The Earlybird Digital East Fund – a fund linked to Germany’s Earlybird VC, but operating separately – has launched a € 200m ($ 242m) successor fund. The fund’s focus will remain the same as before: a SEED and Series-A-Fund known as ‘Emerging Europe’, in other words, a country extending from the Baltic to Central and Eastern Europe and Turkey. The firm has also promoted Mehmat Atisi, who has been with the firm for eight years with a partner. The new fund has made four investments so far: FintechOS, Pehavec, Picus, and Binlease.
The back-story to DEF is a fascinating story of what happened to Europe over the last 15 years, as Tech took off and Europeans returned to Silicon Valley.
After exiting SelectMinds (where he was founder and CEO) in 2005, Cem Sertoglu moved back to Turkey. Although he says that he had become “the first angel investor by mistake”, he was clearly the right man at the right place, at the right time. He told me: “I was very lucky and ended up writing the first check in Turkey in some of the first big results.”
In 2013, Certoglou partnered with Everen Ukok (the first fairy in Peak Games and Trendyol), and Roland Manger (Earlybird). Dan Lupu, a Romanian investor who covered the area for Intel Capital, joined him, and in 2014 he set ‘Earlybird Digital East Fund I’ into a $ 150m fund, focusing on CEE and Turkey. This was an area where high quality enterprises could be found, but little in the way of VC.
Subsequently, between 2014 and 2019, the fund invested in UIPath, Hazelcast and Obolet. UiPath has become a global leader in the field known as ‘Robotic Process Automation (RPA)’. Hazelcast is a low latency data processing platform startup with Turkish roots. Obelit is a market focused largely for the Turkish intercity bus travel market. DEF has also excluded Vivense, Dolap and EMbonds and in recent times the fund has excluded Vivense, “Wayfair of Turkey” from Actera’s top local PE fund.
The team had excellent early success. The four largest Turkish take out dates are Peak Games, Trendiol, Yamekseppeti and Gittigidiore. Digital East Fund was an investor in all of them. Peak Games only gave Zynga $ 1.8 billion in cash last year.
By Q4 2020, the fund’s metrics are:
Investment Multiple: 24.9x
Gross IRR: 104.4%
Net IRR: 84.1%
So in terms of VC, they have done very well.
I interviewed Certoglou to unpack the story of the Earlybird Digital East Fund.
He told me that DEF has invested 17 times on a $ 150 million fund. He thinks that “this may be the largest European VC fund performance in history, and it’s not coming from Berlin, it’s not coming from London, but it’s coming from Eastern Europe. Told us by some of our L.P. Gone is that they think we are the top 2014 vintage VC fund in the world, no one has seen strong numbers for it. “
“Peak Games became an unprecedented story. When you look at how tough it is for Turkey, broadly. The fact that a single company with 100 people was essentially sold for $ 1.8 billion in cash was simply shocking to the locals here. “
The rise of DEF from Turkey, with its relationship with a fund in Berlin, was not the most obvious path for the VC fund.
“One thing we realized early on was that we could invest with our capital and connect with our friends, but for follow-on funding, we always have to go global. And that made us feel insecure. This made us feel that we were always dependent on the opportunity of others that we were facing. So when the first fund idea came out it was. ‘
“We felt that there was this unusual chaos between opportunity and capital in Eastern Europe. Our first fund was a $ 150 million fund – I mean, a very bizarre shape compared to Western markets. But we became the biggest fund in the region, and decided to focus on this series A Gap, where we felt it was a big opportunity, because we think that Series A is still a very local sport. “
“Being a local player who understands the region will be an advantage, so it turns out to be true. We could see essentially a lot in Eastern Europe for the last eight years. And the biggest one we caught, fortunately, was the UIpath. I think very few funds around the world can say that they see the majority, if not all those opportunities that come in their mandate, ”he said.
“We have this dual strategy of supporting local champions as well as contenders from global markets. You had to be in Silicon Valley 20 years ago. Now, Transfer Wise comes out of Estonia, Uipath comes out of Romania. And this was even before the epidemic. “
Certoglou concluded: “So now we have new capital, coming on the heels of a very successful first fund that we want to deploy. We are calling all the opportunities, a lot from this sector. Seeing ambitious, strong teams. And we have 200 million euros to focus on such opportunities in the region. “