Venture Capital and Private Equity Investment Models in CMB Regulations
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Venture Capital and Private Equity Concepts in CMB Regulations Investment Company Model
Scope of Activities and Types of Models Establishment Conversion to an Investment Company Sale of Shares and Public Offering Portfolio Limitations Portfolio Management and Performance Fee
Fund Model Scope of Activities and Features of the Model Establishment Issue and Sale of Units Portfolio Management and Performance Fee
Tax Regulations
Outline
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No specific distinction between “private equity” and “venture capital” concepts according to CMB regulations. Both terms can be used interchangeably.
These concepts are defined to cover both private equity and venture capital investments, respectively.
Definition of Venture Company in CMB Regulations:
Companies (joint stock companies and limited companies) established and operating or to be established in Turkey, carrying a growth potential and in need of resources
Venture Company: - private companies - publicly held companies (non-traded shares)
Venture Company ( portfolio company) concept in CMB Regulations
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Private Equity and Venture Capital Investments
Investments in Venture Companies
Indirect
Venture Capital
Investment Fund Units
Collective Investment
Funds established
abroad
Special Purposed
Joint Stock Companies established
in Turkey
Securities of other
Venture Capital
Investment Companies
Direct
Shares of Venture
Companies
Debt Securities of
Venture Companies
Mezzanine Finance
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Venture Capital Investment Company (VCIC) Model
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PRIVATE EQUITY AND VENTURE CAPITAL INVESTMENT ACTIVITIES
INVOLVE in MANAGEMENT of VENTURE COMPANIES
INVEST in LIQUID ASSETS- Money market instruments and listed securities
PARTNER or FOUNDER of LOCAL and/or FOREIGN ASSET MANAGEMENT COMPANIES (Max. %10)
PARTNER OR FOUNDER of LOCAL and/or FOREIGN CONSULTING COMPANIES (Max. 10%)
VCIC Activities
RENDER MARKET CONSULTING SERVICES in Emerging Companies Market of ISE
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1) Public offering model At least 25% of outstanding shares of VCIC shall be sold through public offering and be listed on stock exchange
2) Private offering Sales to qualified investors
VCIC TYPES: In terms of public and private offering
Qualified Investors : Financial institutions, public administrations and entities, natural persons and legal entities who have individual net worth that exceeds TRY 1 milion and natural persons holding angel investor license.
Establishment of VCIC
Registered capital Min. paid in/issued capital TRY 20 million
(approx. $ 9,25 million) Min. shareholder’s equity TRY 20 million Privileged shares regarding management
rights At least one leading shareholder- general
partner
Registered capital Min. paid in/issued capital TRY 5
million (approx. $2,3 million) Min. shareholder’s equity TRY 5 million Privileged shares regarding
management & dividend righst No leading shareholder requirement
Public Offering Sale to Qualified Investors
Sale of Shares
Prospectus to be approved by CMB Issue document to be approved by CMB
Public Offering Sale to Qualified Investors
Establishment Initial Investment
Sales to Qualfied Investors
Build Porftolio
1 Year
EstablishmentInitial
InvestmentBuild Portfolio
and Public Offering
18 Mo 18 Mo 18 Mo 18 Mo
Portolio Limitations
Investments other than PE and VC: Max 49% Investments in Foreign CIS: Max. 49% Pledges, mortgages and guarantees given-
established on behalf of SME’s in the portfolio: Max 10%
Participation in Management and Advisory Companies: Max 10%
Unlisted shares of publicly held companies Max 25%
Public Offering Sale to Qualified Investors
Investments other than PE and VC: Max 49%
Participation in Management and Advisory Companies: Max 10%
Basis of the limitations is the total assets reported in audited annual financial reports.
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Portfolio Management & Performance Fee
Base for performance fee calculation
Sales profit gained on exits
Dividend and interest revenues earned on VC companies
Public Offering
Sale to Qualified Investors
Performance Fee Max.
20% No limit
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Venture Capital Investment Fund (VCIF) Model
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PRIVATE EQUITY AND VENTURE CAPITAL INVESTMENT ACTIVITIES (Min. 80% of Net Asset Value)
INVOLVE in MANAGEMENT of VC COMPANIES
VCIF Activities
INVEST in LIQUID ASSETS- Money market instruments and listed securities
Basis of the limitations is the net assets value as reported in audited annual financial reports.
VC&PE investments are to be valued by independent appraisal firms by the end of each calendar year at minumum.
Net Assets Value is to be notified to qualified investors at least once a year.
