A new era for Turkish start-ups: Equity crowdfunding Communique No III-35/A

Turkey

A new era for Turkish start-ups and projects with remarkable development potential has begun with the establishment of crowdfunding platforms and the creation of a new source of financing.

On 3 October 2019, Communiqué No. III-35/A on Equity-based Crowdfunding (“Communiqué”) of the Capital Markets Board ("CMB") was published in the Official Gazette. The Communiqué, which entered into force upon publication, has created a new source of funding for entrepreneur companies through equity crowdfunding.

General process

The Communiqué regulates crowdfunding solely via the purchase of shares. Crowdfunding through donation or rewards is excluded from the scope of the Communiqué.

Crowdfunding activities are to be operated via crowdfunding platforms. Such platforms shall be incorporated as a joint-stock company which should meet the requirements under article 5 of the Communiqué. Crowdfunding shall be conducted via campaigns announced to the public through these crowdfunding platforms. In these campaigns, resources may be collected to fund a venture capital company or a project. Within the scope of the Communiqué, “venture capital company” means partnerships with development potential in need of resources; “project” means the business idea encompassing a technology or production activity evolving into a venture capital company in need of resources. In general terms, such equity crowdfunding can be used to finance companies or projects with development potential. The usage of such funds for financing real estate or real estate rights and projects based on real estate are forbidden.

The campaigns should only be published on the platform if the investment committee of the platform investigates and accepts the application. The information form for informing the investors should also only be announced to the public after the approval of the investment committee.

The investors willing to contribute to the crowdfunding should subscribe electronically to the crowdfunding platforms. Real person investors are allowed to invest a maximum amount of TRY 20,000 within one calendar year. The exceptions to such limitations are regulated under article 15 of the Communiqué.

The transfer of the collected funds to the venture capital company shall only occur in exchange for the shares issued as a result of the capital increase. The campaigns can last maximum sixty (60) days as of the publication of the information form.

The collected funds are reserved and transferred to funders by a depository which may be established in Takasbank or fiduciary institutions.

From the perspective of the crowdfunding platforms

According to the Communiqué, which regulates the procedures and principles regarding equity crowdfunding: only platform that are registered with the CMB and are on the crowdfunding list are permitted to conduct crowdfunding activities, namely: the collection of funds from the public through an equity crowdfunding platform; and monitoring and auditing as to whether the collected funds have been used in line with the announced purposes of funding a project or a venture capital company. Furthermore, only the platforms which (i) are incorporated as a joint-stock company, (ii) have paid-in share capital of at least TRY 1,000,000, (iii) are registered shares, (iv) have a trade name that includes “Crowdfunding Platform”, and (v) meet the other requirements of the Communiqué shall be included on the CMB’s crowdfunding list.

The crowdfunding platforms are not allowed to intermediate lending or borrowing transactions in exchange for interest or any other payments, or by means of a pledge. These platforms shall operate solely for the purpose of being a crowdfunding platform.

The board of management of the platform nominates the funding committee, which is to have at least three members. The investment committee is entitled to evaluate the feasibility report regarding the venture capital company or the entrepreneur, and to approve the information form prepared for each campaign.

The platforms shall establish a campaign page for each venture capital company or project collecting funds and shall make this page publicly available for five (5) years following the campaign. The campaign procedure begins with the application of a venture capital company or an entrepreneur to a crowdfunding platform for the collection of funds. A crowdfunding campaign cannot last for more than sixty (60) days.

From the perspective of investors, fund collecting companies and entrepreneurs

Investors are allowed to invest a maximum amount of twenty thousand Turkish lira (TRY 20,000) within a period of one calendar year. However, this limit may be increased by up to 10% of an investor’s declared net income as long as the increased amount does not exceed a hundred thousand Turkish lira (TRY 100,000). This limit is not applicable to qualified investors.

Venture capital companies raising funds through equity crowdfunding (i) shall be involved in technology and/or production, (ii) will have been incorporated within the last five (5) years as of the announcement of the information form, and (iii) will have an actual registered website. The companies controlled by another legal entity, or publicly held companies or companies whose shares are held by the CMB with a significant influence cannot collect funds through equity crowdfunding.

A venture capital company or an entrepreneur are allowed to collect funds through a maximum of two crowdfunding campaigns within twelve months, and the maximum amount of funds may be raised through crowdfunding is limited to the issued threshold announced by the CMB through its annual bulletin (TRY 8,289,910 as of 2019).

Venture capital companies and entrepreneurs shall prepare a report providing information on how they intend to use the collected funds and publish the report on the campaign page as of the beginning of the campaign.

Contact

Please do not hesitate to contact us at hulya.kemahli@ybbk-av.com or arcan.kemahli@ybbk-av.com for further details on the crowdfunding platforms, the practice of the Communiqué and the Turkish capital markets or with any specific questions.