The first European Business Angels Investment Forum in Europe will be held in Istanbul on Dec. 15-16, 2014. The forum will bring together the best small and medium sized enterprises (SMEs) of Europe, public authorities, angel investors, venture capital funds, executives of exchanges and all institutions that work to facilitate entrepreneurs' access to finance and table measures to be taken to allow entrepreneurs to have access to finance from start-up to the early exit phase.
The main organizer of the forum is the European Trade Association for Business Angels, Seed Funds and Early Stage Market Players (EBAN), headquartered in Brussels, and founded by inter alia, the European Union and EURADA. The event will be hosted by Borsa Istanbul (Istanbul Stock Exchange Market) and will be jointly organized by the Business Angels Association-Turkey (TBAA), Borsa Istanbul and Forbes I Para Conferences.
Before the event, Daily Sabah interviewed the heads of Angel Investment in Turkey and collected information about Angel Investment for its readers.
Basically, an angel investor or angel (also known as a business angel or informal investor or angel funder) is an affluent individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.
A report released in July 2014 by the Oracle Capital Group, the Global Entrepreneurial Report, takes a look at entrepreneurial activity, attitudes and experiences in 33 countries and points to Turkey as the second most entrepreneurial. The report presents a ranking measure of entrepreneurism in 33 major industrial nations and emerging economies, measuring the opinions, attitudes, experiences and activity that contribute to entrepreneurism by looking at factors such as "perception of entrepreneurs," "attitude to risks involved in starting a new venture," "fear of failure," "willingness to risk personal finance" and "national levels of entrepreneurial activity," amongst others. As the second most entrepreneurial country, Turkey, in common with most of the other developing economies, scores well on attitude to risk, low fear of failure, desire, willingness to self-fund and early stage business activity. This report shows that early stage finance is not a challenge for Turkish entrepreneurs because they have a willingness to self-fund their startups. This prevents time loss to create their demos and gives an opportunity to pitch angel investors in a shorter period of time after they have demos. On the other hand, low fear of failure and attitude to risk are two important competitive advantages of Turkish entrepreneurs in the global entrepreneurship ecosystem.
Paulo Andrez, President Emeritus of EBAN - Portugal
What are the key points to create a successful co-investment scheme with business angels?
Governments should look to business angels, as people that through their investments will generate jobs and taxes for the government. It is important that governments have the correct mechanisms in place to incentivize business angels. Those mechanisms can be totally related to the success of the investments. In these cases the government should share some of its profits with business angels. The accreditation process for business angels is important, but in Turkey you already have experience in this specific matter because you created a successful tax break for business angels, so it should be easy for you to set up a business angel co-investment scheme.
What are the best practices in Europe?
Depending on the goal of the government, you can have different good practices. If the goal is to increase angel activity in Turkey and to turn more wealthy people into business angels, then the Portuguese case or the schemes of Enterprise Ireland, in Ireland, are great cases to be replicated.
Dr. İbrahİm M. Turhan, CEO, Borsa Istanbul
What is the importance of the European Business Angels Investment forum for the startup sector in Turkey?
We believe that Turkey has great potential for entrepreneurship and our goal is to position our country as a regional hub for startups. Innovative entrepreneurship has been one of the most crucial elements for a high level of sustainable growth. Utilizing high technology, which is a key factor for growth, can be achieved through small and medium sized companies and young entrepreneurs.
According to the European Commission's research body's Eurobarometer survey, the ratio of those who want to start their own business stands at 37 percent in the EU, compared to 45 percent in the U.S., 56 percent in China, 63 percent in Brazil and 82 percent in Turkey. According to another study, Turkey is the leading country in that 59 percent of small- and medium-sized companies that are expected to employ at least five people in the next five years.
Based on such findings and as part of the Istanbul Financial Center project (IFC), we aim to encourage the development of the venture capital industry in Istanbul and seek to create an ecosystem that provides effective funding mechanisms to innovative entrepreneurs and small enterprises.
In this direction, we try to ease the access of entrepreneurs to foreign funds by making agreements with international associations. We signed a protocol with the European Trade Association for Business Angels, Seed Funds and Early Stage Market Players (EBAN), which is one of the pioneering institutions in this field.
