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Venture Capital and Private Equity Investment Models in CMB Regulations

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

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Venture Capital and Private Equity Investment Models in CMB Regulations

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  1. Venture CapitalandPrivateEquityInvestmentModels in CMB Regulations

  2. Outline • Venture CapitalandPrivateEquityConcepts in CMB Regulations • Investment Company Model • Scope of ActivitiesandTypes of Models • Establishment • Conversion to an Investment Company • Sale of SharesandPublicOffering • Portfolio Limitations • Portfolio Management andPerformanceFee • Fund Model • Scope of ActivitiesandFeatures of the Model • Establishment • IssueandSale of Units • Portfolio Management andPerformanceFee • TaxRegulations

  3. Venture Company ( portfoliocompany) concept in CMB Regulations • No specificdistinctionbetween “privateequity” and “venturecapital” conceptsaccordingto CMB regulations. Bothterms can be usedinterchangeably. • Theseconceptsaredefinedtocoverbothprivateequityandventurecapitalinvestments, respectively. • Definition of Venture Company in CMB Regulations: Companies(jointstockcompaniesandlimitedcompanies) established and operating or to be established in Turkey, carrying a growth potential and in need of resources Venture Company: - privatecompanies - publiclyheldcompanies (non-tradedshares)

  4. PrivateEquityand Venture CapitalInvestments Mezzanine Finance

  5. Venture CapitalInvestment Company (VCIC) Model

  6. VCIC Activities • RENDER MARKET CONSULTING SERVICES in EmergingCompanies Market of ISE

  7. VCIC TYPES: Interms of publicandprivateoffering • Publicoffering model At least 25% of outstandingshares of VCIC shall be soldthroughpublicofferingand be listed on stockexchange • Privateoffering Salestoqualifiedinvestors QualifiedInvestors : Financial institutions, public administrations and entities, natural persons and legal entities whohaveindividual net worththatexceedsTRY 1milionandnaturalpersons holding angel investorlicense.

  8. PublicOffering Sale toQualifiedInvestors • Registeredcapital • Min. paid in/issuedcapital TRY 20 million (approx. $ 9,25 million) • Min. shareholder’sequity TRY 20 million • Privileged sharesregardingmanagementrights • At leastoneleadingshareholder- general partner • Registeredcapital • Min. paid in/issuedcapitalTRY 5 million (approx. $2,3 million) • Min. shareholder’sequityTRY 5million • Privileged sharesregardingmanagement & dividendrighst • No leadingshareholderrequirement

  9. PublicOffering Sale toQualifiedInvestors • Prospectusto be approvedby CMB • Issuedocumentto be approvedby CMB 1 Year 18 Mo 18 Mo 18 Mo 18 Mo

  10. PublicOffering Sale toQualifiedInvestors • Investments otherthan PE and VC: Max 49% • Investments in Foreign CIS: Max. 49% • Pledges, mortgagesandguaranteesgiven-established on behalf of SME’s in theportfolio: Max 10% • Participation in Management andAdvisoryCompanies: Max 10% • Unlistedshares of publiclyheldcompaniesMax 25% • Investments otherthan PE and VC: Max 49% • Participation in Management andAdvisoryCompanies: Max 10% Basis of thelimitations is the total assetsreported in auditedannualfinancialreports.

  11. Portfolio Management & PerformanceFee Base forperformancefeecalculation Dividend andinterestrevenuesearned on VC companies Sales profitgained on exits

  12. Venture CapitalInvestmentFund (VCIF) Model

  13. VCIF Activities • INVEST in LIQUID ASSETS- Money market instrumentsandlistedsecurities • Basis of thelimitations is thenet assetsvalue as reportedin auditedannualfinancialreports. • VC&PE investmentsareto be valuedbyindependentappraisalfirmsbytheend of eachcalendaryear at minumum. • Net Assets Value is to be notifiedtoqualifiedinvestors at leastonce a year.

