Venture Capital Funds (“Fund”) are regulated under the Communiqué of the Capital Markets Board (“Board”) published in the Turkish Official Gazette on January 2, 2014 and numbered 28870 (“Communiqué”).
The fund is an asset which does not have a legal entity, established under fund rules with limited term, by portfolio management companies and venture capital portfolio management companies which hold an operating license received from the Board in order to manage the portfolios comprised of assets and transactions specified below, with money and/or capital stocks collected from qualified investors in return for fund units, in accordance with fiduciary ownership principles and pursuant to the provisions of the Capital Markets Law dated 6 December 2012 and numbered 6362 (“Law”).
Funds are allowed to engage only in management of portfolios comprised of the following assets and transactions:
- Venture capital investments;
- Private and public debt instruments, and shares of joint-stock companies established in Turkey, including those in the privatization process;
- Foreign private and public debt instruments and joint-stock company shares tradable within the framework of provisions of Decree No. 32 on Protection of the Value of Turkish Currency put into force by the Decree of the Council of Ministers, dated 7 August 1989 and numbered 89/14391;
- Time deposit and participation account;
- Investment fund units;
- Repo and reverse repo transactions;
- Warrants and certificates;
- Lease certificates and real estate certificates;
- Takasbank (İstanbul Settlement and Custody Bank Inc.) money market transactions;
- Cash collaterals and premiums of derivative transactions;
- Structured foreign investment instruments and loan participation notes deemed eligible by the Board; and
- Other investment instruments deemed eligible by the Board.
Establishment of the Fund
For establishment of the Fund, the founder shall apply to the Board with a draft fund rules and a standard form as introduced by the Board and together with other information and documents requested by the Board. In order to obtain Board authorization for establishment, the founder shall sign a custody agreement with portfolio depositary, and the fund rules shall be approved by the Board. Funds cannot be established as an umbrella fund.
In the course of application for establishment, the information given in the fund rules must be consistent, comprehensive and complete in line with the fund rules standards determined by the Board.
The applications regarding the establishment of fund shall be concluded by the Board within two months starting from the full submission of the necessary documents to the Board.
Fund rules, approved by the Board, shall be registered in the trade registry of the place where the headquarters of the founder and is located in the Turkish Trade Registry Gazette (“TTRG”) within six business days following the date of receipt of the Board’s decision by the founder.
Issuance of Fund Units
Fund units may be sold only to qualified investors who are the persons defined in the Board regulations on sales of capital market instruments, and to persons holding an individual participation investor license as defined in the Regulation on Individual Participation Capital published in the Official Gazette edition 28560 dated 15/02/2013.
For issuance of fund units, the founder shall apply to the Board with an issue document and a standard form issued in accordance with the standards determined by the Board, together with other information and documents requested by the Board. In so far that the application for issuance of fund units must have been filed within no later than six months following the date of registration of the fund rules, provided that the offices, technical equipment and accounting system required for the fund transactions have been established, and a sufficient number of personnel have been appointed. If an application is not submitted to the Board within this period of time, the fund rules shall be removed by the founder from the trade registry. Documents related with such deletion are sent to the Board within six business days For reasonable causes deemed appropriate by the Board, the period of six months mentioned herein may be extended by six months for only once.
The following principles are applied at the stage of approval of issue document:
- Issue document shall be examined within 20 business days within the framework of the information and documents submitted to the Board; when it is determined that the information given in the issue document is consistent, comprehensible and complete, according to the standards determined by the Board, the issue document shall be approved, and the approval shall be notified to the relevant persons.
- If the submitted information and documents are incomplete, or additional information and documents are required, the applicant shall be informed within 10 business days following the date of application. Incomplete information and documents are required to be completed within a period to be determined by the Board. In this case, such period stated in above subparagraph shall start as of the submission date of the related information and documents to the Board. If issue document is not approved as a result of an examination conducted under above subparagraph, this situation shall be notified to the applicant together with the reasons thereof.
Issue document approved by the Board shall not be registered in the trade registry. Following the approval of the issue document by the Board, fund units are offered to investors through distribution channels declared in the issue document as of the starting date of sales stated in the issue document and under the principles set down in the fund rules, issue document and if any, key investor information document.
It is obligatory that the money collected from investors against units is invested within the frame of principles set forth in the issue document.
Excluding the first fund application of the founder, applications for establishment of funds and issuance of fund units, shall be submitted together. Applications for establishment of and issuance of units of these funds shall be evaluated and finalized jointly. However, applications of a founder for establishment of and issuance of fund units of its first fund shall be evaluated and finalized separately.
Provided that it is specified so in the issue document, units may also be sold in return for capital stocks. Prior to sales, the value of capital stock must be assessed by institutions deemed appropriate by the Board.
Approval of issue document neither shall construe as a warranty given by the Board for accuracy of the information given in such document nor can it be deemed or accepted as a recommendation regarding the relevant fund units.
