Golden Horn Ventures

Companies Defined by Competition

To argue that any place will replace the Silicon Valley as the center of technology universe is just a futile exercise. But I believe that more and more success stories will come out of anywhere in the world, and will disrupt the existing winners, the ones in the Silicon Valley.

One common mistake that companies outside of the Silicon Valley do is letting competition define their products.

This tendency has many reasons naturally. There isn't enough support (financial, business connections, etc.) to back up novel ideas and companies. Companies tend to do what everyone else is doing, or better, the bigger guys in the Silicon Valley are doing, just to guarantee to survive.

For example, after YouTube's success, every country got its share of local YouTubes, the copiers. The same was true for eBay as well. YouTube and eBay are known models. It is easy to create applications and websites that imitate them on the surface. And everybody knows that they hit it big. So local versions of them should too, right? I don't think so! It rarely happens that imitators understand the underlying ingredients for a success behind YouTube or eBay. I don't want to get into the details of why eBay or YouTube was successful in this post. However, as an entrepreneur who targets even a local success of a YouTube imitation, he/she needs to bet more than just an imitation of YouTube. He needs to have an original idea that serves the local needs. He needs to create a product regardless of imitation, regardless of competition! He needs to know how to create an original product and an original company at the end.

Let's take another example, a company that is offering enteprise applications such as CRM. Let's say that this fictitous company is competing with the big guys, the usual suspects; Oracle, Microsoft, SAP, etc. etc. Their proposal to their customers is a check list that combines both Oracle's and Microsoft's offerings all united together. The killer part is not only their long list of checklists Oracle, Mircosoft and SAP combined, but also their price tag, which is 1/10 th of the competitors' offerings!

This is just wrong! It is a waste of resources thrown just to stay one step behind of the current winners. There are so many things to do in the enterprise space. It is a land of opportunity. The difficulty of usage of the enterprise applications, the long and difficult processes to get the systems up and running, the price tags, the long trainings needed for users, the neglections of users and user habits, etc. of the competitor offerings don't ring any bells?

The problem is they don't have the courage or the means or the vision (or a combination of all) to not let the competition rule their product and company. This is just a fatal mistake for a startup.

The winners set their own game. They have their own vision. They want to change the world.

What I want to say is, forget the traditional way of doing things. Get out of your obsessions with the features lists of the big guys. Stop letting competition define your products. You have a chance to change the world. It is your turn now. Don't let the competition define you. You try to define the competition, you create one yourself!

Mae Ozkan

Examples of Changing Early Stage Technology Venture Capital Landscape

There were two interesting news this week:

The first news was coming from India. Google takes an LP (Limited Partner) approach to two early and seed funds in India and for the first time invests in venture capital funds. My take on this is that Google is willing to catch the ideas early no matter which geography of the world the innovation comes from.

An innovative company such as Google itself, is betting early and seed stage companies and technologies and tools that they will create on geographies outside of the US. I congratulate Google on its vision and act.

The second news was about the successful technology venture vapital firm of Europe. Index Ventures closes its forth fund at more than $400 million and reaching the total capital under management to over $1.3 billion. It is getting exciting in Europe as well.

We will see more and more success stories from all around the world as more capital and interest goes to early stage companies outside of the US. This is just the start of the globalization of early stage venture capital. The results will be innovation and information flowing throughout the world regardless of borders and geographies, democratizing and leveling the field of innovation.

Mae Ozkan

Leveling the Field for Innovation

One of the problems with the entrepreneurial environment of the emerging countries is not the lack of ideas, but the lack of tools that help the entrepreneurs to make something out of their ideas and the examples of successful companies.

The scarce resources are finances such as venture capital for early and seed stages, business experience and an open environment, where innovative ideas are fed by each other and talented people are supported by experience and networks.
In emerging countries, all of these important ingredients are lacking. The environment doesn't have finance tools. The environment doesn't support openness. There is no conversation among companies where they encourage each other for more innovation and build on top of each other's ideas. An open environment could easily be supported by rewarding the talented and innovators and encouraging dialogs among them.

The scarce resources are barriers to produce meaningful products and companies from innovative ideas and technologies. The end results are what makes the difference in the world. The consumers don't buy the ideas, but the products. However, the scarcity of tools and opportunities to make the end results and successes from meaningful ideas stay on the way of an entrepreneur.

