Table of contentsIntroductionObjectives of the studyOutline of the documentChallenges faced by venture capital investors and venture capital funds in TurkeyImportance of venture capital funds and venture capitalMacroeconomic impacts of the venture capital sector in Turkey economyThe challenges of accessing venture capital and venture capital funds in TurkeyThe advantages and disadvantages of equity and private equity financing venture capitalConclusionBibliographyIntroductionFor most entrepreneurs, access to credit is a major problem. The challenge is more pronounced in emerging and developing economies, where the strict requirements of most lenders act as a major deterrent. This problem has seen the advent of new forms of creditors who place little importance on the entrepreneur's ability to repay a loan. Instead, the main focus is on the viability of the business, so credit is extended in exchange for shares or equity in the business. Among the emerging markets that have seen an increase in these forms of investments is Turkey. The Turkish economy has gradually evolved into a leading investment destination in the European region. Say no to plagiarism. Get Custom Essay on “Why Violent Video Games Should Not Be Banned”?Get Original EssayToday, evidence shows that private equity investments in the Turkish market have increased enormously. As a result, the economy continued to record steady GDP growth of around 8% per year until 2016. Among the most dominant private equity firms in Turkey are venture capital firms and funds investment company whose role in promoting entrepreneurial growth has not gone unnoticed. According to Bayar, Karaarslan and Ozdeveci, these investors play a critical role in promoting economic growth and opportunity by transforming ideas and basic science into products and services. It is thanks to the efforts of venture capital funds and venture capital funds that markets are present in most parts of the world and in Türkiye. Objectives of the Study The paper explores the activities of venture capital funds and venture capital funds in the Turkish economy. The overall objective is to critically analyze the roles and functions of these investments in the Turkish economy. Given the growing number of these investments in Turkey, it makes sense to determine whether their increased presence has had a significant impact on the economy, without forgetting the response of the Turkish market and the challenges faced by these investors. of the document is divided into three sections, each addressing an important concept related to equity financing. In the first section, the article explores the history of venture capital and equity funds in Turkey, with particular emphasis on the legal framework relating to their activities in the country. The second section explores the role played by venture capital and equity funds in the Turkish economy. The third section highlights the challenges startups face when seeking funding, including the pros and cons of this funding source. The article concludes with a brief discussion of the established results and highlights interesting areas for future research. The beginnings of venture capital in Türkiye, their structure and the attractiveness of the Turkish market. The Turkish economy has experienced a plethora of economic downturns in the past. . As a result, the history of PE and VC is rather rare and short compared to its counterpartsEuropeans. PE and VC became go-to alternatives for companies seeking capital and credit injections when the economy began to show signs of recovery after 2000. One of the first attempts to explore opportunities of PE in Turkey was carried out by Labx in 2006. The PE came with the objective of serving as a bridge between investors and entrepreneurs looking for financing to realize their business ideas. However, due to the absence of relevant legislation to guide the activities of these investments, there is an apparent lack of literature on investment success. It was only in 2012 that relevant legislation was passed to allow venture capital and private equity companies to officially operate in Türkiye. The Legal Environment Relating to the Venture Capital and Equity Market in the Turkish Economy Every business operates in an environment characterized by external forces that affect its operations. The legal environment is an external force that determines what type of activities can be carried out and which cannot. After years of unrest and the need to stimulate economic growth, the Turkish government has passed the necessary legislation aimed at controlling the activities of private investors. The first official legislation was enacted in 2012 and therefore recognized the role that private investors play in the country. The legislation provides tax incentives to encourage the activities of equity investors registered with the Treasury. The government also provides guidelines for Turkish companies/individuals seeking to provide financing for business opportunities to follow. According to the regulations, a Turkish company seeking to operate as an equity investor must be a joint stock company, as provided for in the Turkish Commercial Code. Additionally, the joint stock company should not have participated in an initial public offering or be under the control of another company. The attractiveness of the Turkish economy for venture capital and equity funds The attractiveness of an economy for investors depends on the extent to which the existing political and legal environment supports venture capital activities. such investments. Countries often put in place measures in the form of incentives to encourage the activities of these private investors. Common incentives include tax reductions and deductions. Since 2012, private investors have benefited from a 75% corporate tax deduction on their annual income in Türkiye. It is even more interesting to note that an investor can be assured of 100% tax incentive if he invests in a project supported by the “Science and Technology Research Council of Turkey”. An investor has the opportunity to invest in up to 20 different Turkish companies, allowing them to diversify their risks. However, for companies to benefit from these incentives, the law states that investors must obtain an “angel investor license” which defines the criteria for qualifying for these incentives, as well as the specific categories of investors. in TurkeyDespite the government's efforts to make the Turkish economy attractive to venture capitalists and equity funds, a series of challenges continue to derail these investments. Musa and Karadağ reported that compared to other countries in the broader European market, Turkey