Turkey: "Angels" In The Investment Market

Last Updated: 13 November 2013
Article by Yavuz Dayıoglu

Angel Investment as an Investment Model

The regulations and incentives enacted in Turkey in recent years have opened the floodgates for Turkish entrepreneurs who have a business idea but not sufficient capital to attain domestic and foreign sources of finance, and to procure financial partners. "Angel investment", a cooperation model, provides entrepreneurs with the opportunity to enhance their potential ideas for commercial purposes.

This cooperation model unveils as a structure where individuals or groups act as "angel investors" and make investments in business opportunities at the idea stage in order to provide small and medium size enterprises with the opportunity to achieve growth. Usually, angel investors consist of people who have a professional background and finance know-how. Angel investors increase the market value of enterprises in the foundation phase which show a promising possibility of development and growth. The assistance the angel investor provides is not limited to financial resources, but includes sharing the fund of knowledge and business network of a successful investor.

"Angel Investment" is a recent development in Turkey. The term originally comes from investment in Broadway musicals in the 1970's and has become a business model in the U.S that has an annual trading volume of 50 billion American dollars and more than 250 thousand investors. The global perspective shows that, generally, it is professionals in the top ranks who are involved in angel investment. It is noteworthy that, the giants in information and communication technologies, namely Facebook, Yahoo, Apple,etc. have arisen with the help of angel investors.

Basic Characteristics of Angel Investment

The time frame of the entrepreneurial process for which financing is required, can be divided into three phases: are "the startup and early stage", "the growth stage", and "the advanced stage" The contribution of an angel investor to an enterprise usually falls between "the startup and early stage" and the "growth stage" and is regarded as a "key factor" for the initial phase of the enterprises.

The financial support awarded to entrepreneurs by angel investors is referred to as the seed fund, start–up capital, or bridge capital. In exchange for the financial support, angel investors either obtain partnership at the start, or they obtain the opportunity to become a partner in the future under prescribed conditions by means of a debt instrument.

Angel Investment Vis-a-Vis Venture Capital Trust

Angel investment may seem to have a structure similar to Venture Capital Trust at first glance. However, there are certain differences between the two models. Venture capital trust is a type of investment partnership. As with angel investment, the main purpose of the venture capital trust is investing capital in enterprises that have the potential of growing and making money. The difference between venture capital and angel investment is the following: venture capital is based on recalling the financing that is obtained from third parties, whereas angel investors use their own sources as investment instruments. Another major difference between the two investment models is that venture capital trusts are legal entities while angel investors are real persons. For this reason, angel investors build forums and groups (angel investor networks) and they come together under these organizations.

Angel Investment Under Turkish Law: Individual Participation Investment

The legal foundations of angel investment have been laid with the publication of a draft regulation in July 2011 by the Undersecretariat for the Treasury. This is the first step in regulation that is expected to enhance the internet sector, particularly the internet ecosystem. Approximately one and a half years after the aforementioned draft was published, on 15 February 2013, the "Regulation Regarding Individual Participation Investment" was published in the official gazette1 and entered into force. In addition, it is prescribed that the Council of Ministers may extend the period of enforcement until 2022.

Regulation Regarding Individual Participation Investment at a First Glance

The first article of the "Regulation Regarding Individual Participation Investment", entitled "Object and Scope", clearly states that the main purpose of this regulation is to promote individual participation capital which is regarded as a financial instrument for the start up and growth phases. The aforementioned article parallels global definitions regarding the intended purpose of angel investment in the business world. In the context of the Regulation, the term "Individual Participation Investor" is used for angel investors.

Broadly speaking, the Regulation retrieves adjunctions that are promoting angel investment and within this framework, an individual meeting certain preconditions could engage in angel investment activities by receiving a license from the Undersecretariat for the Treasury, and, moreover, could receive the benefits of tax advantages.

The articles of the Regulation consist of four main topics as follows:

(i) becoming an IPI and IPI license, (ii) provisions IPIs are subject to, (iii) enjoying government support concerning IPI activities, (iv) and conditions concerning the post-investment stage.

Becoming an IPI and IPI license

Pursuant to Article 5 of the Regulation, investors shall receive a license from the Undersecretariat for the Treasury as a pre-condition to performing service as an angel investor and to enjoying government support. It is prescribed that, as a rule, the license shall be valid up to 5 years and it is non-transferable. However, the Regulation provides the opportunity for IPI's to demand renewal by the deadline2.

