Turkish technology startups faced a challenging first quarter as venture capital funding plummeted to its lowest level in over 18 months. According to a report by Startups.watch, a sector research platform, Turkish startups attracted only $58 million in funding during the three months ending March 31, representing a nearly 50% decline compared to the same period last year. This significant drop marks the lowest funding level since the third quarter of 2023.
The decline in funding is attributed to several factors, including uncertainty in the Turkish economy and government budget cuts. Faruk Çayır, head of the Ankara-based Alternative Informatics Association, explained that the state’s commitment to supporting startups and research and development projects has been limited due to the current economic situation. “State institutions do not have the budget due to this economic crisis,” Çayır noted.
The private sector has also been cautious, with high borrowing costs and inflation above 38%. The Turkish central bank recently raised its key lending rate to 46%. Political instability, including the arrest of senior government opposition figures such as Ekrem İmamoğlu, the mayor of Istanbul, has further fueled uncertainty among investors.
Çayır also highlighted a growing skills shortage in the tech sector. “Software developers and engineers are leaving the country or working remotely for overseas companies due to the current economic circumstances,” he said. Despite these challenges, some areas showed promise. Funding for artificial intelligence startups nearly doubled to $6.1 million in the first quarter. Most investment transactions were in fintech and gaming, with investors from countries like Qatar, the UAE, the UK, and the Netherlands.
However, the outlook for the startup sector remains uncertain. Çayır predicts that companies will focus on consolidation rather than expansion in 2025. “With little sign that the economy is going to improve any time soon, 2025 will not be a strong year for the startup sector,” he concluded.
