The entrepreneurship ecosystem in Türkiye continues to grow and evolve each year. As the number of entrepreneurs, investors, and investment funds increase, it is essential to implement regulations to facilitate operations, keep the ecosystem dynamic, foster development, and update practices within this rapidly evolving landscape. To this end, significant regulations and a new visa program were introduced in Türkiye in 2024. Additionally, under the National Technology Entrepreneurship Strategy established in 2022 with the leadership of the Ministry of Industry and Technology, the Technopreneurship Council, of which I am one of the thirty members, was created to accelerate the development of technology entrepreneurship in our country and build a globally leading tech entrepreneurship ecosystem. The Council’s agenda, focused on overcoming barriers within the entrepreneurship ecosystem, is crucial, and rapid actions taken on agenda items are promising. In this article, I will discuss these developments and their implications for the ecosystem.
On September 21, 2024, significant regulatory changes were introduced for Venture Capital Investment Funds (VCIF) with the publication of an amendment to the Communiqué on Principles of Venture Capital Investment Funds in the Official Gazette. The most notable amendment allows VCIFs to invest a more significant portion of their assets in overseas ventures.
Prior to this regulation, VCIFs were required to invest at least 80% of their assets in companies with operations based in Türkiye. This threshold has now been reduced to 51%, facilitating investments by VCIFs in companies based abroad. This adjustment opens the door for funding ventures that are globally oriented from the outset, choose to incorporate overseas for financial and/or legal reasons, yet have their teams situated in Türkiye. Additionally, the cap for VCIF investments in foreign companies has been raised to a maximum of 15% of the fund’s total value.
Another key regulation allows investments through Simple Agreement for Future Equity (SAFE), a widely used mechanism in international startup investments. SAFE was first introduced by Y Combinator in Silicon Valley in 2013, quickly becoming a popular investment tool for its simplicity and flexibility. This method provides a straightforward and rapid financing solution between entrepreneurs and investors, offering a more flexible structure than traditional equity investments.
This regulation now legally recognizes SAFE agreements in Türkiye, allowing investments in startup companies to be structured for potential conversion into equity at a later date. Thus, funds can utilize a more flexible and practical investment tool, and the ecosystem now includes an internationally recognized financing method.
These regulatory changes will streamline and accelerate investment processes. While they may appear at first glance to encourage more companies to establish overseas, investment processes were already being pursued creatively within previously tighter restrictions. To foster the establishment of more startups in Türkiye and enable them to operate from a Türkiye-based center, there is a need for an environment that facilitates access to finance, global technologies, innovations, and knowledge, expedites investment processes, and removes barriers. Otherwise, even if startups secure funding, they may continue to keep their headquarters abroad.
On September 16, 2024, Minister of Industry and Technology Mehmet Fatih Kacır announced the Türkiye Tech Visa program, which was designed to attract foreign talent, startups, and innovative business models to Türkiye and strengthen the Turkish tech ecosystem. The Türkiye Tech Visa program offers various benefits and privileges for experts with critical technological skills and technopreneurs developing innovative technologies. These benefits include a three-year work permit, simplified residence permits for families, exemptions from income tax and corporate tax, and office spaces in tech parks and incubators. Compared to similar tech visas in countries such as the United Kingdom, Estonia, and France, the Türkiye Tech Visa program offers significant advantages, while also having areas for improvement.
Türkiye, a country that has taken considerable strides in digitalizing its processes, offers simplified digital application processes for the Tech Visa program. Startups and entrepreneurs can quickly apply via Türkiye Tech Visa, ensuring the program does not pose a slowing obstacle in the fast-paced entrepreneurship ecosystem. With comprehensive and free health programs, residence permits for families, and a three-year work permit, the Türkiye Tech Visa program positions itself advantageously to attract global talent. This visa program could expand the talent pool in Türkiye’s tech ecosystem, foster growth through knowledge transfer from diverse geographies, and increase foreign investors’ interest in Türkiye.
