Turkish startup funding plunges in first quarter

• Startups weighed by uncertainty
• Investment 50% down on last year
• State contributions in decline

Uncertainty in the Turkish economy and government budget cuts are weighing on the country’s startup environment, with venture capital funding for new projects falling in the first quarter to their lowest in more than 18 months.

Turkish technology startups attracted $58 million in the three months to March 31, almost 50 percent down on the same period last year, according to a report by sector research platform Startups.watch. This was the least since the third quarter of 2023, the market overview company said.

Faruk Çayır, the head of Ankara-based Alternative Informatics Association, told AGBI there were several reasons behind this.

“One is that the state’s commitment to startups, and to research and development projects in the current economic situation, is not growing or is very limited, with state contributions declining or next to nothing,” he said.

“State institutions do not have the budget due to this economic crisis.”

The private sector is also wary, he said.

Borrowing costs are relatively high; after a steady decline since December, the Turkish central bank lifted its key lending rate to 46 percent this month. Inflation is running at above 38 percent. 

Since March 19, political instability has deepened following the arrest of senior government opposition figures, including Ekrem İmamoğlu, the mayor of Turkey’s economic hub and biggest city Istanbul. All this has fuelled uncertainty among local and international investors.

There is also a growing skills shortage, Çayır said.

“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,” he said. 

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Limited in value though they were, most of the investment transactions completed in the first quarter were in fintech or gaming, Startups.watch said in its report.

Funders came from a range of countries, including Qatar, the UAE, the UK and Netherlands.

One area that did gain traction in the opening quarter was artificial intelligence – funding inflows for relevant startups almost doubled to $6.1 million. 

Still, the prospects for the sector as a whole are not bright, according to Çayır.

“Companies will try and consolidate this year, rather than expanding their research or investment activity,” he said.

“With little sign the economy is going to improve any time soon, 2025 will not be a strong one for the startup sector.”