Investment In Türkiye's Startup Ecosystem

I. Introduction

According to KPMG's Türkiye Startup Investments 2025 - Q2 Report¹, Türkiye's startup ecosystem has demonstrated resilience despite the global downturn, achieving a total investment volume of $325 million across 46 transactions and successfully re-attracting foreign investor interest, particularly in fintech, gaming, and artificial intelligence sectors. Given this landscape, a brief overview of how startups and startup investment processes operate in Türkiye is provided below.

II. Startup Formation Stage

Under the Turkish Commercial Code No. 6102 ("TCC"), capital companies may be established as either joint-stock companies or limited liability companies. One of the most significant differences between these two structures is that whilst the minimum share capital requirement for limited liability companies is TRY 50,000, the minimum share capital for joint-stock companies is TRY 250,000². When it is also considered that in joint-stock companies only 25% of the cash-subscribed capital must be paid before registration (with the remainder payable within 24 months), whilst in limited liability companies the entire amount must be paid within 24 months from the subscription date, it can be concluded that establishing a capital company today is neither particularly costly nor burdensome. Naturally, in addition to the share capital amount, trade registry fees and legal and accounting costs should also be taken into account.

To transform into an operational and profitable company following the formation stage, a startup needs to recruit qualified personnel, pay ongoing costs such as financial advisory and legal consultancy fees, and invest in the equipment, software, and services necessary for its operations—in short, it requires equity capital far exceeding the aforementioned minimum share capital amounts to grow. Startups operating on very tight budgets generally cannot generate profits in the initial stages, as the company is not yet fully operational. Consequently, they require investment and typically meet this need through methods such as obtaining investment from investors or securing loans from banks. Due to the documentation and collateral requirements demanded by banks in their lending processes, startups generally obtain this funding from investors. Since startups lack substantial historical financial and other data for due diligence purposes, investors must select the right startups in which they see potential. This selection process is conducted through sector analyses carried out by investors and the professionals who support them.

III. Investment Processes

Investments in startups are primarily classified as seed funding, crowd funding, and Series A, B, C, etc. investments. Those making these investments vary according to the type of investment and are primarily angel investors and venture capital funds.

Seed investments that startups initially receive are generally made by the founders' friends and family, angel investors, and occasionally venture capital funds. Angel investors are individual investors who invest in high-risk ventures with growth potential and often provide startups with expertise and business networks in addition to capital.

Crowdfunding involves financing a venture, target, or project through contributions from multiple individuals via various online platforms. However, this article focuses on investors making investments in exchange for equity stakes.

The highest investment amounts are made by venture capital funds, which, unlike angel investors, are institutional investors. In practice, venture capital funds generally prefer to invest at later stages when the risk profile is lower compared to the startup's initial establishment phase, and they have significantly higher investment capacity compared to angel investors.

The Series A, B, C, D, etc. investment rounds mentioned above are broadly categorised according to the startup's valuation.

Series A is considered the first financing round at the venture capital stage, occurring after the startup has established its business model and presents a growth plan to investors. Investors make the investment in exchange for an equity stake determined according to the startup's valuation and the investment amount.

Series B round represents investment at the startup's expansion stage, where the startup's financial situation has reached more solid and satisfactory levels compared to previous stages, making it a safer investment round for investors.

Generally, Series C round is considered the final financing round, with Series D, E, F, G round investments being quite rare. In Series C, the startup has typically made innovations in its business model and in the services and/or products it offers, presenting itself to investors with broader service, product, and/or market scale.

Series B and C investments are made not only by venture capital investors but also by private equity funds.

IV. Investments under the TCC

These investments are realised through investors' participation in startup capital based on the relevant startup's valuation. Under the TCC, such investments generally occur through two mechanisms: (i) investors may acquire shares through share transfer from founding shareholders, followed by a capital increase to transfer additional equity to the company, or (ii) the startup may directly conduct a capital increase with the investor participating by transferring the relevant capital amount simultaneously. In both cases, a capital increase with share premium is implemented to prevent dilution of existing founding shareholders' equity ratios. This approach ensures that both the company's assets increase and founding shareholders maintain their proportional ownership despite the substantial amounts invested. Importantly, unlike ordinary capital increases where subscribed capital may be paid subsequently, in capital increases with share premium, the entire premium amount must be paid to the company prior to registration.

Upon investors becoming shareholders in a startup at any stage (seed, Series A, B, etc.), a shareholders' agreement governing company management is executed, establishing detailed provisions regarding shareholders' rights, privileges, and mutual obligations. The shareholders' agreement encompasses comprehensive terms including share transfer restrictions, dividend distribution policies, decisions requiring unanimous consent, and deadlock resolution mechanisms. In consideration of their substantial investments, investors typically seek significant involvement in company management, including Board of Directors representation, decision-making authority over matters with potential financial impact, and ongoing reporting rights.

Among these provisions, one of the most critical aspects concerns how the startup will approach future investment rounds and the resulting changes to parties' equity ratios. For instance, depending on anticipated company value appreciation and consequent valuations, investors typically include anti-dilution provisions in future investment rounds to preserve their existing privileges and rights. However, contingent upon rapid company value increases and the achievement of predetermined thresholds calculated according to various metrics, provisions may also permit equity ratio reductions in subsequent investment rounds and/or the modification of certain privileges or allow other investors to obtain similar privileges.

V. Conclusion

Accordingly, establishing an equitable balance between investor and founding shareholder interests within the shareholders' agreement and carefully structuring the relevant provisions is of paramount importance.

Footnotes

1. https://kpmg.com/tr/tr/home/insights/2025/09/turkiye-startup-yatirimlari-2025-2-ceyrek.html#:~:text=T%C3%BCrkiye'
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2. Pursuant to Presidential Decree No. 7887 published in the Official Gazette dated 25.11.2023 and numbered 32380, the minimum share capital amounts have been increased to these amounts, and joint-stock and limited liability companies whose capital is below the minimum share capital amount must increase their capital to these amounts by 31/12/2026, otherwise they shall be deemed dissolved.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.