By Asli Kandemir

ISTANBUL (Reuters) - When Demet Mutlu dropped out of Harvard six years ago to found an online fashion retailer in her native Turkey, friends thought she was crazy to leave the world's top business school for a leap into the unknown.

But more than her chutzpah, it is the 34-year-old's unshakeable faith in the young Turkish consumer that seems to be paying off: her company, Trendyol, is now one of Turkey's best known online fashion retailers and has drawn backing from foreign investors.

Last year, Trendyol had sales of 550 million lira ($188 million). While that represents just 2 percent of Turkey's fragmented e-commerce market, Trendyol is growing fast and Mutlu expects sales to almost double to 1 billion lira this year and grow another 50 percent in 2017.

"News about Turkey is very negative recently, but if you set up the right business model and target young people, there is tremendous growth potential in e-commerce, even more so than in the U.S. or Europe," Mutlu said. "I believe in Turkey's young population and its vibrant economy."

Global investor enthusiasm for Turkey has cooled in recent years due to rising security concerns and worries about President Tayyip Erdogan's growing authoritarianism.

This year Turkey has been hit by a string of suicide bombings and it is battling a renewed Kurdish insurgency in the southeast. Consumer confidence has been rising from a six and a half year low last September but there are still more pessimists than optimists.

But despite those worries, Turkey's demographics and growth potential are the envy of Europe. The country is home to 79 million people with a median age of just over 30, younger than anywhere else in Europe. By 2050, the population is expected to swell to 93 million, while much of the rest of Europe ages.

Young Turks are tech savvy and early adopters of technology. The country boasts a wealth of home-grown phone apps and mobile penetration is nearly 94 percent.

"Our website averages 35 million visitors a month, which is 20 times more than the busiest shopping mall in the country," Mutlu said.

At 24.7 billion lira last year, Turkey's e-commerce market is small, accounting for only 2 percent of total retail revenue, according to Turkey's Informatics Industry Association. Growth, however, was an impressive 31 percent.

Travel sites account for a big chunk of that revenue with nearly 36 percent, online retailers account for another 34 percent, marketplaces 15 percent and the rest is split among niche players, the data showed.

GROWTH POTENTIAL

In 2002, Turkey's per capita gross domestic product averaged $3,600, just ahead of Equatorial Guinea, an African oil producer. By 2015 it was $9,261, not far behind Malaysia. Today, Turkey sits comfortably among the world's top 20 economies.

In developed markets, e-commerce accounts for about 7.1 percent of total retail revenue, and 5.1 percent in emerging markets, or more than twice Turkey's current level.

"Looking at the share of e-commerce in the rest of the world, Turkey's market is not saturated. Therefore, there is a lot of space to expand the sector," said Hakan Orhun, the head of the Electronic Trade Operators Association.

Turkey's e-commerce market has grown about 22 percent annually over the last five years, said Burak Tansan, senior managing partner at Boston Consulting Group in Istanbul.

"For the growth to continue, consumer confidence in online shopping needs to increase. Around 40 percent of consumers are receptive to online shopping but they have not tried it at all," he said, adding that Boston Consulting studies show consumers still prefer to do research online and then buy at stores.

The potential for online retail growth has, nevertheless, attracted overseas players and investors.

Tiger Global Management LLC, a fund known for its early bet on Facebook, has invested in Trendyol - which sells more than 2,000 local and global brands including luxury labels such as Prada and Versace.

Silicon Valley venture capital firm Kleiner Perkins Caufield & Byers and the European Bank for Reconstruction and Development have also invested in Trendyol. Together with Tiger Global, they own 80 percent of the company, having invested $60 million over the last four years.

Naspers, the South Africa-based, emerging markets-focused e-commerce and media giant, bought Trendyol rival Markafoni from its founder in 2014.

Private equity firm Abraaj took a minority stake last year in online retailer Hepsiburada.com, one of Turkey's best known e-commerce sites. Auction site eBay has invested in GittiGidiyor, another online retailer, and Amazon.com has an investment in Ciceksepeti.com, a flower delivery site.

The investor interest is helping to create a vibrant start-up culture, said Cem Sertoglu, a partner with European venture firm Earlybird Venture Capital.

Earlybird raised $150 million 2-1/2-years ago and has invested in several Turkish firms, including online furniture seller vivense.com and real-estate marketplace tapu.com.

"We are supporting early stage startups that aim to meet local demands through high technology solutions and run by first-class teams," Sertoglu said.

"The growth potential in such companies is less reliant on the country's macroeconomic outlook than bigger firms."

(Editing by David Dolan and David Clarke)