A New Era in Borsa Istanbul: Venture Capital Market!

The "Regulation on the Principles Regarding Companies Whose Shares Will Be Traded on the Venture Capital Market [II-16.3]" ("Regulation"), published in the Official Gazette on 18/05/2023, sets out the procedures and principles for non-publicly traded joint-stock companies to sell their shares to qualified investors through capital increases. Trading on the stock markets of Borsa Istanbul takes place in markets such as the Star Market, Main Market, and Secondary Market. In addition to these markets, the Regulation has established a new market called the "Venture Capital Market" ("VCM"), where non-publicly traded companies can issue shares to qualified investors through capital increases.

Companies wishing to trade on this market can sell their shares to qualified investors through capital increases without offering them to the public. Thus, companies that meet the conditions set out in the Regulation will benefit from the advantages of being a publicly traded joint-stock company and will be largely exempt from the obligations under the capital market legislation because they sell their shares to qualified investors without offering them to the public.

What Are the General Principles for Trading on the VCM? Companies wishing to trade on the VCM must adjust their articles of association to comply with the Capital Markets Board ("CMB") regulations and the objectives and principles of capital markets law. Draft amendments containing the necessary changes must be approved by the company's general assembly. Except for joint-stock companies subject to the registered capital system, the general assembly must decide in accordance with the provisions of the Turkish Commercial Code and the Capital Markets Law regarding the partial or complete restriction of new subscription rights. If these conditions are met, a draft prospectus should be prepared and submitted to the CMB for approval.

What Are the Financial Qualifications Required for Inclusion in the VCM? For joint-stock companies to have their shares traded on the VCM, their audited financial statements for the year preceding the year in which their shares will be offered for sale must meet the following criteria:

• Total assets of at least 20 million TL,
• Net sales revenue of at least 10 million TL,
• For registration in the registered capital system, the registered capital must be at least 10 million TL, and all of it must be paid up.

What Are the Obligations of Joint-Stock Companies Included in the VCM? Companies whose shares are traded on the VCM must, within five years from the year their shares start trading on the stock exchange, apply to the CMB with a request for approval of a prospectus prepared solely for the purpose of offering their shares to the public through a capital increase. If the prospectus is not approved by the CMB or if the company does not apply to the CMB for approval within this period, the company is deemed to have exited the scope of the Capital Markets Law ("CML") without any further action and its shares are removed from the VCM by the stock exchange.

Companies cannot offer their shares for public offering until two full years have passed since their shares started trading on the stock exchange. Affiliated companies of the company cannot carry out share buyback transactions. Companies whose shares are traded on the VCM cannot be parties to mergers and acquisitions; otherwise, with the registration of the merger, the company is deemed to have exited the scope of the CML without any further action, and its shares are removed from the VCM by Borsa Istanbul. Only after two years from the registration of the merger can the acquiring company apply for its shares to be traded on the VCM. Additionally, companies whose shares are traded on the VCM cannot be parties to demerger transactions; otherwise, with the registration of the demerger, the company is deemed to have exited the scope of the CML without any further action, and its shares are removed from the VCM by the stock exchange. Companies whose shares are traded on the VCM and are party to a partial demerger can only apply for their shares to be traded on the VCM two years after the registration of the partial demerger.

Companies whose shares are removed from the VCM by the stock exchange cannot apply for a public offering under the Public Offering Regulation (VII-128.1) for two years from the date of removal. In addition, except for companies whose shares were previously traded on the VCM, the shares subject to public offering after the approval of the prospectus and the commencement of trading on other markets of the stock exchange cannot be converted into publicly traded shares within two years from the date of commencement of trading on the other markets.

What Exemptions Are Provided for Companies Under the VCM? Companies whose shares are traded on the VCM are exempt from the obligation to prepare quarterly and semi-annual financial reports. Similarly, these companies are exempt from the provisions of the Corporate Governance Regulation (II-17.1), the Tender Offer Regulation (II-26.1), and the Significant Transactions and Right of Withdrawal Regulation (II-23.3).

What Does the VCM Offer for Companies and the Capital Market? With the exemptions provided under the Regulation, joint-stock companies that cannot meet the conditions for public offering but have significant size and potential are given the opportunity to sell their shares to qualified investors on the VCM. In particular, companies that cannot meet the requirements for going public but have reached a certain size can receive strategic support from qualified investors, thereby enabling them to grow and expand their activities, strengthen their capital and corporate structures, and enhance their company reputation and visibility.

The VCM has the potential to play a significant role in shaping the future of the Turkish economy and the start-up ecosystem. It offers critical resources for supporting innovative ideas of companies and encouraging technological advancements. Additionally, by providing funding to growing companies and those in need of institutionalization, the market will create new employment opportunities, thereby contributing to a reduction in unemployment rates and an increase in economic prosperity. By supporting venture capital ecosystems and creating a competitive environment, this market established will make significant contributions to the development of the country's financial ecosystem.