Turkey’s Startup Funding Drops 50% Amid Economic Strain

Venture capital funding in Turkey’s startup ecosystem dropped to its lowest level in more than 18 months in Q1 2025, according to new data from Startups Watch.

Investment in Turkey’s startup fell nearly 50% compared to the same period last year, totaling just $58 million between January and March.

The slowdown comes as the country grapples with high inflation, tight monetary policy, and an escalating brain drain in the tech sector, with many skilled developers leaving Turkey or working remotely for overseas firms. State support has also shrunk, adding to uncertainty across the ecosystem.

“This was the least [investment] since the third quarter of 2023,” said Startups Watch.

Turkey’s Startup: High interest rates, low confidence, rising political risk

One of the biggest challenges, according to Faruk Çayır, head of the Alternative Informatics Association in Ankara, is dwindling public support.

“The state’s commitment to startups and to research and development projects in the current economic situation is not growing or is very limited,” he said.

“State institutions do not have the budget due to this economic crisis. The private sector is also wary.”

Turkey’s Central Bank raised its key lending rate to 46% in March, in an effort to curb inflation, which remains above 38%. These steep borrowing costs have further cooled investor confidence.

On top of that, recent political instability, including the arrest of Istanbul mayor Ekrem İmamoğlu, has intensified investor hesitation, both locally and internationally.

Çayır also flagged a worsening tech skills shortage: “Software and computer program developers and engineers are leaving the country due to the present economic circumstances or working remotely for overseas-based companies.”

Some bright spots in fintech, gaming, and AI

Despite the overall dip in Turkey’s startup funding, some sectors saw continued interest. Fintech and gaming remained the top categories for deal flow, with investments coming from the UAE, Qatar, the UK, and the Netherlands.

Artificial intelligence was the standout performer: AI startups raised $6.1 million, nearly double the funding in the same period last year.

Still, the outlook remains subdued. “Companies will try and consolidate this year, rather than expanding their research or investment activity,” Çayır said. “With little sign the economy is going to improve any time soon, 2025 will not be a strong one for the startup sector.”