One of the many challenges facing the Turkish economy is to increase the value added of its products by relying less on simple assembly or use of machines and technology developed abroad. The experience of AirTies, a high tech company specialising in internet connectivity, demonstrates how a company utilising local engineering talent and a boost from external financing can help drive Turkey into a higher level of economic activity.
Founded in 2004 by Bülent Çelebi, a Turkish-American who had spent 20 years working with chip companies in Silicon Valley in California, AirTies is now on track to record sales of about $100m next year. Around 60 per cent of the sales are exported, and a major western European operator will soon be one of AirTies’s largest customers.
“In 2003 the dot-com boom in the US had turned to bust, and when we looked at Turkey we saw the right combination of a number of factors. The technology market was on the upswing and Turkey was producing high quality engineers for much less than similar quality in the US,” Çelebi says.
AirTies started operations in 2004 with just a handful of staff. The company now has 230 employees, 95 of which are in R&D. Operations currently include a major office in Istanbul, a small design center in Wales and a few engineers in the US. The product range has expanded from modems to internet-based television. The products allow live streaming of TV to other electronic devices making the home network much more diverse.
Along with the growth of his own company, Çelebi says the entire technology sector in Turkey has expanded rapidly in the last five years. He is very upbeat about the future of innovation and technology in Turkey. “The quality of engineers here is excellent, and we have seen private sector R&D investment at least double in the last five years. R&D and design now account for about 1 per cent of GDP compared with 0.25 per cent just a few years ago. Part of this growth is due to government incentives that have the effect of sharply reducing employment costs if you hire 50 engineers and are considered an R&D centre.”
While the engineering work capitalises on Turkish talent, most of the manufacturing is done in China. He expects to be able to move much of the manufacturing to Turkey in the next few years. “The industrial infrastructure is improving, and we are investigating what we can do right here in Turkey.”
Initial sales were predominantly in Turkey, and as the company grew Çelebi began to look at the possibility of exports.
“Our first efforts were directed at the emerging markets. But we found that the sophistication of our products was more readily accepted in developed markets like Europe and the US,” he says.
A common problem with all technology companies in Turkey is financing. Lending based on cash flow is still in its infancy, and because these companies have few, if any, hard assets to act as security it is difficult for local banks to extend much credit. Local and foreign private equity is beginning to fill this void. AirTies has benefitted from a major investment by a US-based private equity firm Invus in 2011. Çelebi said this investment has enabled the company to expand its operations sharply.
Murat Erkurt, partner in the Istanbul-based Mediterra Capital private equity firm, confirmed the financing difficulty faced by many internet- or technology-based companies in Turkey.
“There is a financing gap from start-up of an internet-based company to the initial product that some local VCs and ‘angels’ are trying to fill. But there is no bank financing per se for these start-ups, or even in the early stage of production. Once you have a working, feasible product then the major private equity groups here and in the US and Israel become interested.”
Erkurt, who returned to Istanbul from London to establish Mediterra Capital is a former MD of Lehman Brothers private equity operations in Turkey, said Mediterra is actively investigating the technology area and will soon announce the close of a deal with a company with a locally produced software product.
So what advice would Çelebi give others who would like to capitalise on the emerging technology sector in Turkey? “There is no single piece of advice you can give. Be prepared for sleepless nights and a lot of second guessing. Have a high tolerance for risk. You must be prudent about forecasts and, above all, you must have a product that differentiates itself.”
David Edgerly is a former fund manager in Turkey and the Middle East. He writes about the region in his Levantine Musings blog. He has no interests in AirTies.
(By David Edgerly, fttimes.com)
Last modified onSaturday, 06 May 2017 10:07
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