By Bahatti̇n Gonultas
The recent global economic crises have led to significant changes in financial lending patterns, with banks now showing a reluctance to issue loans for new business start-ups. This pattern has been replicated across venture capital firms that now choose to target their investments at later stage companies.
As a result, many entrepreneurs are struggling to receive start-up funding for potentially profitable business ventures, especially in emerging countries such as Turkey, India and Brazil. They are now, increasingly, turning to alternative investment channels.
The number of people who have obtained an angel investor license from the Treasury Department of Turkey at the end of the June had risen to 259, a 56 percent increase over last year.
Angel investors are defined as affluent individual investors who have knowledge, expertise and available funding and who are ready to invest into high growth start-up companies; typically in the technology industry.
Baybars Altuntas, the President of the Business Angels Association of Turkey, said that, although the system is rather new in Turkey, annual investment capacity of accredited angel investors in the country has reached 250 million Turkish lira ($120 million).
Altuntas said Turkey should attract the attention of foreign angel investors to create global success stories in the region.
The Turkish government has a 75 percent tax incentive for accredited angel investors, which is the highest in the world. The rate in the U.K. is 30 percent and Portugal’s is 25 percent.
“It is crucial for angel investors who succeeded in Silicon Valley to invest in Turkish entrepreneurs for Turkey to create global success stories,” said Altuntas.
Altuntas also said the Turkish Treasury should invest in startups automatically at the same amount as the accredited angel investors, and joint investment trusts should be formed.
“Public sources can be turned into smart sources with the contributions of the angel investors and there will be better results if public resources are transferred to angel investors instead of transferring them directly to entrepreneurs via grants,” he said.
Paulo Andrez, President Emeritus of the European Trade Association for Business Angels, which is based in Brussels, agreed that angel investors are helping Turkey.
"Entrepreneurship is more attractive for Turkey, especially in last five years, because of the foreign or local angel investors and government incentives," he said. "Considering all of these factors today, the Turkish entrepreneurial and private investment eco-system is thriving.’’
Andrez also said that, following the agreement signed between the European Trade Association for Business Angels, Borsa Istanbul (Turkey´s main Stock Exchange) and the Business Angels Association of Turkey on May 14 to create a liquidity opportunity for startups, the EU’s Startup Investor Manifesto also referred to the importance of stock markets for early-stage financing.
Andrez added that the European Trade Association for Business Angels had decided to gather the first European Business Angels Investment Forum in Istanbul on Dec. 15, which shows that Turkey becoming a hub of global angel investment.
Peri Kadaster, an angel investor in Turkey, said the country's location provides access to a large market, which is essential for finding the right customer base, recruiting human capital, and managing logistics.
"Turkey sits at the crossroads of East and West, where a four-hour flight from Istanbul’s Ataturk Airport will take you to London or to Moscow," Kadaster said. "Turkey also has local talent – the population in Turkey is large, young, and growing – with 50 percent of the 76 million people here under the age of 30. The youth is also tech-savvy, with 84 percent mobile phone penetration overall."
"A positive side of Turkey’s developing-stage economy is that startups here are not used to large investments or access to capital – which makes them far more disciplined and creative when it comes to bootstrapping, and focusing on financials," Kadaster said. "Anecdotally, I believe Turks have an inherently entrepreneurial spirit that makes them more likely to start their own business and innovate solutions from necessity."
However, she pointed out some challenges for angel investors in Turkey. She said that private company equity mechanics are not as advanced as they are in, for example, Silicon Valley. From a founder perspective, creating equity-based ownership in a start-up is complex, and from an employee perspective, receiving equity-based compensation is not highly valued. This can make it difficult for early companies to acquire – and retain – talent, she said.
"As an angel investor myself, what I value most is the transparency and the trustworthiness of the Founders. At the end of the day, as an angel investor, especially in an early-stage round, you are aware that the business may not last forever, but a founder’s reputation does," she said. "I strongly encourage Turkish entrepreneurs to make countless pitches, solicit honest and constructive feedback, and refine their products and business models accordingly – and while doing so, know that in addition to building a company, they are building their own brand and reputation."Anadolu Agency website contains only a portion of the news stories offered to subscribers in the AA News Broadcasting System (HAS), and in summarized form. Please contact us for subscription options.