lags behind in terms of the concentration of venture capital per capita. The study refers to the small number of PEs and VCs in the country to the legal environmentrestrictive of the country. For example, Turkish laws stipulate that venture capital firms and public investment companies must own no more than 50% of the shares of companies they seek to invest in Turkey. Although this can be an effective risk management tool for investors, it nevertheless tends to limit the appeal of equity funds which are often oriented towards acquiring increased stakes in companies. Part of the limitation extends to the composition of board members, voting rights and administrative functions. Turkish laws stipulate that equity investors cannot appoint more than 50% of the board members or participate in administrative functions. Political and economic forces also present major drawbacks for potential investors. Facts show that despite President Erdogan's efforts to revive the country's economic growth, the failure to put in place the necessary measures aimed at curbing rising inflation and currency devaluation means that investors are never sure of the state of the economic situation.stability. Much of these problems are linked to the regime's tight grip on the central bank, which reduces its ability to implement appropriate monetary policies. According to Bosut and Finance, high inflation, especially double-digit inflation, tends to limit the extent to which investors can increase their purchasing power in the long term. Therefore, because high inflation erodes the value of their capital in fixed income securities, most investors will hesitate to invest or limit their investments to less risky projects. Importance of Equity Funds and Venture Capital As noted earlier, the Turkish entrepreneurial ecosystem has witnessed a surge in investments in the recent past. Turkish market data shows that in 2018 alone, around 16 companies secured investment deals worth more than $8.5 million. The services offered by equity investors extend beyond the provision of financing. According to Zacharakis, most equity investors are increasingly broadening their range of support to include services such as offering entrepreneurship training and consulting services. Some investors work closely with educational institutions to reinforce the importance of entrepreneurship in study programs. The range of services offered also includes activities such as competitions and awards aimed at boosting entrepreneurial skills. A survey conducted by Yang, Xia and Wen to determine the reason for the success of equity financing in Turkey found that they are most preferred by entrepreneurs because of the range of services they offer other than financial support. Wallmeroth, Wirtz and Groh agree, noting that in addition to financial support, most entrepreneurs may need additional skills necessary to navigate a tough competitive environment. As such, incubation programs common among most equity investors go beyond financial support. The fact that most equity investors have already established themselves in the market means that they help instill this knowledge in young entrepreneurs looking to enter the market. The link between equity funds, venture capital and entrepreneurial growth Existing literature supports the existence of a relationship between equity investments and entrepreneurial growth. Although most of the literature is based on datacollected in developed world contexts, it nevertheless proves that equity investors are the catalyst for entrepreneurial growth. Yang et al. trace the activities of venture capital in a developing economy, noting that the adoption of laws aimed at supporting venture capital activities has led to a significant increase in the number of entrepreneurial activities. For emerging markets like Turkey, the majority of the population may not have access to credit due to strict restrictions imposed by formal financial institutions such as banks. What makes equity investors lenders of choice is the fact that the support they offer is based on opportunity and not an individual's creditworthiness. For their part, most financial institutions often impose requirements such as guarantees that might not be accessible to budding entrepreneurs. Apart from financial support, budding entrepreneurs need important things such as market information, networks and financial skills. Venture capital firms and private equity funds often help bridge this gap by engaging in activities such as providing financial education. According to Karadeniz and Ylmaz, financial support does not necessarily translate into business support. It is the financial skills offered by most investors that help businesses navigate the murky waters of a highly competitive business environment. Additionally, most of these investors can pull the strings needed to help these budding investors secure lucrative deals or gain access to a certain market segment through their strong networks in the business and political worlds. This is mainly the case in emerging markets where most business opportunities often land in the hands of the elite, who also act as private investors. Macroeconomic Impacts of the Venture Capital Sector on the Turkish Economy In economics, credit opportunities are key drivers of entrepreneurial growth. , which leads to economic growth. With access to credit, businesses can expand their scale of operations, hire additional talent, venture into new markets or increase their production capacity. For SMEs and startups, credit is the key to entering the market and being competitive. Turkey is an upper-middle-class economy with few natural resources. The Turkish economy is largely dependent on revenues from manufacturing, construction and tourism and currently ranks 17th in the world in terms of GDP. However, following a series of political upheavals and military coups in 1960 and 1981, the country embarked on a growth trajectory based on a new export-led growth strategy. The government has targeted a strengthening of the role of the private sector in the new phase of transition by reducing its participation and its share of the public sector in the economy. The resulting shift from mixed capitalism to a market economy was intended to make the economy more competitive in the global market. Isiksal et al. It is worth mentioning that the effect was a significant growth in the volume of exports, coupled with a corresponding increase in the volume of foreign trade. However, even with these changes, the economy was still hit by a series of severe macroeconomic turbulence beginning in 1994. This turbulence was caused by currency substitution, the trend toward open positions in