Turkey’s startup funding dropped nearly 50% in the first quarter of 2024 due to economic uncertainty and declining government support. Venture capital investments fell to $58 million, the lowest in 18 months. Factors include high borrowing costs, inflation, and a skills shortage as engineers leave the country. While AI startups gained traction, the overall outlook remains bleak with predictions of consolidation over expansion.
In the first quarter of 2024, Turkey’s startup funding faced a significant decline, being nearly halved compared to last year. The uncertain economic climate and austerity in government budgets have profoundly impacted this sector, with venture capital investments plummeting to $58 million—marking the lowest point in over 18 months, according to Startups.watch. This downturn is attributed to several factors, including a lack of state support and rising costs for the private sector.
Faruk Çayır, president of the Alternative Informatics Association in Ankara, highlighted the state’s minimal commitment to startups amid ongoing economic challenges. He stated, “The state’s commitment to startups and research and development projects in the current economic situation, is not growing or is very limited, with state contributions declining or next to nothing.” This exacerbates the environment for new ventures, as governmental budget constraints limit resources.
The private sector is also hesitant, facing high borrowing costs. The Turkish central bank raised its key lending rate to 46%, while inflation continues to spiral past 38%. These economic strains, combined with increasing political instability following arrests of opposition leaders, further deter local and international investors, heightening uncertainty in the market.
As for the human capital aspect, a notable skills shortage is emerging as software developers and engineers leave the country or shift to remote positions with foreign companies. Çayır noted, “Software and computer program developers and engineers are leaving the country due to the present economic circumstances or are now working remotely for overseas-based companies.”
Most investments in the first quarter were limited but centered around fintech and gaming, with funding from countries like Qatar, the UAE, and the UK. Interestingly, artificial intelligence startups saw a rise in investment, with funding nearly doubling to $6.1 million. Nonetheless, Çayır predicts bleak prospects ahead, asserting, “Companies will try and consolidate this year, rather than expanding their research or investment activity,” emphasizing that without economic improvement, the startup sector’s future appears dim through 2025.
The tumultuous landscape for Turkish startups reflects a broader economic strain, characterized by decreased funding, political unrest, and a lack of governmental support. Although some sectors like artificial intelligence show promise, the overarching sentiment remains cautious. Without significant economic reform and stability, the future of Turkey’s startup ecosystem appears uncertain as it grapples with an uphill battle of consolidation rather than growth.
Original Source: www.agbi.com