Article 5 of the regulation, clearly states that an investor has to either have "high income/wealth" or "experience" in order to obtain the license and invest as an IPI.

Although the Regulation requires that the IPI license shall be obtained by the time the asset condition threshold is exceeded, it also requires a clean criminal record as a pre-condition to getting an IPI license. While Article 6 of the Regulation clearly states that an application that is made by persons who are condemned for the certain offences shall be obtained by the time the asset condition threshold is exceeded, it also seeks for the criminal record to be clean as a pre-condition to getting an IPI license.

As a matter of fact, Article 6 of the Regulation clearly states that an application that is made by persons who are condemned for certain offences shall be rejected even though they meet the asset requirement stated in Article 5. These offences are the following, with the exclusion of negligent offences: embezzlement, defalcation, bribery, thievery, fraud, falsification, abuse of confidence, fraudulent bankruptcy, offences of disgrace such as corruption, bid rigging, smuggling, money laundering, revealing the state secrets, and tax evasion.

Provisions that IPIs are subject to

Along with license requirements, the miscellaneous provisions of the Regulation, prescribe that other conditions shall be fulfilled so as to benefit from government support. These conditions can be summarized as follows:

  • Type of Company to be Invested In: (i) carrying business in sectors that are specified in Additional Article 4 of the Regulation. (ii) Two financial years before the investment, the company shall not have had a net selling price exceeding TRY 5.000.000, (iii) the company shall have 50 employees maximum (iv) the company shall not be under control of either another company or relatives that are stated in the regulation. (v) The company shall be formed as a joint stock company which is not offered to public. (Article 26)
  • Investment Limit: During the IPI license, an IPI can only benefit from government support for the investments invested in maximum twenty dissimilar joint-stock companies (Article 13);
  • Amount of Investment: In each company invested in, acquired stock prices shall not be more than 20.000 TL and investment amounts to be made on annual basis shall not be more than 1.000.000 TL (Article 14)3;
  • Business Plan: For an IPI, it is essential to present a business plan which demonstrates s/he shall be in agreement with the entrepreneur and an investment plan to the Undersecretariat of the Treasury that demonstrates the benefit of Government support (Article 16);
  • Prohibition of Demanding Collateral from the Entrepreneur: IPIs shall not demand any guarantee of conveyance, dividend, or collateral such as a hypothetical pledge from an entrepreneur in consideration of capital they put into companies invested (Article 17)4;
  • Partnership Interest Regarding Investment: IPIs shall not be shareholders of the company on their own, jointly, together with his/her spouse or his/her spouse's kin in the direct line nor with kin in collateral line including third-degree relatives and in law relatives such that they have more than 50% of shares representing the capital of companies they invest in directly or indirectly and more than 50% of total voting rights represented by shares and appoint more than 50% of members of the board of directors (Article 18);
  • Participation in Management: IPI's participation in management of companies they invest in is limited with only participation in official administrative bodies; with the exception of the board of directors, IPIs shall not take part in administrative duties and may not serve as a staff in companies they invest in (Article 19)5.

IPI Co-Investments

Although it is determined by the Regulation that angel investors shall be real persons, it is allowed for licensee angel investors to join together and make co-investments. For these kind of investments, the Regulation uses the term "IPI co-investment" and it is indicated that for each IPI co investment, a leader partner needs to be designated.

Pursuant to Article 30 of Regulation, an IPI involved in a IPI co-investment shall only serve as a leader partner in maximum five investments. In IPI co-investments, the maximum investment amount shall be implemented as 2.000.000 TL in a company on annual basis. For each IPI that made co-investment, 20.000 TL minimal investment amount mentioned in Article 14 of Ordinance shall be valid.

