Girisim is another investment organization that can be considered as a venture capitalist targeting established companies with high growth potential. They seem to differ from other VCs in Turkey due to high concentration of chamber of commerce rather than private company and group involvement in contributing for the organization's funds. So far KOBI Girisim has invested in companies operating mostly in manufacturing of machinery such as Makim, Intermak and BuTech, although they also intend to invest in telecommunications, biomedicine and information technology companies with high chances of dominating their future markets as a sole player. Their investment range is from 0.5 to 5 million USD[12].

Is Girisim Sermayesi, subsidiary of a major Turkish bank (Is Bankasi), has helped many high-growth companies in various sectors (tech or non-tech) since 2000. Their investments so far have been in the range of 1 to 12 million dollars per deal. Therefore, they consider mostly already established businesses operating with significant competitive advantages in their markets. Their company portfolio includes Havas (airport ground services), TurkMed Diyaliz (dialysis centers), and Probil (system integrator)[13].

Rhea Venture Capital Investment Trust (Rhea Girisim) is an Istanbul Stock Exchange registered public company, regulated by the Turkish Capital Markets Board (SPK). Its management team has some high-profile personnel of the government such as a former president of the Central Bank of Turkey, a former president of Istanbul Stock Exchange and a former senator. Rhea VCIT generally invests in companies of $2 – 20 million annual sales that have already completed their product and service developments, established a customer base, and have global aspirations. They do not invest in business models targeting Turkish markets only. They have control over invested company's finances and the board of directors (per their shareholding ratio). The primary sectors Rhea CIT invests are healthcare (medical devices, insurance and payment systems), information technology, software, hardware, Internet, energy/clean technology infrastructure, and business services (finance, hospitality and education). In 2010, Marmara Ferryboats (logistics), Envitec (waste disposal), Seta Medical (healthcare) and Netsafe (information security) were able to receive funding from Rhea VCIT in return for sharing 33% to 99% of their company's ownerships[14].

Esas Holding is a venture capital company owned and directed mainly by members of Sabanci family, which is one of the most well-known families in Turkish business world. The company has invested in 13 companies in 5 main sectors. Although they started their investment life with early-stage companies, over years their target shifted more to partnerships with and acquisition of large companies such as Pegasus Air, Trakya Farmers and AirBerlin. Therefore, frankly the company should not be the first resort for high-growth small businesses to secure funding[15].

FIBA Kapital Holding, Sedes Holding, Turkven Private Equity, Brightwell Holdings (Alphan Manas’ Private Investment Firm) and maybe few others that did not get picked up by my radar invest in later-stage companies and will be researched adequately and explained in another article.

Last but not the least, checking recently founded platforms like eTohum might help find those hidden investing and investment gems!

Special thanks to Ersan Cinan (@Intel Corporation), Volkan Gerdan (@VGG Verimlilik) and Ali Karabey (@212 Venture Capital) for sharing their knowledge with me on the matter.

Umit Dogan Demir

REFERENCES:

[1] Turkey: The new venture capital hot spot, Jennifer Schenker, Business Week http://www.businessweek.com/globalbiz/blog/europeinsight/archives/2010/03/turkey_the_new.html
[2] The first venture capitalist: Financing development in Britain after 1945, the case of ICFC/3i, Richard Coopey, London School of Economics
[3] How angel investing is different than venture investing, Ben Horowitz, BusinessInsider.com, 03/02/2010
[4] Inovent website: http://www.inovent.com.tr/content/seedfund
[5] Webrazzi gundem – risk sermayesi ve melek yatirim, link: http://www.webrazzi.com/2010/06/16/canli-webrazzi-gundem-risk-sermayesi-ve-melek-yatirim/
[6] Young Turk Ventures portfolio companies: http://www.youngturkvc.com/investments.html
[7] Teknoloji Yatirim portfolio companies: http://www.teknolojiyatirim.com.tr/teknolojiyatirim.asp?pg=9
[8] Galata Business Angels, About Us: http://www.galatabusinessangels.org/en_US/page/aboutus
[9] Lab-x achievements: http://lab-x.org/en/basari.html
[10] 212 Venture Capital website: http://212vc.com/start/
[11] Big Bang Ventures portfolio companies: http://www.bbv.be/en/portfolio.html
[12] Kobi investments: http://www.kobias.com.tr/eng/
[13] Is Girisim portfolio companies: http://www.isgirisim.com.tr/EN/invest_by_date.asp
[14] Rhea Girisim portfolio companies: http://www.rheagirisim.com/en/portfolio/
[15] Esas Holding website: http://www.esas.com.tr/new/en/