The Founder's Guide To VC Term Sheets In Türkiye: What You Are Really Signing Up To

I. Introduction

Venture capital financing remains one of the most common funding routes for early-stage companies with strong growth potential but with limited access to financing. Despite inflation and a challenging macroeconomic environment, Türkiye's venture capital market continues to evolve. Based on the publicly available information, the number of VC transactions rose from 331 in 2024 to 360 in 2025, a sign that the market remains active. 

The term sheet, the first document in an investment process, is typically non-binding save as certain provisions (e.g. confidentiality, exclusivity, costs, dispute resolution and governing law), but it sets out the key commercial and legal terms, including governance rights, investor protections, exit rights, and anti-dilution protection, that the parties later carry into binding transaction documents which require careful consideration.  

II. Key Investor Rights to be Thoughtfully Considered by Founders

a. Liquidation preference

Founders should be mindful of arrangements which effectively reduce founder returns. Liquidation preference determines how proceeds from a sale or liquidation are distributed among shareholders. A typical arrangement is a non-participating liquidation preference, under which the investor may either recover its investment or convert into ordinary shares and share pro rata in the proceeds. A participating liquidation preference, by contrast, entitles the investor to both recover its return on investment and share in the residual proceeds. 

b. Anti-dilution: broad-based weighted average vs. full ratchet

Anti-dilution provisions protect investors if a subsequent financing round prices the company at a lower valuation than the valuation at which the initial investment was made (a "down round"), by adjusting how their preferred shares convert into common stock, so they receive extra shares to offset the drop in value. The common approach is the broad-based weighted average mechanism, which recalculates a new conversion price using a formula that weighs both the size and price of the down round against the company's total shares outstanding, leading to a proportionate adjustment. Full ratchet anti-dilution, by contrast, simply resets the investor's conversion price to match the new, lower price per share regardless of how small the down round is, which can hand investors a disproportionately large number of extra shares and cause significant dilution to founders. Because of this imbalance, founders should resist full ratchet provisions wherever possible.  

c. Company valuation

Founders will argue for a higher valuation based on the growth potential of the company.  Investors tend to push for a lower valuation to get more shares for their investment and put them in position where they can manage risk by virtue of their higher ownership percentage. Valuation, however, is only part of the picture, which should be considered with the ultimate effect of the liquidation preference, antidilution, and the option pool. Founders should negotiate these terms as a package rather than in isolation. d. Founder vesting

A reverse vesting mechanism requires founders to earn back (vest) their already-issued equity over time, so that if a founder leaves the company early without just reason (e.g. bad leaver), the unvested portion may be purchased by the Investor at nominal value. From the investor perspective, this mechanism helps shore up the founder’s commitment to the company. The market standard is a fouryear vesting schedule with a one-year cliff, meaning a founder who leaves before the cliff forfeits unvested shares — including shares held prior to the initial investment round. Founders should review the good leaver / bad leaver provisions, acceleration on exit.

e. Employee option pools

An employee stock option pool, typically ranging between 5–15% of fully diluted share capital, is typically created before the investment and dilutes founders. If the pool was established post-money, the new investor would share in that dilution alongside the founders.  Founders should be aware that Investors will push for pre-money creation and should scrutinize how the pool is sized, and whether its size is actually justified by the company's hiring plans.

f. Tag-along vs. drag-along

Generally speaking, drag-along rights allow a majority shareholder to compel all other shareholders to participate in an approved sale on the same terms. In contrast, tag-along rights allow minority shareholders to sell alongside the majority shareholder on the same terms. Founders should pay close attention to the threshold required to trigger drag-along rights (e.g. drag hurdle) which the investors may use to force the founders to sell their shares to a third-party buyer on a secondary sale.

III.  Governance: What Founders Are Really Signing Away

a. Board composition and the potential loss of control

Seed and Series A term sheets typically leave founders in control of the board, but that control tends to erode as new investors join in later rounds. Founders should try to agree a board composition with a longer time horizon in mind.

b. Protective provisions / reserved matters

Reserved matters are veto rights attached to preferred shares, requiring investor consent for specified decisions, such as amendments to the articles of association, capital increases, or new share issuances, at the board or shareholder meeting level. These should be limited to genuinely significant investor protection matters; an overly broad list that extends into day-to-day operations can hand a minority investor effective control of the company via a backdoor route.

c. Information rights

Information rights typically include periodic financial reporting, budgets, and, in some cases, audit rights. While these provisions are standard, extending them broadly to investors at the initial financing rounds can create unnecessary and burdensome reporting obligations as the investors in the subsequent financing rounds would presumably expect, as minimum, the same level of reporting obligations already provided.

IV. Share Transfer Restrictions and Corporate Governance: JSC vs. LLC

Both limited liability companies (“LLC”) and joint-stock companies (“JSC”) in Türkiye can attract VC investment. However, JSC is the more convenient form as it offers better flexibility in terms of share transfers (which do not need to be made before a notary public and registered to trade registry as is the case for LLCs), and the creation of preferred share structures including shares carrying preferential dividend rights and liquidation preference.  Furthermore, its institutional corporate governance structure allows for nomination and appointment of board members by specific class of shareholders (e.g. investor directors and founder directors) as well we appointment of independent board members is in line with a global VC investor expectation, leading most VC-supported Turkish startups converting to JSC before entering institutional funding rounds.

V. The Enforceability Gap

Where a shareholders' agreement ("SHA") is governed by English law as may be sought by a foreign investor, certain provisions may not be enforceable against a Turkish company or subsequent shareholders. Voting rights, share transfer restrictions, and liquidation preference should therefore be properly reflected in the company's articles of association in accordance with the Turkish law. If that is not possible due to Turkish law restrictions on the extent of such provisions, founders should be aware that investors will still seek contractual protection including any or combination of contractual penalty, put option over fair market value and call option with lower valuation (e.g. nominal value) and should make sure the terms and conditions surrounding the exercise of such provisions are clear. 

VI. Currency Risk in Transaction Documents

Given the volatility of the Turkish lira, investors often insist that liquidation preference, antidilution, and option rights be denominated in USD or EUR rather than TRY, in order to preserve the real value of their investment. Founders should factor this into their financial planning from the outset as FX-denominated figures would create an excessive financial burden to the investors upon exercise of such right if they are denominated in FX.

VII. Conclusion

The VC ecosystem in Türkiye is growing, and investor expectations around liquidity are rising with it. From the founder’s perspective, commercial awareness of the significant terms such as liquidation preference, anti-dilution, governance, and exit rights is often what separates a founder-friendly deal from a costly one.

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.