In coming years, we will try to create potential cooperation opportunities with similar platforms. In order to bring together investors in the Eurasian region, we want to open the private market to various investors abroad through cooperation agreements with the European Angel Investors Network.
The government has also taken substantial steps in this field, which creates a very convenient business atmosphere for such initiatives. An angel investor system was also established in Turkey and there are currently 254 certified angel investors. When an angel investor partners with an entrepreneur, 100 percent of the money he invests is deducted from the tax base. The second important subsidy is that at the time of exit, the return on investment is fully tax-free. A mechanism to monitor and control angel investors was also established.
How does Borsa Istanbul support startups?
Borsa İstanbul supports efforts aimed at improving the entrepreneurship ecosystem and thereby increasing the number of entrepreneurs and angel investors investing in them, enlarging the ecosystem and providing employment and innovation. In this regard, Borsa Istanbul established a platform called the "Private Market" to achieve this. We believe that the Private Market, aimed at bringing together entrepreneurs and investors in long term partnerships to provide the funding and liquidity they need, will open up new horizons to shape the future of both sides.
Private Market, a web-based and membership-based platform, offers companies the opportunity to tap into funds without going public and offers investors both new investment opportunities and liquidating their investments.
We created a mechanism in which both start-ups and rising companies, that is, companies preparing for an IPO, can come together and that investors can easily access. Thanks to the new marketplace, both early stage start-ups and rising companies that have already covered some distance have direct access to qualified or licensed angel investors. The market offers all legal, financial and other consultancy services through service providers and intermediaries during the partnership and share-trading process. This trading venue is a new concept for the exchange business, and Borsa Istanbul has taken one of the very first steps in this area. The Private Market is open to qualified and angel investors, as defined by law. We are also planning to open an Entrepreneurship Center, which will provide entrepreneurs and firms mentorship, training and consulting programs. In the Private Market, startups - that is, new enterprises - will directly meet investors and have access to finance.
Two types of companies and their shareholders are admitted as members to the Private Market, namely, start-ups and rising companies. In order to apply for start-up membership, a minimum of six months and a maximum of five years must have elapsed since the establishment date of the company. In order to apply for rising company membership, the minimum amount of assets or sales revenues must be TL 5 million in one of the past two consecutive years' annual or quarterly financial statements, and at least two years must have elapsed since the establishment of the company. On the other hand, two types of investors, namely, qualified investors and certified business angel investors are admitted as members. Both natural and legal entities may apply for membership with qualified investor status.
Borsa Istanbul has also hosted several events focused on entrepreneurship. As part of the abovementioned efforts to improve the entrepreneurial ecosystem and thereby increase the number of entrepreneurs and angel investors, expand the ecosystem and create employment and innovation, Borsa Istanbul also held an international conference titled "Building Bridges through Entrepreneurship: Turkey's Rise as a Startup Nation in Regional and Global Perspectives" jointly with the University of California, Berkeley, in Istanbul.
These initiatives are aimed at creating a culture of innovation in entrepreneurship. This cooperation was structured to bring brand new ideas to the sector and to create industrial and commercial bonds.
What is the role of stock exchanges to fill the equity gap for startups?
To create a global trademark, entrepreneurship must be supported by institutional structures and at the same time, entrepreneurs should be offered the opportunity to tap into funds in organized markets. The leading companies in the world, such as Facebook and Twitter, were able to reach their current size by raising funds in platforms such as the NASDAQ Private Market, Sharepost, and Secondmarket, which are similar to the Private Market. Since Private Market started operating, Turkey's entrepreneurs have access to a platform through which they can create global trademarks.
In sum, we tried to combine the flexibility of one-to-one negotiations and trades together with the safe structure of an organized market. Indeed, we are bringing two post-crisis trends in one service. Entrepreneurship has gained much more importance in the post-crisis period, especially for emerging countries, which need an innovative jump so as to increase employment and sustain value-added growth. On the other hand, the global crisis unfurled the importance of organized marketplaces. Through the Private Market and the other supporting platforms, we are trying to establish a both dynamic and rule-based venue for investors and startups.