However, luckily, the world is changing. Some of the ingredients that are needed to turn ideas into products are becoming more available for people all around the world. The result will be leveling the field for innovation and thus, the ideas will worth more and more as the needed ingredients are becoming abundant and commodities.

For example, the Internet has leveled the reach of information for most parts of the world. The open source movement has been a great force in the industry. It has disrupted many companies, while giving opportunities to many entrepreneurs with ideas.

Now, the rise of services such as Amazon’s Simple Storage Service (S3) and Elastic Compute Cloud (EC2) that are cheap alternatives to storage and heavy lifting of Internet applications, will level the playing field. Solving heavy lifting problems will result more time being dedicated to differentiated ideas. The result will be more innovation and smaller market cycles, therefore more opportunities for the ones that have the right alignment, and more threats for the ones that are big, hard to move and lack an understanding of the industry dynamics.

The technology industry is going through a faster chage more than ever. It will change other industries related with it, including the venture capital industry. When the ideas matter, the power of whoever holds bigger chunks of money will be replaced by whoever holds the bigger and better ideas and whoever has the value to add. This exciting change will disrupt many things along with it. These changes will give a chance to the world's best kept secret projects to be secret no more!

Mae Ozkan

A Brand New World: The Promise of Globalization is Here to Stay

The cover of Economist magazine's Sept 16th issue reads "Surprise! The power of the emerging world". The articles inside are very interesting and supports Golden Horn Ventures belief in the emerging markets and Turkey in particular. There is one survey on the world economy titled, The New Titans.

Here is an excerpt from it:

"Last year the combined output of emerging economies reached an important milestone: it accounted for more than half of total world GDP (measured at purchasing-power parity). This means that the rich countries no longer dominate the global economy. The developing countries also have a far greater influence on the performance of the rich economies than is generally realised. Emerging economies are driving global growth and having a big impact on developed countries' inflation, interest rates, wages and profits. As these newcomers become more integrated into the global economy and their incomes catch up with the rich countries, they will provide the biggest boost to the world economy since the industrial revolution. Indeed, it is likely to be the biggest stimulus in history, because the industrial revolution fully involved only one-third of the world's population. By contrast, this new revolution covers most of the globe, so the economic gains—as well as the adjustment pains—will be far bigger..."

The chart numbered "2" shows that countries that were once strong, became weaker with the industry revolution and they are"re-emerging" again.

The article continues as follows:

"Emerging economies as a group have been growing faster than developed economies for several decades. So why are they now making so much more of a difference to the old rich world? The first reason is that the gap in growth rates between the old and the new world has widened (see chart 3). But more important, emerging economies have become more integrated into the global system of production, with trade and capital flows accelerating relative to GDP in the past ten years...."

"What is also new is that the internet has made it possible radically to reorganise production across borders. Thanks to information technology, many once non-tradable services, such as accounting, can be provided from afar, exposing more sectors in the developed world to competition from India and elsewhere..."

As the Internet and the abundance of information and technology has connected the emerging world to the developed world (to the distribution points, the centers/hubs of economy), there are more changes coming up.
The Internet feeds emerging markets with information and brings different communication and business rituals. The globalization itself has created know-how in the emerging countries. I have partly discussed the very same points in my previous post titled, Innovation, Technology and Emerging Markets.
What I would like to add to the Economist's article is innovation from the emerging countries and the disruption that it creates on the world economy and markets. Technology introduces many new ways of distribution and creation. It also allows the voices of the poor and far audible all over the world. The products and services of the ones in the emerging markets become available in the international markets as the barriers to entry decreases or better to say, the ability to distribute and innovate is democratized. That will result more innovation from the emerging countries, thus creating more disruption in the world economy.
As a result, the catching up to the developed world standards will be faster than we envision it will be. The way that it will happen will be disruptive. Just as startups can rock the monopolies (eg. the entertainment industry), companies from the emerging world can rock the world economy's existing equilibrium and create more prosperity for many in and outside of the emerging markets. Pretty soon the definitions of "emerging" and "developed" will change. The macro stories will be changed by "micro" successes and disruptive company/product/service names.