The fund may issue qualified units, provided that it is specified so in its fund rules. Information on managerial rights and dividend privileges granted to holders of qualified fund units and to their legal representatives are given in fund rules, issue document and investor agreement. Qualified fund unit holders may take part in portfolio manager’s investment committee and prior consent of qualified fund unit holders may be obtained on such matters as selection of portfolio companies to be invested by the fund and portfolio managers, and determination of disinvestment strategy. Founder or if any, portfolio managers may be qualified fund unit holders.
Value of Fund Units
Fund units do not have a nominal value. Fund unit value is calculated by dividing the fund net assets value by the number of fund units.
In principle, fund unit value shall be calculated and notified to qualified investors at least once a year. Fund issue document contains the principles and procedures of notification of value of fund units to investors. Principles different from those stipulated in the Communiqué may be determined by the Board with respect to calculation frequency and announcement of price of fund units.
In the cases mentioned in second subparagraph of Article 30 of the Communiqué, if deemed appropriate by the Board, the fund unit value may not be calculated, and issue and redemption of fund participation units may be suspended.
Sales, Redemption, and Transfer Among Investors, of Fund Units
The fund units shall be sold through complete payment of fund unit value in cash, and in return of capital stocks corresponding to that value. The redemption of fund units shall be realized through converting the investors’ fund units into cash under the principles stated in the issue document.
Provided that its conditions are specified in fund rules and issue document, sales loads and redemption fees may be charged in sales and redemption of fund units. The collected fees shall be recorded as revenue to the fund.
Principles pertaining to sales and redemption of fund units shall be determined in accordance with the portfolio structure of the fund, and these detailed principles shall be included in the information documents. However, providing it is allowed in the fund rules, if and when relevant information and documents are in place to demonstrate that the liquidity required for redemption payments cannot be provided, and disinvestment of venture capital investments in the portfolio will harm the investors, the founder may postpone the redeem of fund units. However, in any case, this period of time cannot exceed one year. Providing it is specified so in fund rules and issue document, it is also possible to redeem the fund units only at the end of the term of fund.
The founder is required to sale and redeem the fund units on account of the fund. Fund units, also including the qualified fund units, may be taken by founder into its own portfolio, up to 20% of total number of units of the fund.
Fund units may be transferred among qualified investors. However, for transfer of fund units among qualified investors, the information and documents proving that the persons and/or entities taking over the fund units satisfy and meet the qualifications of a qualified investor are required to be submitted to the founder, and to be approved by the founder. The founder is liable to obtain the said information and documents and to keep them throughout the term of fund and at least for five years. The transfer of fund units among qualified investors is completed by exchange of fund units and payment among the relevant investors. It is the founder’s responsibility to provide Central Registry Agency Inc. (“CRA”) with information about transfer of fund units.
Fund units may be marketed and distributed by not only the founder, but also the portfolio management companies and investment firms holding relevant license to perform marketing and distribution of fund units, under an agreement signed with the founder, provided that the transactions thereof are carried out by personnel holding adequate information about risks contained by these funds.
Principles on Venture Companies and Venture Capital Investments
It is required for venture companies to aim creating or developing tools, instruments, materials and services or new products, methods, systems and production techniques with industrial and agricultural applications and a commercial market potential, or they are in a position to achieve these objectives with managerial, technical or capital supports.
Funds may invest only in joint-stock and limited liability companies. A venture company, being a limited liability company as of the date of investment, is required to complete its process of conversion into a joint-stock company within one year following the first investment date.
The below listed investments of funds are considered and treated as venture capital investments:
- They may be a founder of venture companies or become a partner of venture companies through transfer of capital or by taking over shares either directly or indirectly through local special-purpose entities and foreign collective investment schemes as defined in the Communiqué;
- They may invest in debt instruments issued by venture companies.
- They may directly invest in entities established abroad for collective investments in order to make capital investments in only venture companies defined in the Communiqué, provided that the investment-based risk is limited only by the amount of principal sum invested in.
- They may invest in capital market instruments issued by venture capital investment companies and in units of other venture capital funds.
- They may invest in shares of companies listed in BIAS Emerging Companies Market.
- They may invest in shares, not traded on the exchange, of publicly-held corporations classified as a venture company.
- They may provide venture companies with finances structured as a mixture of debt and equity capital finances.
- They may become a partner of local special-purpose joint-stock companies the fields of business listed in the articles of association of which are limited solely by investments in venture companies defined in the Communiqué.
At least 80% of fund net assets value is required to be composed of one or more venture capital investments.
If the amount of direct investments made by the fund in venture companies satisfying the qualifications listed in SME Regulation (Regulation on Definition, Characteristics and Classification of Small and Medium Sized Enterprises brought into force by the Decree of the Council of Ministers dated 19/10/2005 and numbered 2005/9617) in an accounting period exceeds 10% of fund total value, then the investment limit specified in the preceding subparagraph (a) of the first paragraph shall be applied as 51%.