FINDINGS AND DISCUSSION

This study aimed to find the factors that affect level of venture capital development between Turkey and Taiwan. The driving forces that might play a role in venture capital industry development are derived from the literature. The first driving force examined was exit opportunities. The exit opportunities create different conditions for venture capitalists in Turkey and Taiwan. The stock market in Turkey is relatively lively; however the most of the trading takes place in the very large issues. In most of the emerging markets, an IPO has hardly been the exit route. For example, in 1998 and 1999, only 3% of all private equity exits in Eastern Europe were IPO exits. (Bosut, 2004). Similarly in Turkey venture capital funds would find it more demanding for their investment to go public in the stock market. On the other hand, Taiwan stock market is very lively and annual IPO rates shows that a venture capitalist would expect an easier exit from her/his venture investment.

The second variable considered was labor market rigidity. The data gathered showed that the variable Rama and Artecona (2000) obtained for labor market rigidity is the same for both countries. Hence no effect derived from this variable.

Next variables examined were average GDP growth and interest rates under macroeconomic variables. There has been difference between the volatility of GDP growth of the two countries. This is probably due to instability of Turkish economy.

Since, the economic instability creates negative environment for any business; it will definitely do for venture capital industry. Interest rates also play a role in venture capital industry formation. In case of Taiwan and Turkey, the interest rates makes difference. Based on economic theory, this thesis emphasizes that the high level of

interest rates crate a negative environment for venture capital investment in Turkey.

Another determinant of venture capital that was introduced was innovation capacity.

The innovation capacities of Turkey and Taiwan show a significant difference. The data shows Taiwan’s innovation capacity is much higher that Turkey. Both R&D expenditures and patenting ratios confirm the statement above. Thus, the innovation and technology capacity of two countries will be different. The venture capitalist can find more investment opportunities in Taiwan than Turkey due to this difference on innovation capacity.

This thesis showed that the Taiwan government strongly supported venture capital industry in the formation period. They provided necessary assistance and incentives to the industry. Taiwan Venture Capital Association also defines the industry as government-driven and affirms that the government programs were the main drive behind the success of venture capital industry. Moreover the examples from other countries show how effective government support is crucial for venture capital formation. For instance, between 1988 and 1992, Israel’s venture capital industry was still in its infancy with only one active venture capital fund of US$30 million. At this time, the major suppliers of capital to emerging companies were large established investment companies belonging to holding groups.

In 1992, the Likud government began to promote the venture capital industry. It set up the Yozma venture capital program to provide financing for venture capital funds and to invest directly in companies. Yozma also encouraged foreign and local corporations to co-invest in high technology startups. In 1993, Yozma provided US$100 million to establish nine venture capital funds. By 1996, Israel’s venture capital industry, which had raised more than US$1 billion, had experienced such phenomenal growth that the government decided to exit the market. However, to

continue to foster its venture capital industry, the Israeli government enacted a temporary legislation allowing tax-free investing in Israeli venture capital funds by foreign venture funds which had tax-free status in their home countries. Currently, there are 32 venture capital funds with a total of US$500 million invested which represents 50% of raised capital (Jeng and Wells, 2000). On the other hand, there is no government support observed in Turkey. There is no policy towards venture capital. On the supply side of venture capital the government support is very important to create an industry; else investors would be much more precocious to invest their money on a venture and will not be willing to invest until the government supports them and provides incentives.

On the demand side of venture capital, industry structure and cultural differences has been taken in to consideration. The industry structure of Taiwan and Turkey is significantly diverse. Taiwan industry mainly produces new technology products;

whereas, the Turkish industry is many composed of traditional industries, such as petrochemical, and textile. If we look at the investment portfolio of venture capital firms, both in Taiwan and USA, we see a big portion of the investment goes to IT and technology companies. Thus, the industry should have enough companies in the IT field for people to learn know-how and create an opportunity to set-up new ventures.

Turkey is obviously lacking this opportunity for perspective entrepreneurs. Thus, it creates an obstacle on demand side of venture capital.

Cultural was the second additional variable on the demand side of venture capital that is studied. The cultural dimensions of Turkey and Taiwan exhibit different results than the findings of previous studies. Moreover, the self employment ratios of two countries were found to be similar. Especially, before high industrialization of Taiwan the rates were closer. Cultural motives for self employment might be different in two

countries, yet the self employment ratios show that the difference is not significant.

The following table summarizes the findings of this thesis.

Figure 13: Findings