  14. VCIF Investment Model Portfolio Man. Co & Venture Capital Portfolio Man. Co QualifiedInvestors QualifiedFundUnits Founder, Manager & Fund Investor (General Partner) Fund Investor Fundsof Funds VCIF Venture Company Foreign VC&PE Fund Venture Company Venture Company

  15. Fundrulesdocumentto be approvedby CMB • Authorised Portfolio Depositaryto be determined • Min. FundCommitment (initialclosing): TRY 5 million (approx. $ 2,3 million) • Min. amount of TRY 5 millionto be invested in eligibleassetswithinportfoliolimitationsdefined in regulationsandfunddocuments • Investor Agreement - including thetermsandprovisionsregardingfundcommitmentpayments, performancefeeandregulatesmattersthatare not included in fundrulesandissuedocument 1 Year 1Year

  16. Sale toQualifiedInvestors • Issuedocumentto be approvedby CMB • Issuance of QualifiedFundUnits • Priviledge on dividendsandhavemanagementrights • Upto 20% of thefundunits can be investedbythefounder (portfoliomanagementcompany) • Fundunits can be transferredamongqualifiedinvestorsuponapproval of thefounder 1Year 1 Year

  17. Portfolio Management andPerformanceFee Dividend andinterestrevenuesearned on VC companies Base forperformancefeecalculation Sales profitgained on exits

  18. VCIC’sStatistics • 12 VCICs, # tradedon Borsa Istanbul :6 and # soldtoqualifiedinvestors:2 Source: PublicDisclosure Platform www.kap.gov.tr

  19. TaxRegulationsforVCIC’sandVCIF’s • Taxation of VCIC’sandVCIF’s: • VCICsandVCIFsareexempt from CorporateTax • CorporateTaxexemptedincomes of VCIC’sandVCIF’saresubjectto 0% witholdingtax. • Taxation of VCIC’sandVCIF’sInvestors • ResidentCorporations(including nonresidentcorporatetaxpayersthathave a permanentestablishment, such as a branchoffice, in Turkey) • ResidentIndividuals

  20. TaxRegulationsCont’d (Back-endincentives) • Corporates • Sale of listedVCIC shares: Witholdingtaxrate: 0% No WitholdingTax • Sale of VCIC sharesareincluded in corporatetaxbase • Redemptionof fundunits : witholdingtax rate : 0% • Capitalgain from non-listed VCIC sharesheldminfor 2 years is subject to75% CorporateTaxexempt • Dividendincomefrom VCIC sharesand VCIF unitesareexempt from CorporateTax • Individuals • Dividend income from VCIC sharesand VCIF unites : 0% witholdingtax • Dividendincome from VCIC sharesand VCIF unites : Half of theirgrossdividendamountsareexempt from incometax. Iftheremainingamountexceeds a thresholdsuchamountshall be declaredwiththeannualincometaxreturn.

  21. TaxRegulations (Front-endincentive) • Front endincentiveregulationwasintroduced in 2012 to be put intoeffectby 1/1/2013. • Applicableforresidentcorporates (including nonresidentcorporatetaxpayersthathave a permanentestablishment, such as a branchoffice, in Turkey)andresidentindividuals. • Venture CapitalReserve: Individualsandcorporatetaxpayersareallowedtoreserve a specialfundfrom theirannualincometo be invested in VCIC or VCIF, upto 10% of theirtaxableannualincomeorcorporatetaxbase of therelevantyearAND upto 20% of theirequity. • Venture CapitalReserves can be deducted from thecorporateorincometaxbaseas long as suchinvestment is actuallymade in VCIC or VCIF. • Venture capitalreservecannot be usedforanyotherpurpose, withdrawn, distributedtoshareholders/unitholders. • Incase of dispose of theventurecapitalreserveinvestment in VCIC or VCIF, suchamountshall be reinvestedwithinsixmonthsfollowingsuchdisposal.

  22. TaxRegulationsCont’d • Non-ResidentCorporates • Sale of listedVCIC sharesanddividends from VCIF’saresubjectto 0% Witholdingtax • No furtherrequirementforanyfilling • Non- ResidentIndividuals • Sale of listed VCIC sharesanddividends from VCIF’saresubjectto 0% Witholdingtax • No furtherrequirementforanyfilling

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