Dr. Önder Halisdemir General Man ager & CEO of Aktif Bank
Do you believe that entrepreneurs receive enough support in Turkey? What steps can be taken to improve the support offered?
nEntrepreneurship, business angels and venture funds are all concepts that have existed in Turkey for a while but have only recently been labeled and became widespread and popular. With the increasing state incentives granted mainly by the Scientific and Technological Research Council of Turkey (TÜBİTAK), Small and Medium Industry Development Organization (KOSGEB), the Ministry of Science, Industry and Technology and the business angel system initiated by the Undersecretariat of the Treasury in 2013, there has been a rise in business ventures. Among the countries that provide tax incentives for business angels, with a tax discount from 75 percent to 100 percent, Turkey provides the highest amount of support to entrepreneurs, followed by the U.K., which offers tax discounts from 30 percent to 50 percent. Therefore, it is possible to say that public enterprises are effectively supporting business angels and thus, entrepreneurship. However, I believe that along with the public sector, the private sector should also offer more support to entrepreneurs, as business ventures supported by the government cannot survive unless they receive investment from or sell their products to the private sector.
Do entrepreneurs have access to bank incentives? And if so, what conditions do banks require to provide support to entrepreneurs?
There is no bank that is actively supporting entrepreneurship except for a few banks that have focused on this area. As a banks existence depends on minimizing risks, they require guarantees in exchange for loans and other types of support provided to entrepreneurs. However, most of the time entrepreneurs do not have the required savings to offer as guarantees for loans or do not want to risk their personal assets. Therefore, they cannot benefit from the readily available financial support in the market. We, Aktif Bank have created "Argefinans" (R&D finance) to offer a solution to this problem. We will be granting letters of guarantee without a guarantee to entrepreneurs who have acquired incentives from TÜBİTAK/TEYDEB.
Baybars AltuntaŞ, President of TBAA
- Business Angels Association of
Turkey & Vice President of EBAN
A Business Angel provides financing for a range between $50,000 to $500,000, whereas a venture capitalist would not be interested in amounts lower than $3 million. For this reason, a business angel would be interested in "startups" or projects starting from zero.
Could you please tell us about the Business Angels Association Turkey under your presidency and the association's mission?
We introduced a brand new business model, "Business Angels," to Turkey in 2011. This model ensures that those entrepreneurs who have a business idea but insufficient capital have easy access to local and international financing tools. Depending on the project, Business Angels in Turkey provides either capital support to the entrepreneur or finds partners for or becomes partners with them. As an association, we not only organize business angel certificate programs but also entrepreneur days so that entrepreneurs meet investors.
How does the business angel mechanism function?
In entrepreneurship, marketing and sales are as important as the idea itself. An entrepreneur needs money in order to put projects into practice. It is very frequent that some business ideas cannot achieve their goals, as they cannot find sufficient capital. Business angels become involved in the picture at this point. As of today, there are 200 business angels in Turkey, but we expect this number to go up to 2,000 by the end of 2015; 200 business angels accredited by the state can invest up to TL 1 million ($434,972) in a project. The undersecretary of Treasury deducts TL 750,000 of this investment from taxes. In this respect, Turkey is the country that offers the highest tax incentive to business angels. The U.K. comes after Turkey with a 30 percent tax incentive. There are 270,000 business angels in the U.S. where there is no tax incentive, and the total amount invested in entrepreneurs last year in the U.S. was $20 billion. There are 70,000 business angels in Europe (50 countries), and 5.1 billion euros were invested in entrepreneurs last year.
What is the bottleneck experienced most by entrepreneurs?
Those entrepreneurs who have a business idea in mind but no money generally ask for support from friends or relatives. Debt, which was originally TL 25,000, goes up to TL 250,000 due to bank loans. So the entrepreneur takes loans fast without making any plans and is then dragged into what we call "Death Valley." Then the real problem for the entrepreneur begins. Friends or relatives no longer give any money. There is, on the other hand, an accumulated debt of TL 250,000. This is "Death Valley" for the entrepreneur.
Who or which sectors receive the most investment?
