Skip to content Skip to Search
Skip navigation

High interest rates cause slump in Turkish VC startup funding

VC companies have been less willing to invest in Turkish startups Unsplash+/Getty
VC companies have been less willing to invest in Turkish startups
  • Funding down 64%
  • Just 130 deals agreed
  • Interest rates ‘make it difficult’

Turkey has recorded a sharp drop off in venture capital activity so far in 2024, and a leading analyst says investors are exercising patience and being selective in the startups they buy into.

There has been a general slowing of funding for new projects and deals being done in emerging markets in the region, Dubai-based venture capital analysis platform Magnitt said in its latest study covering the Middle East, North Africa, Turkey, South-East Asia and Pakistan.

The downturn is particularly marked in Turkey, the report said. It had just $301 million worth of venture capital funding inflows in the first nine months of the year, a 64 percent drop compared with the same period in 2023. 

The report also highlighted a 41 percent year-on-year drop in the number of deals brokered through to September, with just 130 investments sealed. 

Of these, enterprise software – computer software sold to organisations – attracted the largest share of deals, while fintech garnered the greatest share of funding. 

Challenges in the Turkish economy, including high interest rates and questions over its appeal as an investment destination, are contributing to a weakening of the venture capital ecosystem, said Hakan Akbaş, an angel investor and founding partner and managing director of global business development, advisory and communications company Strategic Advisory Services.

Akbaş told AGBI major ratings agencies still assess Turkey as below investment grade. While the situation is improving, with some upgrades this year, this remains a factor in overseas VC funds taking a cautious approach to Turkish startups, as do high interest rates. 

“In Turkey, interest rates are above 50 percent and by consistently staying there it makes it difficult for venture capital to raise funds and to also make placements into local Turkish startups.” 

Due to high interest rates and the broader problems in the Turkish economy, VC funds are only pursuing a very small number of startups in Turkey, he said. 

“It is a very difficult time for startups, and it is also a time for caution and patience for venture capital funds,” said Akbaş.

Nonetheless, he did hold out some hope for growth and investment: “Despite this difficult environment we do see venture capital now chasing a smaller number of let’s say more promising startups that could be on their way to becoming unicorns.”

The Magnitt report highlighted another difficulty Turkey faces in attracting VC: strong competition across the broader region. The UAE alone accounted for 38 percent of all deals in the Middle East and North Africa, and Saudi Arabia and Egypt also posted solid gains.