Earlybird, the Berlin-based VC that has focused on backing startups in Europe and other ecosystems outside of Silicon Valley, is today announcing its latest fund and geographical target. It is raising $130 million for the Earlybird Digital East Fund (EDEF) to invest in early and early growth startups in Turkey and Central and Eastern Europe. Around $110 million from institutional and family investors has been committed so far.
Those investors include the European Bank for Reconstruction and Development, the European Investment Fund, the International Finance Corporation and Turkey’s dedicated fund of funds and co-investment program Istanbul Venture Capital Initiative (iVCi) and family offices and entrepreneurs.
The shift to looking further afield beyond more established (and, some might say, oversaturated) markets like Silicon Valley is a trend that we have been seeing for a while. VCs like Atomico and Mangrove — both founded by entrepreneurs out of Europe — have made investments in regions like South America and countries like Russia.
Turkey and smaller Eastern and Central European republics like Romania and Bulgaria are a progression of that trend, and they come with some good basic building blocks for success:
“Unlike money, entrepreneurial talent is distributed equally around the world, and we want to find the most exceptional entrepreneurs,” Roland Manger, a co-founder of Earlybird and a leader on this fund, tells me. “The cultural bias in CEE and Turkey is that science and tech education are at a premium. The brightest go for those degrees at home and studying abroad.”
At the same time, these are countries that have been largely ignored by other VCs. The only other “investment-grade” fund in the region, he says, is 3TS, which focuses on CEE.
Manger tells me that he and other colleagues (Cem Sertoglu, Evren Ucok, and Dan Lupu are the other three partners managing this fund) have been scoping out Turkey and the other countries for the good part of one-and-a-half years as they prepare to invest. Some of that has led to them discovering companies but not yet being in a position to invest in them — for example distributed computing startup Hazelcast, which Manger encouraged to relocated to the Valley, where it subsequently picked up funding. We should be seeing some Earlybird deals getting announced “very soon” out of this fund, he says.
So will Earlybird follow through on its namesake and become the canary in the coalmine, with other VCs to follow? The company already co-invests with others like Sequoia, which it partnered with in the latest round for Wunderlist, marking Sequoia’s first investment in Germany.
“There is a signalling effect that we see,” says Manger in response to the question.
Wunderlist, in fact, is a fitting example in another way: it may have been developed in Berlin but it very much has ambitions to grow more in the U.S. as part of a wider global vision.
“I think that will be the case for the portfolio companies in this latest fund as well,” Manger says. “We’re not investing in local companies but tech startups. Most of these will have products and services relevant for a local and a global audience. It just may be that the best founders happen to come from Bucharest or Sofia.”
Indeed, that turned out to be something of a surprise to Manger at first. “I had some preconceived notions that the opportunity that Turkey was one of e-commerce. But when I looked more closely I saw more.”
All the same, they are keeping a level head about the opportunity. “We’re not going after the superunicorns. Many of the most successful venture companies are not household names. And those household names didn’t start out that way.”
Lunden, I. (January 21, 2014). EarlyBird Raising $130M To Fund Startups In Turkey And Central Eastern Europe. Retrieved on October 6, 2014 from TechCrunch. Link to website: http://techcrunch.com/2014/01/21/earlybird-raising-130m-to-fund-startups-in-turkey-and-central-eastern-europe/