Earlybird Digital East Fund Launches New Investment Vehicle

A new €200 million ($242 million) fund, operating as Earlybird Digital East Fund – though distinct from Germany’s Earlybird VC – has been established. This fund will continue its focus on providing seed and Series-A funding to startups within “Emerging Europe”.

This region encompasses countries from the Baltic states through Central and Eastern Europe, extending to include Turkey. Furthermore, Mehmet Atici has been elevated to the position of partner, recognizing his eight years of service with the firm.

Initial Investments

To date, the new fund has already made four investments: FintechOS, Payhawk, Picus, and Binalyze. These early commitments demonstrate the fund’s proactive approach to identifying promising ventures.

The Genesis of DEF: A European Tech Renaissance

The story of the Digital East Fund is intrinsically linked to the evolution of the European tech landscape over the past 15 years. A significant factor was the return of European talent from Silicon Valley, bringing valuable experience and ambition back home.

Cem Sertoglu, after successfully exiting SelectMinds in 2005, relocated back to Turkey. He quickly became a pivotal figure in the emerging angel investment scene, stating he “accidentally became the first angel investor” but was ideally positioned to capitalize on early opportunities.

Forming the Fund

In 2013, Sertoglu joined forces with Evren Ucok, an early investor in Peak Games and Trendyol, and Roland Manger of Earlybird. Dan Lupu, with his regional expertise from Intel Capital, later joined the team. Together, they secured $150 million for the Earlybird Digital East Fund I in 2014, concentrating on Central and Eastern Europe, and Turkey.

This region presented a unique dynamic: a wealth of potential ventures coupled with a scarcity of venture capital. The fund aimed to bridge this gap.

Key Investments and Exits

Between 2014 and 2019, the fund strategically invested in companies like UiPath, Hazelcast, and Obilet. UiPath has since risen to prominence as a global leader in Robotic Process Automation (RPA). Hazelcast, originating in Turkey, is a startup specializing in low latency data processing. Obilet serves as a leading marketplace for intercity bus travel within Turkey.

DEF has also successfully exited investments in Vivense, Dolap, and EMbonds. Notably, Vivense, often referred to as the “Wayfair of Turkey”, was sold to Actera, a prominent local private equity firm.

Exceptional Early Success

The team benefited from the early triumphs of companies like Peak Games, Trendyol, Yemeksepeti, and GittiGidiyor – the four largest Turkish tech exits to date. Digital East Fund participated in all of these ventures. Peak Games, for example, was acquired by Zynga for $1.8 billion just last year.

Fund Performance Metrics

As of Q4 2020, the fund demonstrated impressive performance, with the following key metrics:

• Investment Multiple: 24.9x
• Gross IRR: 104.4%
• Net IRR: 84.1%

These figures underscore the fund’s substantial success in the venture capital arena.

Insights from Cem Sertoglu

In an interview, Sertoglu revealed that DEF achieved a 17x investment multiple on its $150 million fund. He believes this performance may be among the best ever recorded by a European VC fund, originating not from established hubs like Berlin or London, but from Eastern Europe.

He noted the remarkable success of Peak Games, particularly given Turkey’s macroeconomic challenges. The $1.8 billion cash acquisition of a 100-person company was a significant milestone for the local market.

Addressing Funding Vulnerabilities

Sertoglu explained that the fund’s emergence from Turkey, coupled with its connection to a Berlin-based fund, presented an unconventional path. Early on, they recognized the need for global support for follow-on funding.

“We could invest with our own capital and syndicating to our friends, but for follow-on funding, we’d always have to go global,” he stated. “And that made us feel vulnerable.”

Opportunity and Capital Dislocation

The fund’s founders identified a significant imbalance between opportunity and available capital in Eastern Europe. Their initial $150 million fund became the largest in the region, allowing them to focus on the Series A funding gap.

“Being a local player that understands the region would be an advantage,” Sertoglu emphasized, a proposition that proved accurate. “We could essentially see pretty much everything in Eastern Europe for the last eight years.”

A Dual Strategy for Success

The fund employs a dual strategy: supporting local champions and identifying contenders for global markets. Sertoglu highlighted the shift in the tech landscape, citing examples like TransferWise from Estonia and UiPath from Romania.

“Twenty years ago you had to be in Silicon Valley. Now, TransferWise comes out of Estonia, UiPath comes out of Romania. And that was even before the pandemic.”

Looking Ahead

Sertoglu concluded by expressing enthusiasm for deploying the new €200 million fund. “So we now have fresh capital, coming on the heels of a very successful first fund, which we’re keen to deploy. We’re calling all the opportunities, seeing very ambitious, strong teams coming out of the region.”