Nonetheless, the Türkiye Tech Visa program brings along improvement points both within itself and within the entrepreneurship ecosystem. In recent years, Türkiye has restricted access to widely used global solutions for technological products. The most significant examples are the unavailability of PayPal and Stripe services, which facilitate easy payment receipt from global clients, in Türkiye. Additionally, issues faced by newly developed technologies sent from abroad, customs restrictions on online shopping, and access bans on certain websites pose significant barriers for global talent wishing to settle in Türkiye and develop technology here.
Another perspective that should be considered is that of Turkish entrepreneurs. The entrepreneurship ecosystem in Türkiye is growing each year, with more stakeholders joining annually. Yet, there are unresolved issues frequently raised by many ecosystem participants. These include retroactive surprise taxes on startups, visa obstacles hindering entrepreneurs’ participation in important ecosystem events, legal frameworks for investment processes, employee stock options, contract terms, and difficulties in finding office spaces in tech parks. Offering facilitative opportunities for foreign talent and startups while unresolved challenges persist for Turkish startups could be particularly challenging for local entrepreneurs.
While the Ministry of Industry and Technology has initiated an essential program to grow the Turkish entrepreneurship and tech ecosystem, other ministries must act in alignment with this objective and form a unified strategy. Otherwise, despite the visa program’s offerings, it may struggle to attract high-quality startups and entrepreneurs to Türkiye, and the already challenging ecosystem for Turkish entrepreneurs could become even more demanding. Monitoring the companies and entrepreneurs admitted under the program and transparently reporting their contributions to the ecosystem and national economy is crucial.
The Law on Amendments to Tax Laws and Certain Laws, No. 7524, published in the Official Gazette on August 2, 2024, introduced new regulations on employee stock options. In a competitive and resource-limited talent market, employee stock options are among the most important incentives for startups. Startups, which inherently bear high risk, can attract and retain the best teams by offering stock options where they may not be able to compete on salary alone. With the new regulation, no income tax will be levied on the fair market value of shares offered to employees free of charge or at a discount, provided that it does not exceed the employee’s annual gross salary.
However, this tax benefit is not permanent. If employees sell the acquired shares within certain periods, the initial tax exemption will be revoked, and the employer will be liable to pay the tax. If employees sell their shares within three years, the full tax will be collected, if sold within four to six years, 75% of the tax will be collected, and if sold within seven to twelve years, 25% of the tax will be collected from the employer.
This regulation may limit the incentivizing effect of employee stock option plans. The taxes and additional liabilities imposed on share sales create uncertainty for both employers and employees. Consequently, companies may turn to alternative solutions, such as shadow options, rather than directly granting shares to employees.
In shadow option plans, a set amount of “shadow shares” are allocated to employees without altering the company’s shareholder structure. Although employees do not become actual shareholders, they receive a share of the company’s value increase or stock price appreciation. At the end of the vesting period, on a predetermined date or upon exit, employees receive cash payments based on the stock’s value increase.
The regulations enacted and the newly announced visa program in 2024 indicate a proactive approach to addressing issues in Türkiye’s ecosystem and that ecosystem stakeholders are being listened to by relevant authorities. The meticulously conducted work of the Technopreneurship Council aims to balance the interests of all parties. While the decisions made and regulations introduced are moving closer to expectations and desires, there is a risk of over-regulation for the ecosystem. The entrepreneurship ecosystem is dynamic and constantly evolving. If every detail in this ecosystem is meticulously regulated, the risk of falling behind in rapidly changing global competition becomes inevitable. Türkiye has a long way to go to stand out globally as an advantageous, tech-friendly country for entrepreneurs. However, the success stories, innovative initiatives, and wide-scale test market in our country provide significant momentum to realize this vision. Therefore, careful attention must be given to implementing regulations. The necessary support must be provided to strengthen startups, and all ecosystem components must come together to develop innovative solutions to both internal and external challenges. Otherwise, achieving the goals will remain a distant dream.