Wasn't that the hidden promise of globalization anyway? The promises are there for us to grab. It isn't easy, but it is here and it is the future.

What the Brand New World means for IT?
• Countries that have only been used for outsourcing start creating innovative products and services,
⁃More innovation will come out of the emerging countries as the emerging countries have piled up information and ideas and the reach of technology and building a technology company getting cheaper everyday, thus the geography of the innovation is becoming trivial,

• Local will become international more quicker than ever,

• In addition to big companies (such as Microsoft, IBM) being international and harvesting the benefits of being international, startups from the emerging countries will become international if /when there is a value (a new technology, a new business model, a new distribution model, etc.) in them (I specifically say startups, not companies, because I believe that only startups can pursue opportunities and create disruption),

• The markets are getting bigger (the transition from the mainframe to PC has created more than $300 billion wealth, the transition from PC to services will create even more significant wealth). The sharing of this wealth between the developed and emerging markets is starting to shift as innovation comes from any geography,

• New distribution models make it possible for emerging market players to become global for service businesses and digital products as broadband connection becomes prevalent,

• New business development models are rising: (Business 2.0, A VC blog by Fred Wilson) that are more independent of the geography of the company, but are dependent on the technology and usefulness and their disruptive qualities,

• New venture capital models are rising:( Venture Capital 2.0 , Early Stage VC blog by Peter Rip)
⁃"The basis for competition in the Venture 2.0 Crossover model is a focus on markets, independent of stage, geography, and risk capital instrument.",

• The disruption is happening everyday. The strong is weak when it lacks to innovate (eg. The rise of new business models, the struggle of Microsoft with advertising model vs. the software as a package),

• Innovation, disruption and links; The innovators that have a link to the centers of the economy have a global impact and influence. Disruptors that have links to Silicon Valley will effect the equilibrium of the market.

Mae Ozkan

How to Create the Right Environment for Startups and How to Link to Silicon Valley?

On my last post on Social Entrepreneurship and Startups, I have mentioned Paul Graham's essay on how to be a Silicon Valley. In the post before that, Brain Drain or Brain Circulation, I have mentioned news.com's interview with Anna Lee Saxenian. I agree with her when she points out knowledge circulates with people. When people who have worked in Silicon Valley come back to their home towns and establish similar businesses, they carry the knowledge and business experience of Silicon Valley with them.

In this post I would like to combine my thoughts on these two topics and discuss how to create the right environment for startups and how to link to the heart of technology, Silicon Valley. This post will also shed a light on why we, Golden Horn Ventures, would like to build a bridge between Silicon Valley and Turkey.

For a knowledge / technology economy or innovation, the first and most important ingredient is people. People and their visions are crucial. People and their ability to dream and the passion to execute their dreams make all the difference. With dreams humanity have built and collapsed nations, have invented and built machines, sytems, medicine, etc. Dreams have brought us from homo sapiens to mankind of today.

As Paul Graham puts it in his essay:

"What it takes is the right people. If you could get the right ten thousand people to move from Silicon Valley to Buffalo, Buffalo would become Silicon Valley."

We can't move people from Silicon Valley to Turkey, however many people who got educated and worked in Silicon Valley end up back in their home towns in Turkey. They want to work and produce as they have done before. They are used to the ways of Silicon Valley; the openness (open organizations, open discussions, open software, open ideas, etc.), the competitiveness, the venture capital, the values (to 'dare' is valuable), the business rules and the business rituals. They are used to the ways of how to innovate as in Silicon Valley, get your product out there, release early, build business partnerships early, etc.

He adds:

"I think you only need two kinds of people to create a technology hub: rich people and nerds. They're the limiting reagents in the reaction that produces startups, because they're the only ones present when startups get started. Everyone else will move."

Rich people and nerds. However, they both need to be more passionate in Turkey than they are in the US. In the US there are reference success stories. There are numbers that show that when you innovate, you succeed! In our case, the rich needs to believe in building a startup / technology economy and building a better future for all. The rich and the nerds both need to understand the global dynamics and the opportunities that lie under.

