With the Communiqué Amending the Communiqué on the Principles Regarding Venture Capital Investment Funds ("Amendment Communiqué") published by the Capital Markets Board ("CMB") in the Official Gazette dated 21 September 2024 and numbered 32669, the rules concerning the scope, operation, and establishment processes of venture capital investment funds ("VCIF") have been revised. These amendments aim to expedite the management processes of funds while offering investors a broader scope for investments.
The key highlights of the Amendment Communiqué are as follows:
- The Amendment Communiqué enables the implication of an umbrella fund structure to VCIFs, as is the case with securities investment funds. VCIFs may now be established as umbrella funds or basket funds. This allows for the issuance of different VCIF units under a single bylaw, eliminating the need to prepare separate bylaws for each new VCIF.
- Investments made through agreements that grant or will grant the right to future equity in venture companies (Simple Agreement for Future Equity – SAFE) are now recognized as venture capital investments.
- For financing arrangements involving a mix of debt and equity for venture companies whose shares are not publicly traded, the minimum conditions of the agreement must now include provisions regarding interest and conversion of the debt into company shares.
- Companies whose total assets consist of at least 40% real estate or real estate-backed assets based on their latest annual financial statements, and companies whose main business activity is construction, will no longer be considered venture companies. Accordingly, VCIFs will not be allowed to invest in such companies. However, VCIFs established before 21 September 2024 may retain their existing investments but will not be permitted to make new investments after this date.
- Before the Amendment Communiqué, when VCIF unit redemptions were to be executed through the transfer of subsidiary shares to unit holders, prior approval from all unit holders or a pre-approval provision in the investor agreements was required for each transaction. This requirement has now been eliminated.
- The limited purposes for which the fund's assets can be pledged or used as collateral now include financing requirements and similar transactions undertaken on behalf of the fund.
- The Amendment Communiqué updates the requirements for valuation reports prepared by valuation institutions for venture company investments. Except for funds that only allow investors who have committed capital and where fund units cannot be redeemed before maturity, it is now mandatory to determine the value of venture capital investments.
- A new restriction has been introduced, limiting VCIF investments in other VCIF units to a maximum of 25% of the fund's total value.
- Previously, at least 80% of VCIF investments were required to consist of subsidiaries or affiliates established in Türkiye. This ratio has been reduced to 51%. Additionally, the requirement for foreign companies to be joint-stock companies has been lifted, allowing investments in limited liability companies as well. The maximum investment in foreign, non-publicly traded companies has been increased from 10% to 15% of the fund's total value. This limit may gradually increase as the ownership ratio of non-residents in the circulating fund units grows, with up to 100% investment abroad being permitted if this ratio reaches 80% or higher.If, at the end of the fiscal year, a violation of portfolio limits is detected, the portfolio custodian must notify the founder and the CMB within 10 business days. If compliance with the investment limits cannot be achieved within the period granted by the CMB, the fund must terminate its activities and request permission from the CMB for liquidation within two years at the latest.
- Investments in non-public shares of venture companies listed on the stock exchange are limited to a maximum of 20% of the fund's total value. Additionally, investments in companies controlled by VCIF unit holders or related parties are limited to 20% of the fund's total value.
- The total capital commitment to be collected from qualified investors has been set at a minimum of 50,000,000 Turkish Lira. The period for collecting the capital commitment has been reduced to one year from the date the sale of units to qualified investors begins.
- The scope of changes to the fund's internal regulations, which must be announced to investors 30 days in advance, has been expanded to include changes that could impact an investor's decision to invest and require prior knowledge. In funds where units can only be redeemed at the end of the fund's term, if changes within this scope are made, investors must be granted the right to exit the fund through a decision by the investment committee or the founder's board of directors prior to the effective date of the changes. If an investor wishes to redeem their units, the first date on which the units can be redeemed will be set as the effective date of the changes.
- The obligation to draft an investment agreement has been made optional, investor information form regulations have been eliminated, and the concept of an "issuance agreement" has been introduced. The issuance agreement refers to a contract concluded individually or collectively between the fund and the unit holders.
- Amendments to the issuance document may now be made by the founder without CMB approval. However, the founder will be held responsible for ensuring that these changes comply with the relevant regulations.
- Except for investors purchasing units from the stock exchange, a fund issuance agreement containing minimum required elements must be signed before the sale of units to qualified investors. The agreement, which will be published on the fund's page on the Public Disclosure Platform (PDP), must be written in clear and understandable language. It should not include any provisions that undermine investor rights, grant unilateral advantages to the founder, or impose a burden of proof on the investor.
- Transactions to be executed on behalf of the fund, including the establishment of companies, capital increases, share transfers, and similar operations, must be signed jointly by one representative from the founder and one from the portfolio custodian, as registered in the trade registry and other official registries. These representatives are defined as the chairman and members of the boards of directors of the founder and the portfolio custodian or individuals with at least second-degree signature authority authorized by the board of directors.
- The Amendment Communiqué specifies that members of the fund's investment committee are responsible for managing the fund's venture capital portfolio.
The Amendment Communiqué includes transitional provisions regarding the effective dates of the new regulations, as follows:
- The amendments will apply to applications that were not yet decided by the CMB as of the date of publication of the Amendment Communiqué.
- Funds that had issued units by the date of publication of the Amendment Communiqué must comply with the changes related to the form and substance of the issuance agreements by 30 June 2025.
- Funds with issued units by the date of publication of the Amendment Communiqué must comply with the new investment limitations for investments in other VCIFs by 31 December 2025.
- Funds with issuance documents approved by the CMB as of the publication date of the Amendment Communiqué are exempt from the requirement to collect the minimum capital commitment within one year from the date the sale of units to qualified investors begins.
- For amendments to issuance documents that had not been resolved by the CMB by the date of publication, the provisions of the Amendment Communiqué, including the removal of the requirement for CMB approval, will apply.
- The full text of the Amendment Communiqué can be reached via this link. (Only available in Turkish)
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.
