Turkey: No More Individual Application Will Be Allowed To Become "Angel Investor" İn Turkey As Of 01.01.2014: Brainstorming On Bans And Networks As Fund Management Associations

Last Updated: 26 November 2013
Article by Safak Herdem

Turkey, as one of the pioneering countries that has particular regulation and tax reliefs for angel investment, has almost TRY 10 million volume of angel investment which is remarkably less when compared with Europe and U.S. markets.

The angel investment, as defined as "Individual Participation Investment" in the Regulation on Individual Participation Investment ("Regulation") which is in effect since 15 February 2013 growing smoothly and attracts the prospective angels' interest day by day. Today there are almost 60-65 certified angel investors in Turkey whom are accredited by the Undersecretariat of Treasury following to their individual applications. However according to the provisional clause 1 of the Regulation, the Undersecretariat of Treasury will not accept any individual application to become "Angel Investor" as of 01.01.2014.

This will raise the importance of networks and it is expected that both in evaluation and accreditation processes, the private sector will take effective role in funding in parallel to the project valuation aspect.

This will also enable the networks and bans to be much more eagerness in a competitive market to find out and fund the proper projects as a gateway to "invest" and "project".

Today all around the world it is well accepted that either in early stage or in form of seed funding the bans and networks are functioning alike experts on the way to the angel investment. It is clearly noted by the authorities that, direct individual applications might be risky due to the attempts to abuse of rights of benefiting the tax reliefs.

The bans and networks all around the world play a key role in angel investment. Not limited to act as intermediaries for filing an application to be accredited the bans and networks are expected to play crucial roles in fund management since we think that it will require so in near future. Namely, it is certain that since the process of funding is mostly similar to the modeling of private equities and venture capitals, new issues apart from the buy outs or funding strategies in high volume businesses, arise in terms of fund origins among angel investor.

To give an example in this regard, it has been recently started to be discussed in USA on structuring and management of funds provided by small contributions which is called "Crowd Funding".

As tendency to invest in IT related projects the crowd funding is managed thru the web sites in today's U.S.A however the volume of the fund reaching EUR 18 millions in the market that is expected to led the investors to apply fund management strategies and tools to the extent they wish to benefit from the added value generated from angel investment.

In projection of the growth rate of angel investment, the associations or federations of networks or bans shall be accredited to take part in management of crowd funding as well. In scaling the projections it is obviously understood that even the investment amount per project is much more less than the volume in similar funding and financing models such as private equity and venture capital, the minimization of the fund as in crowd funding and hedging the risk in parallel to this shall be converted to an investment fund or structured as dividend funds providing a well arranged mechanism is set and insured by contribution of bans and networks.

In consideration of setting the rules by regulatory authorities the bans and networks are recommended to be gathered even on regional or portfolio basis and determine the thresholds of each prospective investment. This will discipline the angel investment and gain corporate governance principles to ensure the project running. On the other hand, after signing term sheets and before structuring the modeling both parties' interests will be secured through the insurance of representation and warranties.

By implementation of this projection, the networks and bans as regulated authorities will deemed as contributors to FDI in countries and angel investment volume will reach certain rates providing the dividend funds are managed to the purpose of re-investment or as resource to re-investment alike the pension funds do all around the world.

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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Safak Herdem
 
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