When we look at the industries that business angels invest in the most, we see, for instance, predominantly mobile technologies and the IT industry in the U.S. The same trend is also true for Turkey; 25 percent of our investments go to IT and mobile technologies. Another 25 percent goes to biotechnology and healthcare technologies. The remaining 50 percent is shared by other industries. As business angels in Turkey, we are open to bright business ideas from any sector, and we listen to each and every one of them. The investment range changes from $10,000 thousand to $500,000 for the projects we support.Alİ Arslan Director
General of Financial Sector Relations & Exchange, Turkey
What is the importance of the European Business Angels Investment forum for the startup sector and angel investment sector of Turkey?
SMEs in Turkey have limited access to finance because of their limited sources, lack of enough collateral required by traditional financing sources and sometimes due to the low financial literacy of the entrepreneurs. Also financial institutions are reluctant to provide credits for start-up or early stage companies as they bear very high risk. According to the World Bank Survey (2008), the biggest problem of SMEs is access to finance. Even some innovative ideas may remain as ideas due to lack of an alternative instrument to access finance. In addition to these problems, SMEs are also suffering from problems such as lack of mentorship and institutional capacity and unprofessional management.
Today, business angels (BAs) have become one of the major sources of funding for early stage companies. The U.S. has the most advanced BA capital market in the world with annual average investment volume of $25 billion. In the U.S., the number of business angels is 298,000, and these BAs have created 290,020 jobs as of 2013. On the other hand, the total amount of angel investment is approximately $18 Million in Turkey. Although, the BA system has been recently introduced in Turkey, the amount of angel investment is promising compared to other emerging countries.
The European Angel Investment Forum is arranged to facilitate access to finance for start-ups and entrepreneurs and to introduce new generation financial instruments for SMEs. To hold such a significant forum in Turkey brings about increasing awareness of angel investment in our country and introduces other alternative financial instruments to the ecosystem. Angel investment training, provided under the program, will contribute to awareness of the angel investment system. The system will also enable venture companies to receive mentorship, strengthen institutionalization and benefit from the BA's network and experience.
Considering the benefits of the BA system, the Turkish Treasury introduced a new system to encourage angel investments in Turkey. The law regarding the promotion of angel investments was enacted in 2012, and the system was launched in 2013 with secondary legislation.
The Treasury aims to reach the following targets with this regulation:
Introduce a new instrument for SMEs in their early development stages and having funding difficulties,
Increase professionalism, improve business culture and ethics among business angels,
Make angel capital an institutionalized and trustworthy source of finance,
Attract angel investments through state incentives.
In practice, the Turkish Treasury licenses business angels who want to benefit from tax incentives for their investments.
What are the tax incentives for business angels in Turkey?
Under the BA system in force in Turkey, the main incentive provided to BAs is tax support. Under the regulation, BAs may deduct 75 percent of the amount of shares they invested in venture capital companies from their income and earnings stated in annual tax statement in the period they acquired the shares. This rate is applied as 100 percent for BAs investing venture companies, whose projects are supported under the scope of research & development and innovation programs determined by the Ministry of Science, Industry and Technology, the Scientific and Technological Research Council of Turkey and the Small and Medium Enterprises Development Organization in the last five years before the date of application to the Undersecretariat for tax support. The amount of deduction cannot exceed TL 1,000,000 annually.
How can foreign business angels benefit from tax incentives in Turkey?
Real persons operating as a BA should have a BA License in order to benefit from the tax incentive and apply before the investment. In order to get the BA License, a BA should be either a person with high income or wealth or an experienced investor. The definitions of wealth, income and experienced investor have been specified in the Regulation on Business Angel issued by the Treasury on Feb. 15, 2013.
To benefit from this tax support, BAs shall keep the shares of full-fledged taxpayer venture companies for a minimum of two full years. Residency by investors is not considered as a limiting criterion for tax support. However, the BA shall be a full-fledged taxpayer person in Turkey. Nevertheless, foreign BAs can benefit from state aids for co-investments in funds of regulation. With the Fund of Funds regulation, BAs will have additional financing opportunities in the form of co-investment. Fund of Funds will provide co-financing through co-investment funding to BAs. Co-investment with fund of funds decreases the risk of BAs. Granting 25 percent of the profit deserved by the Treasury to angel investors increases the opportunity of income for business angels. In case of failure, angel investors have the risk of losing only 50 percent of their capital, which decreases their risk.
