Cap Table Hygiene in Turkey from a VC’s Perspective: Which Structures Drive Investors Crazy?
When we talk about cap table hygiene in Turkey from a VC’s perspective, we are really talking about one simple question: can an investor clearly understand who owns what, on what terms, and with which future dilution risks? For foreign founders and investors dealing with Turkish companies, certain common patterns immediately raise red flags in due diligence and can slow down or even kill a deal.
Below is a practical overview of the cap table issues that typically worry venture capital investors in Turkey: family shareholding structures, legacy co-founders, hidden or informal partners, the absence of an ESOP pool, and unreflected convertible instruments.
1. Heavy family shareholding and micro-stakes
In Turkey, it is very common for a company to be set up with multiple family members on the cap table: spouse, siblings, parents, even cousins. While this may feel “safe” culturally, it looks risky from a VC angle:
- Decision-making becomes fragmented if several relatives hold small percentages but must sign key resolutions.
- A divorce, inheritance dispute or family conflict can suddenly affect corporate control.
- Some family shareholders may be uninterested in growth but very sensitive to dilution, blocking future rounds.
From a legal and practical standpoint, investors will ask:
- Are there shareholders’ agreements regulating voting, drag-along, tag-along and transfer of shares?
- Can the company clean up the cap table by buying back or consolidating small family stakes before investment?
If the answer is “no”, expect tougher negotiations, conditions precedent, or demands for restructuring.
2. Former co-founders who still own large stakes
Another frequent problem is the ex-partner who left years ago but still owns 20–30% of the company:
- They may no longer contribute any work or know-how to the business.
- They may be unreachable, living abroad, or hostile after a fall-out.
- They still need to sign shareholder decisions or approve a share transfer.
Under Turkish law, they remain full shareholders with all rights unless a proper share transfer or redemption has been executed and duly registered. VCs worry about:
- Potential blocking of exit, capital increase or sale of key assets.
- The need to chase signatures during the investment process.
Before approaching investors, it is wise to either buy out such legacy shareholders, formalise a drag-along clause, or at least secure irrevocable undertakings that they will cooperate in future transactions.
3. “Gizli ortak” – hidden partners and nominee shareholders
Foreign investors are particularly uncomfortable with any mention of a “gizli ortak” (hidden partner) or nominee arrangements, where:
- One person appears as the shareholder in the trade registry,
- But there is a side agreement that a different person is the “real” economic owner.
This creates multiple layers of legal risk:
- Disputes between the nominal and the real owner may lead to litigation and injunctions against share transfers.
- Tax authorities may challenge the structure as tax evasion or undeclared partnership.
- Investors cannot be sure who will exercise voting rights, or who should be bound by the investment agreements.
Under Turkish law, the registered shareholder is generally the one recognised vis-à-vis the company and third parties. Any off-the-record arrangements are highly problematic in a VC deal. Investors will almost always insist that all real owners become visible on the cap table and sign the transaction documents.
4. No ESOP pool and improvised employee arrangements
Well-structured startups usually allocate an ESOP (Employee Stock Option Plan) pool of 5–15% for key team members. In Turkey, however, many companies have:
- No ESOP pool at all, and
- Instead rely on informal promises, side letters or “one day I’ll give you shares” statements to employees.
From an investor’s perspective, this is double risk:
- Talent retention risk: there is no clear, legal incentive mechanism.
- Dilution risk: if informal promises have been made, the founders may later have to honour them by issuing shares, unexpectedly diluting both themselves and the VC.
VCs typically ask that an ESOP pool be created before or at closing, and that all informal promises be either:
- Properly documented within the ESOP; or
- Explicitly waived by the employees.
Without this clean-up, investors cannot accurately model future ownership.
5. Convertible notes and SAFEs not reflected in the cap table
A very common issue in Turkish startups is the existence of convertible notes, SAFEs or similar instruments that are not properly reflected in the cap table:
- Founders may treat them as “temporary” and only focus on current share ownership.
- Maturity, discount rates, valuation caps and conversion triggers are often unclear or not harmonised.
- Different investors may have different side terms.
For a VC, this is a major concern, because once these instruments convert:
- The founders’ stake can be significantly diluted.
- The VC’s expected percentage post-money may be wrong.
- Conflicts can arise between earlier noteholders and the new equity investor.
Before starting a VC round, founders should:
- List all convertible instruments, with amounts, dates, valuation caps, discounts and most-favoured-nation clauses.
- Prepare a fully-diluted cap table showing shareholding after all notes convert.
- Consider amending or consolidating old notes to simplify the structure.
6. Takeaway for foreign founders and investors
In short, cap table hygiene in Turkey from a VC’s perspective is about transparency, enforceability and predictability. Family shareholders, legacy partners, hidden partners, lack of ESOP and unreflected convertibles do not automatically make a deal impossible—but they do require careful legal work.
Foreign founders planning to raise money from Turkish or international VCs should review their cap tables early with local counsel, restructure where necessary and present investors with a clean, fully-diluted picture. This not only reduces legal risk, it also sends a strong signal of professionalism and alignment with global venture standards.
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