Overview of Venture Capital and Private Equity Investment Models in CMB Regulations
This content delves into various aspects of venture capital and private equity investment models as per CMB regulations. It covers concepts, activities, types, and regulations related to venture companies, private equity investments, VCIC models, and more. The information provided outlines the scope of activities, establishment processes, portfolio limitations, management, tax regulations, and the distinction between private equity and venture capital in Turkey.
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Venture Capital and Private Equity Investment Models in CMB Regulations
Outline 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 2
Venture Company ( portfolio company) concept in CMB Regulations 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) 3
Private Equity and Venture Capital Investments Investments in Venture Companies Indirect Direct Securities of other Venture Capital Investment Companies Special Purposed Joint Stock Companies established in Turkey Collective Investment Funds established abroad Venture Capital Investment Fund Units Debt Mezzanine Finance Shares of Venture Companies Securities of Venture Companies 4
VCIC Activities 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%) RENDER MARKET CONSULTING SERVICES in Emerging Companies Market of ISE 6
VCIC TYPES: In terms of public and private offering 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 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. 7
Establishment of VCIC Public Offering Sale to Qualified Investors 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
Sale of Shares Public Offering Sale to Qualified Investors Prospectus to be approved by CMB Issue document to be approved by CMB Sales to Qualfied Investors Build Portfolio and Public Offering Initial Investment Build Porftolio Initial Investment Establishment Establishment 18 Mo 18 Mo 1 Year 18 Mo 18 Mo
Portolio Limitations Public Offering Sale to Qualified Investors 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% 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.
Portfolio Management & Performance Fee Public Offering Sale to Qualified Investors 20% No limit Performance Fee Max. Base for performance fee calculation Dividend and interest revenues earned on VC companies Sales profit gained on exits 11
VCIF Activities PRIVATE EQUITY AND VENTURE CAPITAL INVESTMENT ACTIVITIES (Min. 80% of Net Asset Value) INVOLVE in MANAGEMENT of VC COMPANIES 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. 13
VCIF Investment Model Portfolio Man. Co & Venture Capital Portfolio Man. Co Qualified Investors Qualified Fund Units Founder, Manager & Fund Investor Fund Investor (General Partner) Funds of Funds VCIF Venture Company Venture Company Foreign VC&PE Fund Venture Company
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 Completing Initial Closing of fund commitments Establishment Build Portfolio 1 Year 1 Year
Sale of Fund Units Sale to Qualified Investors 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 Completing Initial Closing of fund commitments Establishment Build Portfolio 1 Year 1 Year
Portfolio Management and Performance Fee No Performance Fee limit imposed on Dividend and interest revenues earned on VC companies Base for performance fee calculation Sales profit gained on exits 17
VCICs Statistics 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 G zde GSYO A. . TRY 350.554.790 USD 164.548.812 TRY 773.977.677 USD 362.637.715 TRY 727.501.591 USD 340.861.917 91,24 GSYO A. . TRY 258.979.564 USD 121.341.687 TRY 259.702.012 USD 121.680.181 TRY 172.633.860 USD 80.885.470 28,12 Rhea GSYO A. . TRY 76.767.962 USD 35.968.683 TRY 74.624.330 USD 34.964.311 TRY 28.669.500 USD 13.432.741 100,00 Egeli & Co. GSYO A. . TRY 42.997.319 USD 20.145.864 TRY 14.254.565 USD 6.678.801 TRY 60.200.000 USD 28.205.969 62,30 Gedik GSYO A. . TRY 20.566.851 USD 9.636.344 TRY 16.205.456 USD 7.592.866) TRY 5.250.960 USD 2.460.272 (in transition) Egeli & Co. Tar m GSYO A. . TRY 19.586.917 USD 9.177.208 TRY 13.525.094 USD 6.337.016 TRY 10.560.000 USD 4.947.758 74,42 Source: Public Disclosure Platform www.kap.gov.tr
Tax Regulations for VCICs and VCIFs 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 19
Tax Regulations Contd (Back-end incentives) Corporates Sale of listed VCIC shares: Witholding tax rate: 0% 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 No Witholding 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. 20
Tax Regulations (Front-end incentive) 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 Contd 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 22
