What is an Angel Investor License and How can you get one in Turkey?

Oguz Erkan, LL.M.

What is and Angel Investor License? How can you obtain the license and what are the benefits of being a licensed angel investor in Turkey?

1. What is an Angel Investor?

An Angel Investor is an individual or organization that typically invests in early-stage business opportunities and provides capital for the growth or development of businesses. In other words, they are defined as private investors who invest in companies with high growth potential and high risk, particularly in their early stages. Some experts refer to Angel Investors as the "guardian angels" of entrepreneurs. Angel Investors show interest when entrepreneurs start implementing high-yield potential business ideas. Therefore, the term "angel" represents the person who supports and advances entrepreneurs.

Given different definitions from various sources, Angel Investors are individuals or entities that breathe life into startup or distressed companies by providing financial support and investment. Angel Investors support ventures that are expected to yield higher returns compared to other traditional investment tools. They often add value to the companies they invest in by offering business advice, as they are usually successful entrepreneurs themselves.

Here are some general characteristics of Angel Investors:

-   They can act independently or in groups, allowing them to respond to larger financial needs.

-   They not only support a successful investment but also follow new venture opportunities.

-   They have personal experience in the field they invest in.

-   They seek not only financial returns but also personal satisfaction and wish to play an active role in business processes.

-   They are typically business owners aged between 35 and 65.

-   They can invest varying amounts in different projects.

-   They often show interest in sectors such as healthcare, software, biotechnology, and medical services.

-   They prefer energetic, honest, and business-focused entrepreneurs who can generate new business ideas.

-   They pay attention to a high return on investment.

-   Angel Investors often provide financial and/or consulting support to businesses during their establishment, development, or growth phases.

Who Might Consider Benefiting from Angel Investors?

Angel investment may not be suitable for every startup. Therefore, it is important to consider what having an investor involved in your business means before seeking investment.

So, who is angel investment funding suitable for?

Startups: If you are running a startup business, an Angel Investor not only provides financing but also becomes involved in your business as a partner, offering their insights on how to conduct your business.

Businesses with Rapid Growth Potential: Most Angel Investors aim to achieve a return on investment of at least six times their initial investment. To achieve this kind of return, your business needs to grow rapidly.

Businesses with an Innovative Product or Concept: Due to intense competition with many new businesses, you need to have a feature that stands out among investors.

2. How to Become an Angel Investor?

In general, there are no specific legal requirements to become an Angel Investor. Anyone who invests in a startup by providing capital in exchange for shares or a commitment that could turn into shares in the future is essentially an Angel Investor.

However, due to their significance in the entrepreneurial ecosystem, Angel Investors have been regulated and granted certain privileges in the legislation. Referred to in the legislation as "Individual Participation Capital Investors (IPCI)," these individuals can obtain an IPCI License, also known as an "Angel Investor License," and benefit from the privileges specified in the legislation. 

3. How to Obtain an Angel Investor (IPCI) License?

The Angel Investor License is issued by the Ministry of Treasury and Finance. However, individuals who wish to obtain an Angel Investor License cannot directly apply to the Ministry. Applications are made through Angel Investment Networks accredited by the Ministry. Therefore, an individual who wants to obtain an Angel Investor License should first become a member of one of these Angel Investment Networks, and then, based on their eligibility, choose the appropriate application category. The application process will be handled by the network manager on behalf of the investor. The application categories are as follows:

a) High-Income Investor:

-   The annual gross income, expressed as at least 200,000 TL, should consist of income items specified in the income tax return for the two years before the license application

b) High-Wealth Investor:

-   The total value of all personal assets at the time of application must be at least 1,000,000 TL. These assets may include movable and immovable properties.

c) Experienced Investors:

-   Individuals working as fund or portfolio managers in banks and financial institutions or those with at least two years of experience in management positions or higher in the financial departments of banks, financial institutions, including venture capital investment companies.

-   Those who have worked as assistant general managers or higher in a non-public company for at least two years within the five years before the license application and whose net sales for the last financial year are below 5,000,000 TL and who have been a member of one of the Angel Networks for at least one year before obtaining the license.

-   Individuals with at least two years of experience in incubation centers or technology development centers and who have made a minimum capital investment of 20,000 TL in one or more companies in the incubation or growth stage in these centers.

4. Documents Required for Angel Investor License Application

The required documents for license applications vary depending on the compliance of the relevant Individual Participation Capital Investor (IPCI) with the following criteria:

a) For High-Income Investors:

Copy of the tax return (notarized or certified by the Tax Office) or

Signed salary slip or certificate and circular showing the authority's signature.

b)  For High-Wealth Investors:

Copy of title deed or appraisal report (residence is not accepted as collateral; if a residence certificate is provided, a residence permit certificate must also be provided), and/or

Document signed by a bank or institution representative (money/fund, etc.) and circular showing the authority to sign, along with 30-day account summaries showing end-of-day balances from the date of application, which must be initialed and stamped on each page. The lowest daily balance in the 30-day account balances is taken into account for the calculation. Documents/account statements from different banks must be dated the same.

c) For Experienced Investors:

(Only those relevant to the IPCI are to be submitted from the following documents.)

For IPCI Network Members and Investors:

Signed IPCI Network Membership Certificate and circular showing the authority to sign

Samples of the Turkey Trade Registry Gazette and Partners' Ledger and Balance Sheet (certified by a certified public accountant) - for the three companies in which the investment was made.

Income Statement (Certified by a Certified Public Accountant) - for the three companies in which the investment was made.

For Fund/Portfolio Managers or Equivalent in the Finance Sector:

A signed document proving their experience in the finance sector and a circular showing the authority to sign

For General Manager or Higher Positions:

-   A signed document proving their management experience and a circular showing the authority to sign

-   Income Statement (Certified by a Certified Public Accountant) - for the five companies in which the investment was made.

For Experienced Investors in Incubation/Technology Development Centers:

-   A signed document obtained from Incubation/Technology Development Centers, demonstrating authority and signature power.

-   Examples of the Turkey Trade Registry Gazette, Partnership Ledger, and Balance Sheet (certified by a certified public accountant) for at least three entities where a capital investment of at least 20 million TL has been made.

-   Additionally, foreign nationals must provide a work or residence permit in Turkey to be eligible for Individual Participation Capital Investor (IPCI) status.

5. Advantages of the Angel Investor License

Angel Investors have been provided with the following advantages through the amendment made to Article 10 of Law No. 6327 and Temporary Article 82 of the Income Tax Law. 

Angel Investors can acquire 75% of the purchase price of the participating shares of the joint-stock companies they have participated in with a low tax advantage. In addition, if these companies have participated in R&D and innovation programs established by the Ministry of Science, Industry, and Technology, TÜBİTAK, and KOSGEB within the last five years, they can deduct 100% of the purchase price of these participating shares from the income declared in the Income Tax Return. Companies eligible for these advantages are primarily joint-stock companies, and the annual discount amount cannot exceed 1,000,000 TL.

Angel investors must fulfill certain conditions to benefit from tax incentive advantages:

-   They must be full-fledged natural persons.

-   Before purchasing participation shares, they must obtain an angel investor license.

-   After acquiring participation shares in a full-fledged joint-stock company, they must retain these shares for a period of 2 years (730 days).

-   The company must invest in fields that comply with the Individual Participation Capital Regulation.

Angel investors can purchase participation shares ranging from a minimum of 20,000 TL to a maximum of 1,000,000 TL. Additionally, the 2-year waiting period commences from the date when the cash capital is deposited into the joint bank account opened in the name of the venture.

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