In developing countries, or in any place where there is not a startup / technology economy - where startups haven't become successful businesses and haven't generated wealth for the many- nerds end up with some work to sustain living such as fixing PCs. Eventually their ideas and their dreams die with every PC that they fix. That is why in places where there is no startup economy, the rich needs to have a clear vision of what future holds for those can innovate and those that can not and the opportunities that are waiting for those who can.

But how about the accumulated know-how, capital and talent? Just because we have 5 teams and 5 startups set up, Turkey wouldn't become the centre of technology and innovation. We need links and partnerships to the accumulated know-how, capital and talent. We need connections to the world of technology, Silicon Valley.

By connections and links, I mean people and partnerships. They will help how things get done, how technology is applied, how technology turns into a product and a business.

By the web, we all reach to information, blogs, codes, examples, theories, messages, discussions at the same time. But connections are needed to be a player, to get more of the accumulated information in the Silicon Valley case by case. With each project the teams will get smarter, understand it better, get the culture of the Silicon Valley in their DNA. Later this will accumulate in the form of know-how and talent. By every sucess story capital will add to the equation. As a snow ball, it will get bigger in every turn. Please note that for know-how and talent to accumulate 'openness' needs to be deep in the culture - open discussions and open organizations.

By the rich people and the links, the nerds will get an access to experience, capital, advise and connections.

It is the people and people only that will make the difference.

Another point that I want to quote in Paul Graham's essay is:

"A corollary is that you have to keep out the biggest developer of all: the government. A government that asks "How can we build a silicon valley?" has probably ensured failure by the way they framed the question. You don't build a silicon valley; you let one grow."

Nerds want to think free and act free! People with dreams could only be fed by other entrepreuners financially and business-wise! People who have dreams to change the world by production and innovation should be set free to do so and supported in an entrepreunerial way. In this way a healthy ecosystem will evolve for technology and innovation and startups.

Mae Ozkan

Social Entrepreneurship and Startups

Most people don't understand what a social force startups and innovation can be. There are a lot of changes that can only happen through startups. Startups are changing old business ways and shaking monopolies.

There are many social entreprenueurship projects coming out all over the world, whose goals are enabling the other half of the world with ideas and innovation. For example, microfinancing and Grameen Bank. Their story is very inspiring. Here is an excerpt:

"When we started giving out tiny loans under a system which later became known as the Grameen Bank, we never imagined that one day we would be reaching hundreds of thousands, let alone five million, borrowers."

This project created disturbance in loaning and credit systems. Banks that think most aren't worthy of a credit saw a business that is profitable and changing the world one credit at a time.

It all starts with an idea. I believe as many do, entrepreneurs' need to change the world. When you want to change the world and make a difference, you definitely succeed!

This is what Golden Horn Ventures' targets: To be a social force by supporting startups and helping them become companies that change the markets. One company at a time, innovation and information of how this innovation becomes successful businesses will accumulate in Turkey and success stories will change the society. The environment that supports it will change. More VC's will be present, more people will support more ideas. This all circles!

Technology is one of the disturbing forces in the society because it gives the ability to people to reach to information cheaper, produce faster and cheaper, etc. etc. (This is a big topic and I don't want to be sidetracked.) To create an ecosystem for technology startups requires some ingredients. I would suggest reading Paul Graham's essays on How to be Silicon Valley and Why Startups Condense in America to understand the ecosystem better. They are excellent essays!
Mae Ozkan

Brain Drain or Brain Circulation?

I read this article on news.com a few days ago. It is an interview with Anna Lee Saxenian, the dean of the School of Information at the University of California, Berkeley.

In this interview, AnnaLee says migration overseas doesn't need to be one-way brain drain, but would result brain circulation. She supports our belief that innovation can come from any geography of the world, just because of migration and how brain (knowledge, experienece and know-how) circulates.

Here is a part of the interview that underlines our work in Golden Horn Ventures:

Stefanie Olsen(news.com): What makes for a thriving technology community like Silicon Valley? Is it government incentives, cash resources or access to engineers and universities?
Saxenian: It is certainly not government incentives. Silicon Valley has evolved over the past 40 years to be a rich community of skill and social networks that allow people to come together, come up with new ideas, and implement them very quickly.
Because you have a deep base of technical skill, marketing capital, managerial skill that's been around, you also have an ecosystem of suppliers--everything from legal, design, banking, venture capitalists--so if you come up with an idea, like a new mobile media, you can pull together a team faster than any other place in the world. That's a product of learning in a community, and it's very hard to replicate.

