1. Introduction: Why Look at Startup Investments in Turkey?
In recent years, Turkey has become far more than a low-cost production center. A young population, strong engineering talent, widespread smartphone use and an active e-commerce and fintech scene have created a fertile environment for ambitious technology companies.
As a result, startup investments in Turkey now attract attention from:
- Domestic angel investors and family offices,
- Turkish and international venture capital funds,
- Corporate venture arms of large industrial and financial groups,
- Individual foreign investors seeking exposure to growth and innovation.
Despite this momentum, investing in a Turkish startup is still a legal and strategic exercise. The chosen company type, the way shares are structured, the content of shareholder agreements and the use of state incentives can significantly influence risk and return. This article explains the main legal elements of startup investments in Turkey, with a focus on practical issues that foreign and local investors should consider.
2. Legal Environment for Startup Investments in Turkey
2.1 Equal Treatment of Foreign Investors
Turkey applies a national treatment principle to foreign direct investment. Foreign individuals and legal entities may generally:
- Establish companies in Turkey,
- Acquire shares in existing Turkish companies,
- Participate in most sectors open to private investment,
under substantially the same conditions as Turkish investors.
There is no special corporate form that must be used by foreign shareholders. The same corporate law rules apply whether the shareholders are Turkish or foreign. However, some sectors such as banking, insurance, media, aviation, energy, payment services and telecoms are subject to licensing and, in some cases, ownership restrictions. An investor analysing a startup in a regulated sector should therefore combine company law due diligence with regulatory due diligence.
2.2 Core Company Law Framework
The backbone of corporate life in Turkey is the Turkish Commercial Code (TCC). It governs:
- Incorporation and internal structure of companies,
- Rights and obligations of shareholders,
- Duties and liabilities of directors and managers,
- Corporate governance and decision-making procedures.
For startup investments in Turkey, two company types are especially relevant:
- Limited liability company (limited şirket – Ltd. Şti.)
- Joint-stock company (anonim şirket – A.Ş.)
Both provide limited liability for shareholders, but they differ significantly in flexibility, transfer of shares and suitability for repeated investment rounds.
3. Choosing the Right Vehicle: Limited vs Joint-Stock Company
3.1 Limited Liability Company (Ltd. Şti.)
Many small and early-stage businesses in Turkey start as limited liability companies. The reasons are simple:
- The minimum capital requirement is relatively low,
- Management is straightforward,
- Day-to-day compliance is generally lighter than in joint-stock companies.
However, for startup investments, a limited company has some disadvantages that investors must understand:
- Share transfers usually require a notarised transfer agreement and registration with the Trade Registry. This makes frequent investor entries and exits more bureaucratic and costly.
- Employee stock option plans and sophisticated share classes are harder to implement.
- A limited company is less familiar to international investors used to joint-stock or corporate structures that resemble companies in common law jurisdictions.
Because of these points, investors often prefer a limited company only at a very early stage, and require a conversion into a joint-stock company before or as a condition to a substantial financing round.
3.2 Joint-Stock Company (A.Ş.)
The joint-stock company is the preferred vehicle for serious startup financing. Key reasons include:
- Shares may be represented by share certificates and transferred more easily, subject to the company’s articles of association and the TCC.
- Different classes of shares can be created with priority rights on dividends, liquidation, voting or information.
- A joint-stock company is structurally compatible with venture capital investment funds and, in the long term, potential listings on the stock exchange.
- Complex shareholder arrangements (liquidation preference, anti-dilution, drag-along, tag-along, veto rights) can be reflected more effectively in the articles of association.
For these reasons, most professional investors insist that the target company is, or becomes, a joint-stock company before the investment is closed.
4. Investment Structures and Instruments
4.1 Direct Equity Capital Increase
The simplest method of investing in a Turkish startup is a capital increase. The company issues new shares, and the investor subscribes and pays for them. The amount paid, and the share price, reflect the agreed valuation.
Important legal and practical issues in a capital increase include:
- Valuation: pre-money and post-money valuation should be clearly defined in the term sheet and final agreements.
- Preferred shares: investors may receive shares with special rights, such as priority in liquidation, enhanced voting on specific topics, or privileged information rights. These must be properly regulated in both the shareholders’ agreement and the articles of association.
- Corporate approvals: the general assembly of shareholders and, in some cases, the board of directors must approve the capital increase. All changes are registered with the Trade Registry.
- Payment of capital: for joint-stock companies, a portion of the increased capital must be paid before registration; the remainder is paid within a statutory period.
