Since the beginning of the life on earth, the only rule has been competition; the effort of being better and prevail. This is the golden rule of survival. Many creatures evolved into different abilities to be better off in this fierce competition. They developed different abilities which will make them more competent. Similar to all live beings, human being is also at the same race. Everybody is on a chase to make their lives better. Likewise in personal case, the nations are also in a competition for well being of their people. Each nation has the desire to reach prosperity and provide the best to its citizens. The nations have also developed different strategies to reach this goal. Even though, there are many reasons to be explored to understand a nation’s level of prosperity, and what brings prosperity is a complex question, it is shown by many studies that venture capital (VC) is a factor that influences nations’
competitive advantage and helps to reach prosperity.
1.1 Motivation
The OECD Growth Project recommended increasing access to high-risk finance to stimulate firm creation and entrepreneurship, one of the main drivers of growth and productivity performance (OECD, 2001). However, countries have had varied success in channeling funds, particularly venture capital, to early-stage firms in high-growth sectors. On the supply side, this may be due to a lack of funds, risk-averse attitudes and/or the absence of equity investment culture. On the demand side, there may not be a sufficient pool of entrepreneurs and investment-ready small firms. Countries need to first determine where financing gaps
exist and assess all possible supply and demand factors which may be contributing to market failures in terms of access to venture capital.
The United States has the oldest and one of the largest venture capital markets in the world.
Not only does the United States have an entrepreneurial and risk-taking culture, small firms have benefited from a continuum of venture finance provided by business angels, private funds and public equity schemes. But US venture funding, as in most other OECD countries, has suffered from the recent global downturn in technology and financial markets. The United States and other OECD countries need to re-evaluate and redirect government venture capital initiatives to assure their continuing contributions as market conditions change. And as the market becomes more global, countries need to enhance their ties to international venture capital flows, which are a source of both finance and expertise (OECD, 2004).
Another vivid example of a success story is Taiwan Venture Capital Industry. According to Taiwan Venture Capital Association (tvca, 2006), Taiwan’s venture capital industry is the third most active venture capital market in the world behind the US and Israel. Many national governments, including those of Japan, Korea, Malaysia, Thailand, Singapore, Australia, New Zealand, Canada, Israel, Germany, Switzerland, France, and China are highly interested in the successful venture capital model of Taiwan’s venture capital. The government-led development of Taiwan’s venture capital industry has been the subject of many studies and discussions in many Asia Pacific countries such as China, Singapore, Australia, New Zealand and others seeking to develop their own venture capital industries through the implementation of incentive systems (tvca, 2006). Taiwan venture capital industry supported companies that became one of the biggest in the country and they later successfully went public including D-Link, United Semiconductor Corp., Acer, ZyXEL, Macronix, Inventec, TSMC, Winbond, Accton, MediaTek, BenQ, Altek, and Radiant Opto-Electronics.
On the other hand, Turkey had been away from the trend going on about venture capital. The following figure shows how Turkey is legging in this industry comparing to Taiwan.
Figure 1: Comparison of VC Industry, Taiwan and Turkey
Source: TVCA (2006), CMB Turkey, VC Company Portfolios
Even though Turkey is taking measures to adapt its economy to global competition, there is no effort observed to support venture capital industry. The motivation for this thesis comes from the unique success of Taiwanese venture capital industry and whether it can be a model for Turkey. Especially, since the banking sector is the dominant financial sector in Turkey, problems encountered led to great difficulties in industry that depend on bank credits and guarantees for their operations. Since the crises, access to finance has been a major problem especially for small and medium-sized enterprises (SMEs). Venture capital might be a solution to this problem encountered by SMEs in Turkey. This thesis will try to understand the differences between two countries regarding the factors that effect venture capital formation, and then conclude the results that affect the difference between two countries to
suggest ways for Turkish government to improve the current situation of venture capital industry in Turkey.
1.2 Research Methodology
First, the contribution of venture capital will be introduced using previous studies from the literature, and then statistical data will be demonstrated to support the literature. To understand the main driving forces of venture capital, the previous studies will be brought in.
Then, according to the findings from the literature, the comparison of two countries Turkey and Taiwan will take place. The secondary data will be used to analyze the variables that are found in literature review. The following figure summarizes the research approach.
Figure 2: Research Approach
Conclusion
Data Gathering: Yearbooks, Journals, Websites of VCs in Turkey, Statistical Institutes
Analysis of data according to literature review Literature Review: Journals,
Thesis Dissertations, and Reports