Based on five years of active venture capital investing in Turkey and the developing world, we have understood a little-known fact: there is no venture capital if there are no "industry maker" companies. What do I mean by industry maker companies? These are the firms that you can build a whole industry around; examples are Hewlett-Packard and Google.
To qualify as industry maker, a company needs to:
-- have a unique technology or application, a secret sauce to solve a problem in scale. From a historical perspective, the innovation that started the Industrial Revolution was a machine that made cotton soft and wearable. The entire basis of Silicon Valley was semiconductor technology and the innovation and know-how that created efficient businesses around it.
-- have an efficient business model. If a company has an efficient business model in a developing world, and is able to make large amounts of money at high margins, then it has the ability to create an eco-system of companies that share its DNA.
-- be a "zero-billion dollar" company at the time of an investment decision. The revenue can be zero; but the potential is billions of dollars.
-- have a will to form an ecosystem around it and have a will to make a social change and create new priorities or ethics for itself, its people and its ecosystem.
If companies don't meet these criteria, it is very difficult for a venture capitalist to make an investment decision. An angel investor can make money in deals that don't have these characteristics, but VCs cannot survive if they do not use these as investment criteria.
The billion-dollar question is: Are such entrepreneurs, ideas, talent and, most importantly, the will to create industry maker companies present in the Arab world?
I definitely think so.
Here are my reasons why:
1. Multi-disciplinary cultures. In our region, we are a multi-disciplinary people. It may be a survival mechanism. You hardly see a pure engineer or a pure artist; it is usually a combination of multiple disciplines. This has been a disadvantage until now. However, in the internet world, for example, most problems are multi-disciplinary ones. You can also call them gray area problems that people ignore. For example, how do we combine the online and offline worlds? How do we combine payment systems? How will the bank of tomorrow be structured?
These problems cannot be solved linearly any more. New mindsets need to be applied to make a paradigm change in key areas of life and business.
2. Innovation comes from anywhere. The tools that we all use, whether we live in Amman, Istanbul or Menlo Park, are almost the same. We all use iPhones, Android phones, communicate through Facebook, tweet, check our mails through Gmail, get info and news on the internet, spend more time in front of Youtube than our TV. Our access to information is leveled. Our habits are leveled. Our lives are pretty much around the same tools. Access to information is an important factor in innovation. When information access is leveled, innovation is without borders. If we can succeed in building a bridge between innovation and the building of a business, we will achieve a paradigm shift.
3. Talent can be scalable across the region. Distributed networks are the base of the internet. And distributed architectures are scalable. Linear structures are easier (herd psychology is easier to apply to human behavior), but the result is a lack of innovation. As mentioned, it is important for an efficient business to be able to create an ecosystem around it. That is very important in scaling talent. One of the drawbacks of not having an industry around innovation is that we don't have talent sets in specific areas. However, when an efficient business model arises, I see that it becomes easier for that talent to form a company and piggyback on the existing business model. Both grow due to the network effect and talent scales.
4. Areas such as game, animation and story-telling are huge in the region. There is natural talent for such things. There are also specific areas such as image processing or nanotechnology in specific areas in the region.
Business models based on land and real estate won't take us far. The future lies in building new industries, and creating and supporting industry maker companies in our region.
Mehtap Mae Ozkan, founder and managing director of Golden Horn Ventures and TIMAR Ventures, the first venture capital firm in Turkey, has more than 15 years of technology knowledge and startup experience as an entrepreneur and technologist. She has worked with major technology companies such as Microsoft and Nokia, and has been an early investor in early technologies like cryptology and security. Mehtap is on a mission to change the world through venture capital investing in the developing world.
© Zawya 2012