4.2 Convertible Loans and Future Equity Instruments
In early rounds, investors sometimes prefer not to fix a valuation immediately. Instead, they provide funding through convertible loans or agreements for future equity. These instruments are widely used in practice, even though there is no specific statutory regime for them.
Typical features of convertible instruments in Turkey include:
- A loan or similar instrument that can convert into shares upon a qualified financing round, a change of control or maturity;
- A discount on the price paid by new investors in the next round, sometimes combined with a valuation cap;
- Interest and repayment terms, which must be designed with attention to tax rules, lending regulations and potential thin capitalisation issues;
- Security or guarantees, if any, drafted in compliance with corporate benefit principles under the TCC.
Because there is no codified SAFE system, careful drafting is essential to ensure that the instrument is enforceable and that its economic intent (conversion to equity) is realistically achievable under Turkish corporate procedures.
4.3 Angel Investments
Angel investors play an important role in the Turkish startup ecosystem. They often come from business backgrounds and provide not only capital but also network access and mentoring.
In legal terms, an angel investment can be structured as:
- A small equity subscription,
- A convertible instrument,
- Or a combination of both.
Where the angel investor holds a specific license under Turkish legislation, certain tax advantages may be available. The company and investor must cooperate on compliance with the requirements of those incentives (such as minimum holding periods and qualifying company conditions).
Even at this stage, it is sensible to use written documentation that addresses:
- Basic shareholder rights,
- Protection against unexpected dilution,
- Confidentiality of information,
- Non-compete obligations where appropriate.
4.4 Venture Capital Funds and Co-Investments
Turkey recognises venture capital investment funds set up and managed by licensed portfolio management companies. These funds pool capital from multiple investors and then invest in startups and growth companies.
When such a fund invests in a startup, transaction documents typically reflect not only the interests of the fund but also regulatory obligations on reporting, risk management and conflict-of-interest rules. Co-investment structures, where a foreign investor invests alongside a local fund, are common and can reduce the foreign investor’s learning curve regarding local market conditions.
4.5 Crowdfunding
Turkey also has a structured crowdfunding regime. Startups can raise relatively modest amounts of capital from a large number of investors through licensed online platforms.
Crowdfunding is particularly attractive for:
- Consumer-facing startups that benefit from a large community of small investors,
- Early-stage businesses needing capital but not yet ready for traditional venture rounds.
However, crowdfunding also requires the startup to comply with disclosure standards, investor limits and use-of-proceeds rules defined by capital markets regulations. These obligations can affect future financing rounds, so they should be considered early when designing the capital structure.
5. Incentives and Tax Aspects Relevant to Startups
5.1 Investment Incentive Schemes
Turkey offers several investment incentive programs that may apply to technology and innovation projects, depending on factors such as location, sector and investment size.
Typical benefits can include:
- Exemptions or reductions in certain corporate taxes,
- Social security premium support for eligible employees,
- Customs duty and value added tax (VAT) exemptions for some imported machinery,
- Interest support and land allocation for certain strategic investments.
These incentives are not limited to large industrial projects. Early-stage technology companies can also benefit if they meet the criteria of the relevant schemes. An investor should therefore ask the startup which incentive certificates it holds and whether the conditions of those programs are being met.
5.2 Technology Development Zones and R&D Incentives
A substantial portion of the Turkish startup ecosystem is based in Technology Development Zones (TDZs), commonly known as “teknoparks”, and in registered R&D or design centers. Companies operating within these frameworks may benefit from:
- Partial or full exemption from corporate tax on income derived from certain R&D and software activities,
- Income tax relief for R&D personnel,
- Exemption from stamp tax for some documents,
- Incentives relating to social security premiums.
From an investor’s perspective, these incentives increase available cash for product development and extend the startup’s runway. At the same time, they sometimes impose reporting duties, restrictions on the geographical place of work for incentivised employees or limitations on the scope of eligible activities. These details should be reviewed during legal and tax due diligence.
5.3 Tax Considerations for Investors
The tax treatment of startup investments in Turkey depends on the nature of the investor (individual or corporate, resident or non-resident), the holding structure and any applicable treaties. Common themes include:
- Withholding taxes on dividends and interest,
- Potential exemptions for capital gains on share disposals in certain structures,
- Transfer pricing rules for transactions between the startup and related parties abroad,
- Thin capitalisation rules where shareholder loans are used.
Because tax rules are technical and can change, investors should always obtain tailored tax advice when structuring significant investments or exits.
