4.1 History of VC in Turkey
Regulation concerning venture capital is first set in 1993, however due to the reason that will be mentioned later there was no VC Company found until 1996, when Vakıf VC was established with an available fund of 500 billion TL (6 million US dollars). This money was provided by the government-owned Vakıf Bank. It has been the recipient of more than 500 project applications since its launch in 1996 and has made investments in three of these. All three of the firms that Vakıf VC invested in were small startup firms that are technology-based. Two of these portfolio firms were located in a technopark within a university, while the other one operated out of a free trade zone. İş VC was established towards the end of 2000, but has not made any investments for a period of time. This lack of movement can in part be put down to the volatility of the Turkish economy caused by the recession which began in February 2001, and the devaluation of the currency by 100% in one year. This recession and devaluation had cooled a lot of the interest that was beginning to build in the VC. Many of the large family owned conglomerates were beginning to show interest in establishing VC firms prior to the recession, but then bankers and investors were super cautious and as such the VC would not have to be impatient for that time.
After the markets in Turkey recovered and the trust to Turkish economy increased, Is VC start to invest on start up and mezzanine companies, and became the largest VC Company with 150 million USD capitals raised.
In 2004, another actor entered to Turkish VC market, which is formed by The Union of Chambers and Commodity Exchange of Turkey and government-owned Halk Bank. The
4.2 Current status of VC industry
The present state of affairs does not present a very pretty picture; however, the dimensions of the VC are as follows:
Currently there are only 3 registered VC firms in Turkey (founded in 1996, 2001, 2004)
| Total capital raised by these three VC funds is US$131m (186.6mTL)
| The number of companies invested by these three VC funds is 10.
| 2 IT, 2 software, 1 internet, 1 chemical, 1 machinery, 1 car rental, 1 retail, 1 trade show organizer.
| Total investment is US$64m (91.1mTL)
Actors in the Turkish Venture Capital Market
Business Angels: There is no accurate data available showing the extent to which business
angels’ invests in innovation companies in Turkey. It is however common knowledge that wealthy business people do invest in other companies at the behest of the entrepreneurs. The entrepreneur informally approaches the business person and if the business person recognizes that there is potential profit in the venture then they may choose to invest.
VC firms: At the present time there are only there officially registered VC firms in Turkey.
These are Vakıf and İş VC partnerships and KOBI VC established by Vakıf Bank, İş Bank, and Halk Bank, respectively.
Corporate VC: Corporate VC is a relatively new phenomenon for Turkey. Of the companies that carry out VC activities, few, if any has an actual VC department. The VC investments that take place are done in an ad hoc manner on a very informal level. As a result of this it is
impossible to know how many firms are conducting VC operations and also the funds available. (Cetindamar, 2003)
4.3 Regulations concerning VC
The regulations concerning Venture Capital in Turkey are first introduced in 1993 on the Communiqué of Capital Markets Board of Turkey (CMB). According to the regulation the venture capital was divided in to three parts; venture capital investment funds, venture capital investment cooperation and venture capital management companies. The right to decide and audit their operations was given to Capital Markets Board of Turkey. However, at the time the regulation set the minimum initial capital to 9 million USD, and registered capital limit to 27 million USD, according to the currency rate of the time. The amounts set by the communiqué were considered to be so high and didn’t attract any investors at that time (Tuncel, 1995).
In 1998 the starting capital is changed to 2 million USD and investment field were deregulated. However, there was a condition that the venture capital companies should offer at least 49% of its shares to the public. (The first year 10% of the shares, until the end of the third year 30%, and after five years 49%). This regulation was found impractical by many investors. Investors considered that it is difficult to take a newly found venture capital company to IPO, after its first year of establishment.
In 2004, another change made to facilitate the venture capital conditions in Turkey. The new regulation allowed the pension funds to invest on venture capital companies under some circumstances. According to the new communiqué the requirements for foundation was set as following;
According to the regulations venture capital investment trusts are a form of collective investment institutions, directing issued capital toward venture capital investments which are
defined as long-term fund transfers, through investing in capital market instruments issued in primary markets by the entrepreneur companies already established or to be established, with the aim of obtaining capital or interest gains.
As in investment trusts, There is no restriction on the founders accept for certifying that they have not been subjected to any legal prosecution due to bankruptcy or another disgraceful offence. Legal persons as well as real persons can be founders of a VC.
Some of the portfolio restrictions for VCs are about;
· Investing in the companies in which major shareholders or directors of the VC has a share of at least 10%.
· Investing in securities of non-entrepreneur companies in the second market.
· Investing in other VC.
As in the case of investment trusts, investors buy shares of a VC in the stock exchange. In return they are paid dividends at the end of the years. They may also sell their shares in the exchange and receive capital gains anytime they want.
After being approved by the CMB the article of incorporation of the VC is announced in the Turkish Commercial Registry Journal. As well as that; they have to prepare prospectus in the case of issuance and public offering of the shares. Besides, important developments about the VCs and their monthly portfolio tables including their assets and net asset value per share are announced to the investors in the bulletin of the stock exchange. Finally their annual and semiannual financial statements have to be audited by a certified external auditor.
The disclosure liabilities, portfolio restrictions and the listing requirement for the VCs ensure the protection of the investors. VCs are exempt from the Corporation Tax in Turkey. (CMB, 2007)