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What is Individual Participation Investor (Angel Investor)?

April, 2021, ERDEMİR&ÖZMEN ATTORNEY PARTNERSHIP

What is Individual Participation Investor (Angel Investor)?

The concept of “Angel Investor”, as commonly used in start-up law, is defined as a person who invests in a start-up business opportunity and project and provides capital for the growth or development of entities. In Turkish Law, this concept is mentioned in the “Regulation on Individual Participation Capital (“Regulation”)”; and in the Regulation, the term “Individual Participation Investor (“IPI”)” is used instead of the term “Angel Investor”.

Before explaining the concept of Individual Participation Investor, it is useful to mention the concept of “entrepreneur”. Within this context, under the Regulation, entrepreneurs refer to natural or legal persons who intend to set up/has set up their own business on the basis of a business idea.

This newsletter shares information about the concept of Individual Participation Investor and who may become and how to become an Individual Participation Investor.

What is Individual Participation Investor (IPI)?

IPIs can come together and continue their works as a group or act independently on their own while supporting or contributing to a venture. In addition to supporting a venture that could achieve success, IPIs also meticulously monitor the ventures that they could turn to account.  

Angel Investors usually comprise of company owner businessmen between the ages of 35 and 65, and it is known that they mostly take interest in sectors such as health, medical services, software, and biotechnology.

Under the Regulation, Individual Participation Investor is defined as natural persons who transfer their personal assets and/or experience and knowledge to companies that are in the initial or growth stage. Well, can anyone become an IPI and how to become an IPI? The Regulation contains detailed provisions on who may become an IPI.  

Who may become an Individual Participation Investor?

First of all, natural persons operating as an IPI are required to have an IPI license in order to benefit from tax support.

The article 5 of the Regulation sets out certain requirements that must take place for an Individual Participation Investor. Accordingly, a dual distinction is made for natural persons who are entitled to obtain an IPI license in accordance with the Legislation.

1) Investor having high income or wealth

The investors:

  • whose annual gross income which is expressed as the sum of income items shown in the annual income tax return or the gross amounts of annual wages of the waged employees for the two years preceding the acquisition of the license is minimum TRY 200,000, or
  • whose total value of the personal wealth consisting of all movable and immovable assets owned at the time of application is minimum TRY 1,000,000

may apply for an IPI license.  

However, the following assets are not taken into account in the calculation of the personal wealth: (i) the real estate of residence or any loan obtained by mortgaging this property and (ii) the rights arising from insurance contracts and the sums that can be received as death indemnities or retirement grants through the financial rights earned through pension premium payments.

2) Experienced investors

The following persons may apply for an IPI license as an experienced investor:

  • Those who have at least two years of work experience as a fund or portfolio manager in banks or financial institutions, or as a manager or equivalent position or higher in the small and medium-sized enterprise finance, project finance or corporate finance units of banks and financial institutions, or venture capital companies, including venture capital investment trusts or,
  • Deputy general manager or a similar position or higher in a company with a turnover of minimum TRY 25,000,000 per year for at least two years in the last five years before the license is obtained, or
  • Those who have been a member of one of the IPI networks for at least one year before the license is obtained and who are partners as angel investors in one or more than one non-public company with net sales in the last fiscal year less than TRY 5,000,000 at the time of the application, or  
  • Those who have at least two years of experience in domestic incubation centers or technology development centers established in order to support companies in the initial or growth stages and who have invested capital in an amount of at least TRY 20,000 in one or more than one company in the initial or growth stages in these centers.

License applications are filed with the Undersecretariat of Treasury, within the context of an IPI license. Pursuant to the Regulation, these licenses are nontransferable. Furthermore, as per the article 8 of the Regulation, an IPI license is granted for 5 years; however, in case the IPI requests for renewal of the license at the expiration of this period, the Ministry shall evaluate this application and may extend the duration of the IPI’s license may be extended for five-year periods.

Furthermore, without prejudice to the circumstances specified for judicial and administrative authorities by the relevant laws, the identity information pertaining to the licensed IPIs shall be kept confidential by the Ministry. Upon the written application submitted and the written consent granted by the IPI, the Ministry may publish the identity information and contact details of the IPI and the venture company in which the IPI invested.  

Reference

https://www.lexpera.com.tr/mevzuat/yonetmelikler/bireysel-katilim-sermayesi-hakkinda-yonetmelik

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