6. Key Legal Documents and Governance Issues
6.1 Shareholders’ Agreement
In Turkish startup transactions, the shareholders’ agreement (SHA) is the main private contract governing the relationship among shareholders. It usually addresses:
- Composition of the board of directors and the right of investors to appoint board members or observers,
- Reserved matters that cannot be decided without investor approval (for example, new share issuances, significant borrowing, asset sales, entry into new lines of business, changes to articles of association),
- Liquidation preferences and the order in which shareholders are paid in an exit or winding up,
- Anti-dilution protections to preserve investor ownership in down rounds,
- Pre-emption rights, tag-along and drag-along clauses,
- Lock-up provisions restricting share transfers by founders,
- Confidentiality and non-competition obligations.
The SHA is often governed by Turkish law, although in some cross-border deals another governing law is chosen. In all cases, rights that affect the corporate structure (for example, share classes and certain voting rights) should be mirrored in the company’s articles of association so that they are also effective against third parties and future shareholders.
6.2 Articles of Association
The articles of association (AoA) are the company’s public constitutional document filed with the Trade Registry. They must comply with the TCC and contain core information such as:
- Trade name, registered office and business scope,
- Amount and structure of share capital,
- Types and classes of shares and their rights,
- Corporate organs and their powers.
For startup investments in Turkey, the AoA usually incorporate:
- Classes of preferred shares with defined voting or economic rights,
- Rules on transfer restrictions, pre-emption rights and approval mechanisms,
- Provisions implementing drag-along rights so that a majority can enforce an exit transaction.
The interaction between SHA and AoA is critical. A right included only in the SHA may not bind new shareholders who are not signatories. Therefore, investors should ensure that the most important economic and control rights are reflected in the AoA as far as Turkish law allows.
6.3 Founder Vesting and Leaver Provisions
Forward-looking investors expect founder vesting mechanisms. Instead of granting founders unconditional ownership of all their shares from day one, vesting systems link ownership to time and performance. If a founder leaves the company early or violates certain obligations, part of their shares may be:
- Transferred back to the company,
- Bought by other shareholders at a reduced price,
- Or subject to call options in favour of investors.
These “good leaver/bad leaver” rules are usually defined in the SHA and supported by share transfer undertakings, pledges or option agreements. They must be drafted carefully to comply with mandatory rules of company and labour law.
6.4 Employee Equity Incentives
To attract and retain talent, many Turkish startups implement some form of equity incentive plan. Because there is no dedicated ESOP statute, different contractual techniques are used, such as:
- Option agreements that give selected employees the right to acquire shares upon meeting certain conditions,
- Phantom stock or virtual share plans that mirror share value in cash bonuses,
- Performance-based share grants linked to milestones.
When investors negotiate a round, they typically require a dedicated option pool representing a fixed percentage of the company’s fully diluted share capital. This pool is usually created before the investment so that the resulting dilution affects founders rather than new investors.
7. Regulatory and Compliance Topics for Turkish Startups
7.1 Sector-Specific Licensing
A growing number of Turkish startups operate in areas that are regulated:
- Electronic money and payment services,
- Digital banking and fintech,
- Investment platforms and brokerage,
- Energy, mobility and transportation,
- Health technologies and medical devices,
- Education and online schools.
In these sectors, the business model may require authorisation from regulators such as the banking authority, the capital markets regulator, the energy regulator or the health authorities. An investor should verify:
- Whether the company holds all required licenses and permits,
- Whether its activities remain within the scope of those licenses,
- Whether there are any ongoing investigations or sanctions.
7.2 Anti-Money Laundering and Compliance Culture
Startups that handle money, value, cryptoassets or high-risk customers may qualify as “obliged parties” under anti-money laundering legislation. That status brings duties such as:
- Know your customer (KYC) checks,
- Monitoring and reporting suspicious transactions,
- Record-keeping and training obligations,
- Internal policies and compliance officers.
Investors should assess whether the company has a genuine compliance culture and adequate systems, as regulatory breaches can result in fines and reputational harm that directly affect investment value.
7.3 Data Protection and Cybersecurity
Most technology startups in Turkey process large quantities of personal data, often belonging to consumers or users. They must comply with Turkish data protection law, which is largely influenced by European standards.
Key points include:
- Having clear privacy notices and lawful grounds for processing,
- Respecting rules on explicit consent where required,
- Implementing appropriate technical and organisational data security measures,
- Keeping records of processing activities and responding properly to data subject requests,
- Managing cross-border data transfers in a lawful way.
