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.

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