Golden Horn Ventures

What does Venture Capitalist protect?

Venture Capitalists main job is not to protect paper bills/ paper money. However, for paper bills to multiply, venture capitalists need to protect the mind-set, with which innovation can live and prosper. This is why venture capitalists ask for high management fees and success fees from their investors. The art of venture capital is in living and practicing this mind-set.

Billion-dollar idea is the focus of a venture capitalist. Disruptive technologies, paradigm shift, finding the black swan is what venture capitalists need to think, live and die for. The rest is in the hands of entrepreneurs and the team.

In the emerging markets - including Europe- where when entrepreneurs choose the path to innovation, technology and start-up life - the world is quite lonely. In a path to creating "billion-dollar" companies, the tools in emerging markets - such as law and accounting system - as well as people around (family, friends, teammates), aren't positioned for support, but rather create barriers when there is a conflict. And there is always a conflict when you are moving and growing and especially disrupting.

I have come to realize more and more that there is a "billion-dollar" mind-set.

Billion-dollar mind-set represents:

-- no entitlement, pure meritocracy,

-- courage and fearlessness,

-- honesty and self-esteem,

-- discipline and asceticism,

-- investing in a long term vision and believing that long term vision always wins,

-- lust for meaning and mission,

Did I say courage and fearlessness? I want to say it twice. It is crucial to remind the value of "Mission" and "Courage" together.

The dilemma of a venture capitalist in an emerging market is that it is very schizophrenic to protect the mindset without tools in place. The tools in place need to be in accounting, law, business society rules, etc. 

For example, according to accounting and written law in Europe and most of emerging markets, "value" is only defined by hard assets such as real estate, machines, doors and chairs. In this definition, "value" is very well defined and easy to part or share.

However, when the value is in soft assets, especially when it is startup value, things get complicated. If soft value isn't turned into hard assets and "paper money" yet, then what does law protect? How can it be written in the books? When the accountant writes it in the books, can she defend it? Can a lawyer defend the company and company's soft assets to anybody who is trying to kill it? Can any company lawyer in Turkey say " It is all about the entrepreneurs. It is all about the company"?

If the company lawyers, company accountants doesn't understand the value, then who protects the company and the soft value in the long term? Just the entrepreneur? How can she defend it if the lawyer doesn't believe her? Quite often, so-called venture capitalists in the emerging markets are too busy protecting themselves rather than investments.

If there is no one else in the business environment to think, live and protect the mind-set then how can there be any venture capital, innovation and wealth creation? It is an uphill battle that we are fighting. We are not finished yet, in fact we are just starting as we have just started understanding.

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

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