Cybersecurity is also a business-critical issue. A serious data breach or cyberattack can quickly destroy user trust. Investors should therefore examine not only contractual documents but also the startup’s technical approach to security.
7.4 Competition and Merger Control
As Turkish startups scale, they may become significant players in specific digital or local markets. Competition law risk arises in three main situations:
- Acquisitions: an investor acquiring control over a company, or two large players merging, may be required to file a notification with the Competition Authority if turnover thresholds are exceeded.
- Agreements: distribution, cooperation and exclusivity agreements should be reviewed for anti-competitive effects.
- Market dominance: platform businesses with powerful network effects must avoid exclusionary practices that could be seen as abuses of dominance.
When an investment round leads to a change of control, merger control analysis should be part of the closing checklist.
8. Exit Routes from Turkish Startup Investments
8.1 Trade Sale to Strategic or Financial Buyers
The most common exit route is a trade sale. A strategic buyer (for example, a larger technology or industrial company) or a financial investor (such as a private equity fund) acquires the shares.
In a typical share sale:
- A detailed share purchase agreement is negotiated,
- Representations and warranties are given by sellers (and sometimes founders and the company),
- Indemnity caps, baskets, escrow accounts and earn-out structures may be used,
- Closing is made conditional on regulatory approvals such as merger control clearance.
Drag-along clauses negotiated at the investment stage often make it possible for majority shareholders and key investors to require minority shareholders to join a sale on the same terms.
8.2 Secondary Transactions
A second common path is a secondary sale, where one investor sells their stake to another without the company itself being sold.
Secondary transactions usually occur:
- When early investors exit and later-stage investors enter,
- When a founder partially cashes out,
- When a fund is approaching the end of its life and wants to realise gains.
These deals must respect pre-emption rights, tag-along provisions and any transfer restrictions in the SHA and AoA.
8.3 Public Offerings
Although still relatively rare in the startup context, initial public offerings (IPOs) on the Turkish stock exchange are a potential exit route for mature technology companies with:
- Predictable revenues and profitability,
- Strong internal governance and reporting,
- A sufficiently diversified shareholder base.
Preparing for an IPO requires early attention to transparency, documentation, internal control systems and corporate governance, even years before the actual listing.
9. Practical Roadmap for Investors
9.1 Initial Assessment
Before making an offer, an investor considering startup investments in Turkey should:
- Clarify the desired exposure (minority, majority, portfolio spread, sector focus).
- Understand the company’s real business model and regulatory status.
- Check whether the company benefits from any incentive schemes and whether the conditions are respected.
9.2 Due Diligence
A focused due diligence process generally covers:
- Corporate records, share capital history and existing shareholder agreements,
- Intellectual property ownership and licensing,
- Contracts with key clients, suppliers and partners,
- Regulatory permits and compliance documents,
- Employment contracts, especially with founders and key personnel,
- Tax filings, incentives and any disputes with public authorities,
- Ongoing or threatened litigation.
The scope can be adapted to investment size, but even small tickets benefit from at least a basic legal review.
9.3 Negotiation and Documentation
After due diligence, the parties negotiate:
- A term sheet summarising the main deal terms,
- Definitive agreements (SHA, subscription or purchase agreement, option plans, IP assignments),
- Amendments to the articles of association.
It is essential that the legal documents reflect the commercial understanding on valuation, control rights, incentives and exit mechanisms, and that they are workable under Turkish corporate law.
9.4 Implementation and Post-Closing Governance
Once the deal is signed and closing conditions are met, the investor’s role shifts toward governance and value creation:
- Participating actively in board meetings,
- Monitoring financial performance and key metrics,
- Helping the company professionalise areas such as HR, financial reporting, compliance and risk management,
- Supporting future funding rounds, strategic partnerships and international expansion.
An investor who views legal documentation as a starting point rather than a mere formality is better placed to protect the investment and support sustainable growth.
10. Conclusion
Startup investments in Turkey offer a combination of growing market potential, competitive valuations and an improving legal and incentive framework. At the same time, they require thoughtful structuring and a solid understanding of Turkish company law, regulatory rules and market practice.
By focusing on:
- The choice between limited and joint-stock company forms,
- The selection and drafting of suitable financing instruments,
- The use of incentive schemes and R&D benefits,
- Clear and enforceable shareholder arrangements,
- Ongoing compliance with sectoral, data protection and competition rules,
- And realistic planning of exit routes,
investors can approach Turkish startups in a professional and legally sound way.
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