Stefanie Olsen(news.com): In your mind, what comes close to Silicon Valley?
Saxenian: These new regions, Taiwan, Bangalore, Shanghai, they are extensions of Silicon Valley. This happens from people with deep roots in Silicon Valley, and then they take with them elements of the Silicon Valley business model--the start-up culture, the venture capital, the idea of minimizing hierarchy and creating more open organizations, which is often alien in places like India and China. Those economies have been dominated by family run firms or state-supported enterprises. And they're not creating head-on competitors to Silicon Valley; they're creating linked partners.
Those places look like hybrids, a cross between Silicon Valley and domestic institutions. They're similar, but they don't have the accumulated know-how and talent there.

Mae Ozkan

Golden Horn Ventures

The fund that we are raising for Turkey is called "“Golden Horn Ventures Fund” (GHV). GHV is looking to raise a new $50-million Turkey fund, to invest it, $1 million to $6 million per deal, in early to pre-expansion-stage startups.

Our focus is on software companies that are

innovative in technology,

betting on new business models,

betting on new distribution models.

What we believe is that to “innovative”, to “dare” and to “experiment” needs to be highly appreciated and valued, especially in markets that change fast such as information technology (IT). We also believe that companies, which "innovate" and "dare" will yield high returns, if nothing else will be valued highly for the experience and the know-how for the market that is ever changing.

We believe in working with entrepreneurs from idea inception to funding to company building and internationalizing. We want to be involved in; - as an advisor, not as a driver of the company -

Business development activities
Partnerships, business modeling, funding, etc.
Sales and Marketing

Intellectual property
Patent, copyright, etc.

Product Management

GHV - Markets to Invest In

The markets GHV invests in are mostly what is new and promising, what is risky and potentially rewarding (80%). We would like to invest a small percentage on what is widely invested, hot and popular now! That will make up around 20% of our investments.
Here is a list of areas of our interests:

Business applications (SaaS),

Micropayment,

Location-based services,

Telephony software,

Wireless access,

RFID,

Media applications,

Short- and long- term video,

Interactive entertainment,

IP-based electrical devices,

Open-source applications,

Web 2.0 applications.

We want to applaud the thrill of innovation and to encourage financing it. Our goal is to be ahead of the curve instead of riding it!
The criteria for selecting companies for the portfolio companies are:

High growth markets

Scalable

Disruptive technologies

We also believe that:

New is better than old

Potential is important as proof

Revolutionary is better than evolutionary

I will try to talk about some of the companies in Turkey that are examples to portfolio companies that we would like to invest in in the next posts.

Mae Ozkan

Innovation, Technology and Emerging Markets

Globalization first meant less developed countries opening up borders for the multinationals of the more developed countries. The emerging countries have not been more than open markets for the developed countries. However, as the reach of technology and knowledge became affordable by the poor, innovation has been happening more and more in those countries that have been only once markets-to-sell. Now, there is an opportunity for those of us that are from the less developed parts of the world - or should I say 'emerging'- to create, produce and sell to the more developed parts of the world.

This evolution of the markets was inevitable and I am very happy to see that it is happening in many parts of the world and creating an opportunity for the ones that have a passion to create, innovate and/or produce.

After living and working in the US for many years and asking myself how to create an environment in my home that is is rewarding to innovate and to produce, I have come back to my home town in Istanbul with an enthusiastic project that is based on this very opportunity.

I am starting a new fund in Turkey. I have callled it "Golden Horn Ventures (GHV)". GHV focuses on internationalizing innovative technology companies, mainly software and hardware. We are in the process of raising funds and partnering with VC's from the US and Europe. We will provide not only capital, but also talent, experience and network to the companies here, in Turkey. In other words, we will try to build a bridge between Turkey and the Silicon Valley.
I will keep posting about the developments on the project and where we are and what we do. I am sure what I am trying to do is happening in many parts of the world.

Many things have been changing and will continue to change in the emerging markets. My passion is to create an ecosystem that values innovation and production. That is my ultimate goal in business.
Mae Ozkan