Harvard Case - iyzico: Fundraising in Emerging Markets (A)
"iyzico: Fundraising in Emerging Markets (A)" Harvard business case study is written by Marco Di Maggio, Gamze Yucaoglu. It deals with the challenges in the field of Finance. The case study is 19 page(s) long and it was first published on : Dec 17, 2018
At Fern Fort University, we recommend that iyzico pursue a Series B funding round of $50 million, focusing on attracting strategic investors with expertise in fintech, emerging markets, and payment processing. This funding will be used to expand into new markets, invest in technology and analytics, and strengthen its position as a leading payment gateway in Turkey and beyond.
2. Background
iyzico is a Turkish fintech startup founded in 2013 that provides online payment processing services. The company has experienced rapid growth, processing over 100 million transactions in 2016. However, iyzico faces challenges in securing funding due to its location in an emerging market and the competitive nature of the fintech landscape.
The main protagonists are:
- Bahar Yilmaz: CEO of iyzico, who is seeking to secure funding to support the company's growth ambitions.
- Investors: Potential investors who are evaluating iyzico's business model and growth potential.
3. Analysis of the Case Study
Financial Analysis:
- Strong Revenue Growth: iyzico has demonstrated impressive revenue growth, with a 100% increase in 2016. This indicates a strong market demand for its services.
- Profitability Potential: iyzico is currently operating at a loss, but the company has a clear path to profitability through continued growth and operational efficiency.
- Capital Structure: iyzico's current capital structure is heavily reliant on equity financing. This makes the company vulnerable to market fluctuations and puts pressure on its equity investors.
Strategic Analysis:
- First-mover Advantage: iyzico has established itself as a leading payment gateway in Turkey, giving it a first-mover advantage in a rapidly growing market.
- Growth Potential: The Turkish e-commerce market is expected to continue growing, providing significant opportunities for iyzico to expand its reach.
- Competitive Landscape: The fintech landscape is highly competitive, with established players like PayPal and local competitors vying for market share.
Key Considerations:
- Emerging Market Risks: Investing in emerging markets carries inherent risks, including political instability, economic volatility, and regulatory uncertainty.
- Fintech Disruption: The fintech industry is constantly evolving, with new technologies and business models emerging regularly.
- Competition: iyzico faces competition from both established players and local startups.
4. Recommendations
- Secure Series B Funding: iyzico should pursue a Series B funding round of $50 million to support its growth plans.
- Target Strategic Investors: The company should focus on attracting strategic investors with expertise in fintech, emerging markets, and payment processing. This will provide access to valuable resources and networks.
- Expand into New Markets: iyzico should leverage its success in Turkey to expand into new markets in the Middle East and North Africa (MENA) region.
- Invest in Technology and Analytics: The company should invest in technology and analytics to improve its platform, enhance security, and provide better customer insights.
- Strengthen Partnerships: iyzico should build strategic partnerships with banks, merchants, and other fintech players to expand its reach and offer a more comprehensive suite of services.
5. Basis of Recommendations
- Core Competencies: iyzico's core competencies lie in its technology platform, payment processing expertise, and strong customer relationships. The recommendations align with these strengths.
- External Customers: The recommendations address the needs of iyzico's external customers, including merchants and consumers, by providing a secure, reliable, and convenient payment experience.
- Competitors: The recommendations aim to position iyzico as a leading player in the fintech space by expanding its reach, investing in technology, and building strategic partnerships.
- Attractiveness: The recommendations are expected to generate a strong return on investment (ROI) through increased revenue, improved profitability, and market share expansion.
6. Conclusion
By securing Series B funding, expanding into new markets, and investing in technology and partnerships, iyzico can solidify its position as a leading player in the emerging markets fintech space. This will enable the company to capitalize on the growth potential of the e-commerce market and achieve long-term profitability.
7. Discussion
Alternatives:
- Debt Financing: iyzico could consider debt financing to support its growth, but this would increase its financial leverage and potentially limit its flexibility.
- Going Public: An initial public offering (IPO) could provide significant capital, but it would require a substantial amount of preparation and expose the company to public scrutiny.
Risks:
- Emerging Market Risks: Political instability, economic volatility, and regulatory uncertainty in emerging markets could negatively impact iyzico's operations.
- Competition: Intense competition from established players and local startups could hinder iyzico's growth.
- Technology Disruption: The rapid pace of technological innovation in the fintech industry could make iyzico's platform obsolete.
Key Assumptions:
- The Turkish e-commerce market will continue to grow at a healthy pace.
- iyzico can successfully expand into new markets in the MENA region.
- The company can attract strategic investors who can provide valuable resources and expertise.
8. Next Steps
- Develop a detailed business plan: Outline the company's growth strategy, funding requirements, and key milestones.
- Identify potential investors: Research and target strategic investors with expertise in fintech, emerging markets, and payment processing.
- Negotiate funding terms: Secure favorable terms for the Series B funding round, including valuation, equity stake, and investor rights.
- Implement growth strategy: Execute the company's expansion plans, including market entry, technology investments, and partnership development.
By taking these steps, iyzico can capitalize on the opportunities presented by the emerging markets fintech landscape and achieve its ambitious growth goals.
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Case Description
The case opens in 2016 as Barbaros Ozbugutu, co-founder and CEO of the Istanbul-based payment technology start-up iyzico, contemplates the offers the company received for its Series C round. The case then describes iyzico's origins and provides a detailed overview of the business model and growth story that led iyzico to dominate the industry in Turkey within three years of its founding. Having raised A and B rounds from local and institutional investors in 2014 and 2015 respectively, in 2016 Ozbugutu believes that iyzico could benefit from another round, this time from international venture capital, to reach its aggressive growth targets. In the summer of 2016, after an intense few months of talks with potential investors, Ozbugutu was looking at five competitive term sheets from funds with great fintech know-how and emerging markets experience. From the previous rounds, he knew that if he chose the right investors-ones who could also act as advisors-surprises would be rare. He now needed to weigh the pros and cons of the different term sheets and VCs and decide which offers to ultimately accept.
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