Emerging Europe

The opportunity in Emerging Europe (Turkey and Central Eastern Europe – CEE) is vast.

Emerging Europe (CEE plus Turkey) is a focus market for Nodem, providing all the raw ingredients for a successful secondary strategy. Here, we outline some reasons everyone should take the region seriously from an investment perspective. 

Emerging Europe has a significant track record of success

Many VC-backed unicorns are coming out of Emerging Europe, and many more are coming. Beyond this, Emerging Europe has shown real depth and variety, with many more profitable mature growth-stage startups also emerging. 

Turkey has generated more than $7bn in value through exits. Comparing M&A activities between 2023 and 2020, Turkey stands out with a remarkable 45% growth, marking the highest increase among several major economies.

The region is a hub of innovation

Like in any market and for any business, the economic upside of VC investing depends on supply and demand for some key factors. More specifically, VCs rely on having access to the best possible human resources: entrepreneurs, engineers, and commercial specialists who can create or disrupt major markets—all of that against tremendous headwinds from large incumbents and significant resistance to change from potential customers and users.

Turkey and Central and Eastern Europe boast a remarkable hotbed of tech talent, producing over a million engineering and developer graduates annually – a figure surpassing both the United States and any Western European nation. This abundance of talent is evident in global rankings, with eight of the top 30 countries for developer prowess hailing from this region.

Turkey, experiencing rapid economic growth, exemplifies this potential. The region exhibits exceptional strength in key tech domains, including algorithm development, Java, C++, and artificial intelligence (AI).

While the quality of developers in Turkey and CEE rivals global leaders, a significant wage gap persists. The median annual salary for IT professionals in the US hovers around $115,000, while their counterparts in Turkey and CEE earn a comparatively modest $28,000.

This combination of cost-effectiveness and high-quality engineering talent has fuelled a surge in IT startups across Turkey and CEE, establishing the region as a formidable player in the global innovation landscape.

Two types of Next Wave company:
  • Local companies for local markets: The region’s large local markets are ripe for digital disruption. These markets are undergoing offline-to-online conversion and are facing software-driven transformation. Nodem looks to mitigate technology and business model risk; one way of doing this is to identify similar winners in other, more advanced markets. An example of this model is Earlybird’s investment in Vivense. Following the example of Wayfair, the US leader in online furniture retail, their Istanbul-based portfolio company became the number one Turkish online furniture market. When the company started in 2013, only 3% of all sales were online compared to 8% in the US. In 2023, the company did well, earning over $120 million in topline revenue with a market share above 10%. Public sources suggest the fund that Earlybird used to acquire Vivense has achieved a 17x investment multiple on a $150 million fund. 

  • Local founders for global markets: Here, Nodem looks for world-class founders from CEE and Turkey who drive innovation in enterprise technologies and address the global market from the outset. Companies like UiPath (Romanian) would fit into this category.

Mitigating risks

Nodem’s team spend significant time understanding both company and macro risks. On the macro side, we build significant margins for safety and ensure underlying companies derive revenues from a diversified basket of currencies. There are also political and regulatory risks. Not all of them can be mitigated, but we set to invest in holding structures in globally leading justifications to take advantage of superior governance standards and strive to avoid heavily regulated industries.

Interested to learn about African exit markets? Follow the link here.

Disclosures
The views set forth herein are solely those of the authors and do not necessarily reflect the views of Nodem Capital. The information and views expressed are generic in nature and are not an offer to sell or the solicitation of an offer to purchase interests in any investments or services. Certain information contained in this article may constitute “forward-looking statements”. Any projections or other estimates contained herein, including estimates of returns or performance, are “forward-looking statements” and are based upon certain assumptions that may change. Due to various risks and uncertainties, actual events or results may differ materially from those reflected or contemplated in such forward-looking statements. There can be no assurance that the forward-looking statements made herein will prove to be accurate, and issuance of such forward-looking statements should not be regarded as a representation by Nodem Capital, or any other person, that the objective and plans of Nodem Capital will be achieved. 
This material does not constitute financial, investment, tax or legal advice (or an offer of such advisory services). It should not be viewed as advice or recommendations (or an offer of advisory services).
Certain information contained in this article (including certain forward-looking statements and information) has been obtained from published sources and/or prepared by other parties, which in certain cases has not been updated through the date hereof. While such sources are believed to be reliable, neither Nodem Capital nor any general partner affiliated with Nodem Capital or any of its respective directors, officers, employees, partners, members, shareholders, or their affiliates, nor any other person assumes any responsibility for the accuracy or completeness of such information.

London Office
Nodem Ltd

1a Britannia Street

London

United Kingdom

WC1X 9JT

Nodem Ltd is registered in England and Wales under company number 15661530. Please note that Nodem is currently in the process of seeking FCA authorisation. All investment activities will commence once regulatory approvals are in place.

 

This website is for informational purposes only and does not constitute an offer, solicitation, or recommendation to sell or an offer to purchase any securities, investment products, or investment advisory services. This website and the information set forth herein are current as of 30 June 2024 and are not intended to provide investment recommendations or advice.

London Office
Nodem Ltd

1a Britannia Street

London

United Kingdom

WC1X 9JT

Nodem Ltd is registered in England and Wales under company number 15661530. Please note that Nodem is currently in the process of seeking FCA authorisation. All investment activities will commence once regulatory approvals are in place.

 

This website is for informational purposes only and does not constitute an offer, solicitation, or recommendation to sell or an offer to purchase any securities, investment products, or investment advisory services. This website and the information set forth herein are current as of 30 June 2024 and are not intended to provide investment recommendations or advice.

London Office
Nodem Ltd

1a Britannia Street

London

United Kingdom

WC1X 9JT

Nodem Ltd is registered in England and Wales under company number 15661530. Please note that Nodem is currently in the process of seeking FCA authorisation. All investment activities will commence once regulatory approvals are in place.

 

This website is for informational purposes only and does not constitute an offer, solicitation, or recommendation to sell or an offer to purchase any securities, investment products, or investment advisory services. This website and the information set forth herein are current as of 30 June 2024 and are not intended to provide investment recommendations or advice.

London Office
Nodem Ltd

1a Britannia Street

London

United Kingdom

WC1X 9JT

Nodem Ltd is registered in England and Wales under company number 15661530. Please note that Nodem is currently in the process of seeking FCA authorisation. All investment activities will commence once regulatory approvals are in place.

 

This website is for informational purposes only and does not constitute an offer, solicitation, or recommendation to sell or an offer to purchase any securities, investment products, or investment advisory services. This website and the information set forth herein are current as of 30 June 2024 and are not intended to provide investment recommendations or advice.