Before talking about how to be an angel investor in Turkey the difference between business angels and venture capitalists should be clarified. Venture capitalists raise private or public funds to invest in companies using managed funds. Venture capitalists incur significant administrative costs, so they must be more selective to ensure a good return on the funds invested. Therefore, they invest less in start-ups and at the seed stage.
Business angels, on the other hand, increase their value by financing smaller amounts for companies that cannot be economically financed by the venture capital market. They typically take a stake in the company in exchange for their funding. Angel investors not only provide money for growth, but they also bring experience and knowledge to help drive success. Angel investors look to exit over a period of 3 to 8 years.
Compared to venture capitalists, business angels have a different approach and smaller capital size for venture financing. They are less concerned with quick returns and short-term exits than with direct engagement in due diligence, meeting with entrepreneurs, and structuring legal investment documents.
Angel investors can do this on their own or as a group. Later, they become actively involved in investments by serving on the board of directors, supporting the company in a siloed fashion, or acting passively as part of a group with a lead angel playing that role on their behalf.
What companies can benefit from an angel investor in Turkey?
Companies can be candidates for angel investors at the pre-revenue, pre-earnings, or earnings germination stage. Pre-revenue stage candidates must prove their concept and build a defensive position by acquiring the use of copyrights, legal registration of trademarks or patents. Those in the idea stage are generally outside the scope of angel investors. Family members or friends may be the investors for this stage.
The most significant aspect for angel investors evaluating a company for investment is the makeup of the startup team; their experience, skills, motivation, what brings them together. Angel investors also look carefully at the key aspects of the business plan. A startup candidate may not meet all of the considerations, but they are expected to meet a few of them in order to have a good starting point and a positive evaluation.
Overview of the Turkish Ecosystem
Before 2010, there was little to say about the Turkish ecosystem, but since then it has grown in size and importance, quickly becoming a key regional hub for startups.
In the first half of the 2010s, thanks to the growth of brand new venture capital funds and angel investors, the Turkish startup ecosystem recorded annual investments of USD 100 million. During the second half, many of these new venture capital funds made exits and started working to establish their second fund. During this period, the time to exit was significantly shortened compared to the years before 2010.
As the Turkish ecosystem enters the 2020s, the presence of more experienced participants will help it reach its potential quickly. And for those who want to play a role in this growing community, the doors are always open.
Qualifications to be an angel investor in Turkey
The business angel system has been introduced in the Turkish markets since June 2012: or a new law was passed by the Turkish Parliament that allows business angels to operate in Turkey under the authorization of the Treasury.
The same law launches a temporary article in relation to tax incentives for business angels. These tax incentives state that 75% of the shares of qualified Turkish resident joint-stock companies held by business angels can be deducted from the business angels’ annual income tax for the relevant calendar year, which is capped at TRY 1,000,000.
In order to benefit from tax reliefs, business angels are obliged to get a license from the treasury. Operations of the corporations financed by business angels should make a declaration to the treasury before the investment is made. Treasury underlines the features of the Investors for licensing as wealth and experience (PWC, Business Angels in Turkey, Asset Management Bulletin, February 2013). For wealth qualifications; investors whose annual income is at least TRY 200 000 within the last two fiscal years or investors total amount of wealth including every type of moveable and immovable assets at least 1 000 000 are licensed.
If you would like to read more about the Turkish start-up ecosystem you can visit our blog.