the banking system, the boom of demand due to the economic situation andpolitical instability. The resulting effect was a significant decline in GDP, a huge outflow of funds and an increase in inflation. The subsequent turmoil which saw interest rates reach incredible heights each year forced the government to implement serious macroeconomic measures. One of these measures was the introduction of incentives to encourage investors to invest in local entrepreneurs. The results of macroeconomic restructuring programs are currently positive. The Turkish economy is currently showing robust employment levels. Although no national studies have been conducted to determine the possible link between resulting positive levels of economic growth and the activities of equity investors, cross-sectional study data support this relationship. In Tiftik and Zincirkiran, it was noted that following the enactment of legislation allowing venture capital activities, the resulting increase in the number of SMEs and startups contributed positively to unemployment levels. Indeed, since 2008, unemployment has followed a downward trend, going from 11% to 9% in 2017. According to Cetindamar et al. With the increase in entrepreneurial activities in the Turkish economy, the country's balance of payments has increased significantly, reflecting an increase in overall exports. Today's Turkey has evolved from a simple manufacturing-based economy. There is an ambitious services industry, built around technology companies that offer services such as web hosting, server services and related services. The Challenges of Accessing Venture Capital and Equity Funds in Turkey Despite the crucial role that venture capital financing plays in shaping an entrepreneurial culture in an economic, access to venture financing remains weak. As observed previously, the overall concentration of venture capital and private equity firms remains low relative to the country's 80 million population. In fact, statistics show that out of more than 80 million people in Turkey, there are only 445 stock investors, compared to 12,000 in the UK whose population is around 60 million. This implies that relatively few companies can access the services of private equity funds and venture capitalists. This challenge is compounded by the lack of English skills among most start-ups seeking funding. With most investors coming from the English-speaking segment of the world, most budding entrepreneurs find it difficult to pitch their ideas to potential investors. Zacharakis mentions that most investors are always looking for a business idea presented by someone who understands not only the numbers, but also the business environment. This often requires expressing oneself in English, a language little used in Türkiye. A second challenge lies in the nature of the business ideas put forward by most entrepreneurs. A survey by Sancak found that most of the proposals rejected by venture capital firms and investment funds are those built around the concept of e-commerce. Although e-commerce was once touted as the most promising avenue, the fact that the country has not produced a single global success story makes these ideas a no-go zone for most investors. Given the high-risk nature associated with investing in a startup, the priority for most investors is high financial returns and a successful existence in the shortest possible time. The advantages and disadvantages of equity financing andby venture capital. The high-risk nature of most startups. UPS implies that access to credit is mainly limited to venture capital and private equity funds. As such, one of the main benefits of venture capital and equity funds is that they extend financing to business ideas that might not otherwise be touched by debt financing. This is mainly the case for high-tech companies which often have significant initial capital requirements but do not have the necessary guarantees to be financed by debt. The valuable expertise, advice and industry connections that result are also cited as an important aspect of venture financing. Most venture capital firms and venture capital funds often require the inclusion of a venture capitalist or private equity member on the board of directors of start-ups. However, accessing venture capital funding through venture capital and venture capital funds is not without its drawbacks. Above all, obtaining a financing agreement is often a rigorous undertaking due to the accounting and legal costs involved. Additionally, most investors always ask start-ups to give up part of their stake in exchange for financial support. However, this often results in a loss of autonomy, as the start-up may need to include the investor in decision-making processes. Loss of autonomy also arises from the stipulations often associated with venture financing. For example, before agreeing to fund a start-up, an investor may want changes in the start-up's management team, staff salaries, and business ties. Conclusion From 2012, Turkey therefore began to open its economy to venture capitalists and equity funds seeking to profit from the investment market. Venture capital and equity funds were considered the vehicles of choice given their ability to provide financing for even the riskiest business ideas. To a large extent, it appears that the bet paid off as expected. As we observed during the discussion, Turkey is gradually emerging as an economic power in the broader European region. The policy change has had phenomenal impacts on a once sluggish economy. Today, Turkey has gradually transitioned to a middle-to-high income economy, supported by a large population of over 80 million, with a good ease of doing business index. Venture financing has helped not only foster an entrepreneurial culture, but also reduce the country's unemployment rate. Keep in mind: this is just a sample. Get a personalized article from our expert writers now. Get a personalized trial These results appear to be in line with those established in other markets. In the United States, venture capital firms and investment funds played a vital role in the creation of Silicon Valley. Silicon Valley has since given birth to companies like Atari, Apple, Oracle, Cisco, Sun Microsystems and Adobe.founded. Today, Silicon Valley is considered a global center of technological innovation. The fact that there is a link between the activities of venture capital companies or investment funds and economic growth is therefore not in dispute. In markets like the UK, the activities of Silicon Fen venture capitalists have made the region Europe's most important technology hub. The region is home to a large cluster of high-tech companies focused on., 7-30.