Portfolio Man. Co & Venture Capital
Portfolio Man. Co
Qualified Investors
Funds of Funds
VCIF
Founder,Manager
& Fund Investor (General
Partner)Fund Investor
Venture Company
Venture Company Foreign
VC&PE Fund
Venture Company
Qualified Fund Units
VCIF Investment Model
Establishment of the Fund
Fund rules document to be approved by CMB Authorised Portfolio Depositary to be determined Min. Fund Commitment (initial closing): TRY 5 million (approx. $ 2,3 million) Min. amount of TRY 5 million to be invested in eligible assets within portfolio
limitations defined in regulations and fund documents Investor Agreement - including the terms and provisions regarding fund commitment
payments, performance fee and regulates matters that are not included in fund rules and issue document
Establishment
Completing Initial Closing of
fund commitments
Build Portfolio
1 Year 1 Year
Sale of Fund Units
Issue document to be approved by CMB Issuance of Qualified Fund Units
• Priviledge on dividends and have management rights Up to 20% of the fund units can be invested by the founder (portfolio
management company) Fund units can be transferred among qualified investors upon approval of the
founder
Sale to Qualified Investors
Establishment
CompletingInitial Closing of
fund commitments
Build Portfolio
1 Year 1 Year
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Portfolio Management and Performance Fee
Base for performance fee calculation
Sales profit gained on exits
Dividend and interest revenues earned on VC companies
No limit imposed on Performance Fee
VCIC’s Statistics
Source: Public Disclosure Platform www.kap.gov.tr
12 VCICs, # traded on Borsa Istanbul :6 and # sold to qualified investors :2
VCICs as of December 31, 2013
Name of VCIC Net Asset Value Portfolio Value Market Cap. % of VC Investments in Portfolio
Gözde GSYO A.Ş. TRY 350.554.790USD 164.548.812
TRY 773.977.677USD 362.637.715
TRY 727.501.591USD 340.861.917
91,24
İş GSYO A.Ş. TRY 258.979.564USD 121.341.687
TRY 259.702.012USD 121.680.181
TRY 172.633.860USD 80.885.470
28,12
Rhea GSYO A.Ş. TRY 76.767.962USD 35.968.683
TRY 74.624.330USD 34.964.311
TRY 28.669.500USD 13.432.741
100,00
Egeli & Co. GSYO A.Ş.
TRY 42.997.319USD 20.145.864
TRY 14.254.565USD 6.678.801
TRY 60.200.000USD 28.205.969
62,30
Gedik GSYO A.Ş. TRY 20.566.851USD 9.636.344
TRY 16.205.456USD 7.592.866)
TRY 5.250.960USD 2.460.272
(in transition)
Egeli & Co. Tarım GSYO A.Ş.
TRY 19.586.917USD 9.177.208
TRY 13.525.094USD 6.337.016
TRY 10.560.000USD 4.947.758
74,42
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Taxation of VCIC’s and VCIF’s:• VCICs and VCIFs are exempt from Corporate Tax• Corporate Tax exempted incomes of VCIC’s and VCIF’s are
subject to 0% witholding tax.
Taxation of VCIC’s and VCIF’s Investors•Resident Corporations (including non resident corporate tax payers
that have a permanent establishment, such as a branch office, in Turkey)
•Resident Individuals
Tax Regulations for VCIC’s and VCIF’s
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Corporates• Sale of listed VCIC shares: Witholding tax rate: 0% No Witholding Tax• Sale of VCIC shares are included in corporate tax base• Redemption of fund units : witholding tax rate : 0%• Capital gain from non-listed VCIC shares held min for 2 years is subject
to75% Corporate Tax exempt • Dividend income from VCIC shares and VCIF unites are exempt from
Corporate Tax
Individuals• Dividend income from VCIC shares and VCIF unites : 0% witholding tax• Dividend income from VCIC shares and VCIF unites : Half of their gross
dividend amounts are exempt from income tax. If the remaining amount exceeds a threshold such amount shall be declared with the annual income tax return.
Tax Regulations Cont’d(Back-end incentives)
Front end incentive regulation was introduced in 2012 to be put into effect by 1/1/2013.
Applicable for resident corporates (including non resident corporate tax payers that have a permanent establishment, such as a branch office, in Turkey) and resident individuals.
Venture Capital Reserve: Individuals and corporate tax payers are allowed to reserve a special fund from their annual income to be invested in VCIC or VCIF, up to 10% of their taxable annual income or corporate tax base of the relevant year AND up to 20% of their equity.
Venture Capital Reserves can be deducted from the corporate or income tax base as long as such investment is actually made in VCIC or VCIF.
Venture capital reserve cannot be used for any other purpose, withdrawn, distributed to shareholders/unitholders.
In case of dispose of the venture capital reserve investment in VCIC or VCIF, such amount shall be reinvested within six months following such disposal.
Tax Regulations(Front-end incentive)
Non-Resident Corporates• Sale of listed VCIC shares and dividends from VCIF’s are subject to
0% Witholding tax • No further requirement for any filling
Non- Resident Individuals• Sale of listed VCIC shares and dividends from VCIF’s are subject to
0% Witholding tax • No further requirement for any filling
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Tax Regulations Cont’d
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