As one can see that investments made in venture capital companies are increasing day by day and have reached an important place in the economy. Especially fast market distribution, game, fintech, real estate technologies, information technologies and blockchain-based venture companies are the sectors that receive the most investment.
Artificial intelligence, virtual and augmented reality technologies have almost started a transformation process in the entrepreneurial ecosystem. The developments experienced accelerated the access of early-stage technology investments to finance. Mutual funds took action to solve the capital needs of especially technology-based venture capital companies in Turkey. According to Turkey Startup Ecosystem Investment Report prepared by Startup Centrum, investments by venture companies in 2021 increased by 9 percent compared to the previous year and reached 1.5 billion dollars. Pursuant to the report, there was a 47% growth in investments made in startups in 2021, and the number of investments increased to 294. In addition, in 2021, Turkey was one of the 10 European countries with the most investment, while Istanbul ranked 13th among the cities that received the most investment in Europe.
It is very important that the investment processes in venture capital companies are carried out in a righteous way. Since more than one legal document needs to be prepared in this process, it is essential to work with a suitable and expert legal team. The parties that come together during the investment process take the first step with a document called “Letter of Intent” or “Term Sheet”.
This document includes the intentions of the parties and information on the foreseen transactions and envisaged process. The venture capital company to be invested, in order to examine all its documents and to realize the legal due diligence project, its corporate documents such as the resolutions of the board of directors and the general assembly, the signature circular, internal directive, the pages of the trade registry gazettes, the books owned by the company, the contracts to which it is a party, documents with regards to labor law, its assets, the documents related to intellectual and industrial property rights and the information and documents related to the lawsuit and enforcement files to which the venture capital company is a party shall be delivered to the investor or the legal team of the investor. If deemed necessary, the financial due diligence process can also be carried out by the audit companies simultaneously in addition to the legal due diligence project.
Due diligence projects and the preparation of the report may take months depending on the excess of documents of the venture capital companies. If the investor decides to invest in the venture company according to the data revealed within the scope of the report, the company moves on to the stage of preparing a contract such as the shareholders’ agreement, the participation agreement, and then the negotiation of the contract provisions, according to the previous structuring of the company.
Thereafter the parties have agreed, and the contract negotiations are over, a closing general meeting is held in order for the investor to enter the company as a shareholder, the investment cost is deposited and the investment process is completed. The next stage is the fulfillment of the obligations of the parties after the closing general assembly and the execution of the registration process before the registry. As can be seen that investments made in venture companies are increasing rapidly today. Therefore, it is of utmost importance for both venture companies and investors to carry out the investment process in detail and meticulously, to complete it without skipping any steps, and to make the necessary planning within this framework.