Utilization from Government Support

  • Application for Government Support: Article 15 of the Regulation indicates that angel investors need to apply to the Undersecretariat of the Treasury before making the related investment in order to benefit from government support. These applications are made by the IPI network of which the IPI is a member. After the determination of the compliance of the applications made by IPIs to the terms and conditions of the Regulation and fulfillment of the formalities indicated in Article 23 of Regulation, a notification is given by the Undersecretariat of the Treasury to the relevant tax office to allow the related IPI benefit from government support.
  • Scope of Government Support: IPIs need to retain participation stocks for at least two whole years and deposit the amount of money they committed to the partnership account in advance to benefit from tax pile within the meaning of the Regulation. In cases where the condition of two years retention is not met, the taxes not accrued previously due to tax reduction are considered lost tax revenue against the IPI. The time elapsed between when the taxes where not collected and when tax penalties started at the beginning of the following year is the period by which the tax must be paid or for which a penalty will be incurred.
  • As indicated in Article 4/2 of the Regulation, 75% of the amounts of shares in IPIs' related venture companies are deducted from the income they indicate in their annual statements in the period of shares acquired. In cases where the investment is within the scope of research, development, and innovation programs as determined by the Ministry of Science, Industry, and Technology, TÜBİTAK and KOSGEB, the ratio herein is 100% for IPIs participating in venture companies their projects supported within last 5 years from the date applied to Undersecreteriat of Treasury for tax pile. However; annual deduction amount shall not exceed 1.000.000 TL under any circumstances and in case the annual deduction amount exceeds this amount, in the following years, the part that could not be deducted from related year's income shall be considered by increasing, in relation to the revaluation rate determined for these years, according to the provisions of Tax Procedure Law.

Regulations Regarding the Period After Angel Investment

Within the context of Regulation, in addition to regulations relating to pre-period of angel investment and making investment, it is seen that a number of regulation concerning the period after investment made are brought in.

Within this framework, the significant regulations are; the obligation of informing the Undersecreteriat of Treasury about the changes in articles of association within two years after utilization of the tax pile (Article 24), obligation of sending activity report to Undersecreteriat of Treasury periodically (Article 41), and obligation of reporting special cases of very high concern like modifications in articles of association bankruptcy and tax audit reports to the Undersecreteriat of Treasury within two months at latest (Article 43) Furthermore, in the Articles 45 and 46 of Regulation, detailed regulations concerning supervision and control of IPIs, IPI partnerships, accredited IPI networks and companies invested in by Presidency of Board of Treasury Controllers are mentioned.


Angel Investment concept, a new type of investment for Turkish entrepreneurs and investors, has been introduced to economic and financial markets by Regulation Regarding Investment in Individual Participation that came into effect on 15th September 2013. For Turkish entrepreneurs who have a business idea but not enough capital, it becomes much easier to reach local and foreign sources of financing and in terms of sources of finance; the provisions which encourage the investor have been regulated.

Thanks to the contributions of the already established angel investor networks in Turkey to entrepreneur investor meeting and legal arrangements that maintain the balance of interests between the entrepreneur and investor the impact of these investment activities to the contribution and development of the Turkish economy will gain a significant speed in following years.


1 Official Gazette dated 15th of February 2013 No:28560

2 Pursuant to Article 5 of the Regulation:

a) Investors who have high income or high level of wealth:

1) Those with no license from the previous two fiscal periods and annual income of TRY 200.000 and over,

2) People who have at the time of filing of movable and immovable property of any kind including of personal wealth with a total value TRY1.000.000 refers to the investors on.

b) Experienced Investors;:

1) Financial institutions fund managers or SME finance directors or equivalents (or those in higher positions) in financial institutions units, or venture capital companies with at least two years of experience in the business, or,

2) Those without a license prior to the last 5 minimum per year 2 year, an annual turnover of at least £ 50.000.000 and acting as deputy general manager of a company or an equivalent or the higher position or an employee or,

3) An IPI without a license for at least one of the networks 2 and the where an application is not open to the public during the membership for one year at least 3 IPI refers to the company as a partner who has.

4) Have two years of experience in business incubators which were established in order to promote start startups or growing companies or in technology development centers and who have invested a minimum of 20,000 TRY each in at least three 3 of these companies

3 On the other hand, it is allowed that the total investments to be made in several companies by IPI may exceed this amount.

4 With this article, it is seen that the position of entrepreneurs toward to financer angel investors is protected against unjust and unfair practices.

5 On the other and, as it is stated clearly in Article 18 of Regulation, IPIs may have privileged shares provide the right to be represented in board of directors. Also it is determined that privileges gives veto right to IPIs for important issues in management of the company may be determined freely.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Yavuz Dayıoglu
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