Recent Developments On The Venture Capital Market In Turkey – Corporate and Company Law

One of the methods used by companies to acquire capital and
expertise is venture capital. Turkey has one of the fastest growing
venture capital markets; due to a favorable regulatory environment,
government initiatives promoting entrepreneurship, and a growing
pool of talented entrepreneurs. Venture capital aims to serve
startups in two areas which they tend to have the largest deficit:
financial stability and industrial knowledge. The rise in
entrepreneurial activities in the recent years and the need for
fuel in the startup market has evolved venture capital as an
opportunity for both investors and entrepreneurs.

The Venture Capital Market (“VC Market”) has been
recently regulated pursuant to the Communiqué on Companies
whose Shares will be Traded on the Venture Capital Market
(“Communiqué”), prepared by the Capital Markets
Board (“Board”) and published in the Official Gazette on
May 18, 2023. The regulations stipulated under the
Communiqué provide an alternative method for companies to go
public by selling newly issued shares via capital increase to
potential qualified investors as pre-IPO (initial public
offering).

To comply with VC Market regulations under the
Communiqué, companies must submit a registration statement
to the Board in order to be evaluated and approved. Companies
seeking approval must satisfy the capital requirement of 10.000.000
Turkish Liras, asset requirement of 20.000.000 Turkish Liras and
net sales requirements of 10.000.000 Turkish Liras, brought by the
Communiqué. After this approval, companies may offer their
new shares not the public but to the qualified investors. In other
words, only qualified investors have the right to purchase the
shares newly issued in VC Market as per the Communiqué. It
is important to note that shares held by existing shareholders of
the companies that are not newly issued through capital increase
cannot be converted into tradeable shares on the VC Market.
Moreover, shares issued in accordance with the Communiqué
cannot be sold within 2 years of their listing on the VC Market,
and companies who have their shares listed on the VC Market must
apply to register their shares on other markets on the stock
exchange within 5 years. If the registration statement is not
approved by the Board or the application is not made in due time,
the shares will be deemed to have been removed from the VC Market
by the stock exchange.

As a result, the Communiqué requires companies to issue
new shares through capital increase for the purpose of sale to
qualified investors without public offering. However, although this
recent regulation aims to be a gateway for companies to offer their
shares by fulfilling easier conditions and more comfortable
requirements, the consequences are still uncertain for financial
investors of the startup companies since the Communiqué may
indirectly prevent the companies from undertaking the initial
public offerings (IPOs) or obstruct usage of the “exit”
rights.