Presidential Circular No. 2022/17 announced Türkiye’s national technology entrepreneurship strategy for 2022 through 2025 (the “Strategy”) on 27 October 2022.

The Ministry of Industry and Technology prepared the Strategy, and it is related to Tech-Startups that “carry out technology and innovation-focused activities, have a fast growth potential, have a scalable business idea, and are at most ten years old.”

The Strategy aims to advance the technology entrepreneurship ecosystem in Türkiye, growing Turkish technology startups and making Türkiye a center of attraction for foreign technology startups.

To realize these goals, the Strategy emphasizes equal opportunity, sustainable living, investment in the future of the youth, and focus areas of development.

Focus areas of development are areas where the state aims to intensify entrepreneurial activities and plans to provide support and incentives accordingly. These areas comprise mobility, health, finance, artificial intelligence, education, cybersecurity, digital gaming and blockchain technologies, and biotechnology.

Tech-Entrepreneurship Strategy

The Strategy proposes 30 policies for Tech-Startups and a detailed action plan regarding these policies. In this context, the following are among the noteworthy policy recommendations:

• Ensuring the growth of venture capital funds and investments,
• Diversifying financial instruments and creating new ones; generalizing the use of convertible financing instruments and developing peer-to-peer financing mechanisms within this framework,
• Encouraging angel investing,
• Diversifying crowdfunding tools, thus generalizing reward-based crowdfunding, debt-based crowdfunding, and donation-based crowdfunding tools in addition to the widely used equity-based crowdfunding,
• Establishing a Tech-Entrepreneurship Office to assist entrepreneurs in issues such as grant supports, loan guarantees, mentoring services, event sponsorships, and infrastructure and interface support for different entrepreneurial stages,
• Implementing a digital company structure in a digital environment based on existing company types with more accessible establishment and liquidation procedures and with special tax exemptions,
• Establishing the Istanbul Entrepreneurship Center to strengthen Istanbul’s standing out position with its advanced technology entrepreneurship ecosystem and Istanbul to become a global center of attraction,
• Supporting entrepreneurship for regional development,
• Implementing an entrepreneur visa for entrepreneurs with critical expertise in the field of technology and entrepreneurs with innovative business models, and entrepreneurs with deep technology-based initiatives,
• Taking steps to create joint free movement opportunities with the countries with whom Türkiye has strategic alliances.

The Strategy also envisages that the relevant legislation working group compiles the legislation concerning Tech-Startups as a manual to guide entrepreneurs and other stakeholders and that public institutions make suitable data sets available to the startups as open data.

“Digital Company”

The Strategy’s digital company proposal is what it had to be, as one of the most challenging issues for startups is structuring their partnerships. However, there is no clarity in the Strategy as to whether the digital company type in question will use up-to-date digital technologies such as blockchain, smart contracts, or artificial intelligence, and if so, which technologies. Neither explains the Strategy if this proposal follows the EU’s initiative of upgrading the digital company law.

In any case, the digital company should not be just a digital version of the existing company types, and the legislator should not limit its features to reducing the formal procedures. In this company type, the legislator should consider all aspects of the nature of entrepreneurship, and within this framework, it should create the startup company as a new type of company, whether it uses up-to-date digital technologies or not.

Why?

Entrepreneurs, in many cases, structure their partnerships as joint-stock corporations or limited liability companies, both capital-based companies, and tax advantages are usually the determining factor in choosing between these two types of companies. In some cases, legal and financial obligations arising from the incorporation and management of these companies, or uncertainties about the startup, such as a pending patent application, lead entrepreneurs to structure their partnerships as an ordinary partnership, for example, a joint venture. Although an ordinary partnership gives the impression of a more comfortable type of company for reasons such as lack of legal entity and presence of the freedom of contract, this appearance can be deceiving for people who do not have a command of corporate law.

Whatever type of company they choose, entrepreneurs should seek legal and financial advice. However, entrepreneurs often have only a business idea or an invention they have not yet registered and a human resource consisting of three or four people who contribute to the startup with their labor; they have zero to minimal capital. Thus, their chances of affording these consultancy services are also minimal. Similarly, the startup does not have the luxury of assigning its limited human resources to official issues of company incorporation and management or regulatory compliance issues rather than dedicating it to the product or service it is developing. These circumstances often result in startups taking many legal risks, including risks related to entrepreneurs’ rights, entering contracts that could be detrimental, and violating their legal obligations until they reach investors and financing.

Therefore, the digital company, as proposed by the Strategy, or the startup company, as we state, should have the following main characteristics:

• The needs, limited opportunities, and investment stages of a startup (e.g., pre-seed stage, seed stage, series A, B, and C funding, initial public offering) are considered,
• Mergers, divisions, conversions, and capital increase transactions can be concluded quickly,
• The investors, financiers, creditors, and sponsors are protected against potential fraud and corruption,
• Legal and financial issues and regulatory compliance matters are regulated in such a way that entrepreneurs can manage the company with minimum consultancy requirements, and
• In sectors that require intense consultancy, consultancy on legal and financial issues and regulatory compliance matters is added to the support and incentive packages.

Other Proposals

Many other proposals in the Strategy are also constructive. We have different opinions on these proposals, particularly on focus areas of development, Istanbul Entrepreneurship Center, regional development, legislation manual, and open data matters:

Focus Areas of Development

Among these areas should be smart agriculture technologies as well. Because sustainable agriculture is a must for sustainable living, and to achieve this goal, the most effective way to increase productivity in agriculture is to invest in new technologies. Moreover, the COVID-19 pandemic in the last two years, the ongoing Ukraine-Russia conflict, and the problems created by these two incidents in international trade and food security have emphasized the importance of agriculture more than enough.

Istanbul Entrepreneurship Center and Regional Development

Authorities should not forget the issues of equal opportunity, sustainable living, and investment in the future of the youth while making new investments. Sustainable use of the resources of Istanbul, which is already Türkiye’s center of commerce, finance, tourism, culture, and art, should be ensured. Accordingly, a nationwide entrepreneurship center should be established at a place serving the purpose of regional development and offering the equal opportunity through being easily accessible to everyone from east to west and north to south of Türkiye, but especially to young people, and having more affordable living costs compared to Istanbul. In this context, authorities should consider the relocation of Bilişim Vadisi (a technology development zone), located in Kocaeli, while establishing this new center.

Legislation Manual

Authorities should reconsider whether to compile the legislation concerning Tech-Startups as a manual because such a compilation can be misleading as amendments frequently occur in our legislation. Instead, they may list the primary legislation that entrepreneurs should pay attention to under the main headings and refer the readers to Mevzuat Bilgi Sistemi (online legislation compilation) for the latest status of relevant legislation.

Open Data

Although it is crucial to support startups in every aspect, this support should not result in the violation of the personal data of Turkish citizens or foreigners living in Türkiye. Thus, public institutions should not forget the legislation protecting personal data while determining the data they will share with the entrepreneurial ecosystem as open data.

And last but not least, regulations and practices related to the support and incentives to be provided to Tech-Startups should be in line with good governance principles, particularly transparency, accountability, and responsibility!

Av. Müge Önal Başer, LL.M., LL.B.

References

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