Introduction
Fundraising is essential in the growth phase of a startup, especially when the highest power of money can make a serious comeback when product-market fit and sustainable business model are combined. There are several methods of fundraising but, notably, these methods are not always separated in a clear-cut way, which means many startups and organisations use a mix of these methods. The decision of which methods will be used depends on an organization's missions, audience preferences, available resources, and the nature of the fundraising campaign or initiative.
Fundraising methods can be divided into two groups: Traditional and alternative methods. Traditional fundraising strategies include angel investors, venture capital (VC) funding, individual donations, bank loans, and fundraising events. Alternative fundraising methods are useful for startups, non-profits, and projects that might have difficulty accessing conventional funding sources. Alternative fundraising methods include corporate venture capital (CVC), peer-to-peer fundraising, and revenue-based financing.
Angel Investors
Angel investors provide funding to early-stage startups, particularly before the seed stage, in exchange for equity ownership. Their role goes beyond providing capital. They also provide mentorship and industry connections to facilitate the startup's growth. Angel investors assess factors such as the management team's expertise, the venture's financial and product-market attributes, and its development stage. The credibility of the entrepreneur or team is also crucial.
Entrepreneurs should prepare a thorough business plan that addresses market prospects, competitive advantage and financial projections, with particular emphasis on a clear and compelling value proposition. Angel investors extend funding to entrepreneurs using either equity financing or convertible debt. Recently, angel investing has demonstrated an inclination towards enhanced institutionalisation. Several local angel groups or angel networks have arisen, providing opportunities for individual investors to unite, pool resources, and collectively fund start-ups.
When targeting angel investors, it is recommended to give priority to those with relevant industry experience, currently investing in similar industries or local to the startup's area. To broaden the search beyond the immediate network, platforms such as AngelList could be considered, as they connect startups with accredited investors nationwide. An alternative strategy could involve contacting individuals who have recently sold thriving start-ups in your sector. They may offer their investment or introduce you to potential angel investors.
Turkish entrepreneurs also find this fundraising method extremely intriguing, which led to angel investors being regulated by the term “Individually Participating Investors (IPI) in Turkish Startup Law. IPI is defined as "real persons who transfer their assets and/or experience and know-how to companies at the start-up or growth stage" in Regulation on Individual Participation Capital. Following Article 5 of the Regulation, IPI shall apply for investment via the accredited BKY (angel investor) network by submitting the documents specified in Article 21 of the Regulation to the Ministry before investing. The angel investor licence is valid for 5 years. At the end of the licence period, holders of individually participating investor licenses may request renewal through the accredited individual participation investor networks, with the possibility of extension for further 5-year periods. It should be noted that angel investors may only consist of individuals or licensed angel investors who collaborate to make joint investments.
On the other hand, to benefit from tax advantages and other benefits, angel investors must meet certain conditions.
The first condition is categorised into two main groups:
Investors with high income or wealth;
In the 2 years before obtaining a licence, investors with an annual gross income of at least ¨200.000,00 ₺ or
Investors whose total assets (all kinds of movables and immovables) have a value of at least 1,000,000,00 ₺ at the time of licence application.
Experienced investors;
In banks and financial institutions,
In high-turnover companies,
In domestic incubation centres
The involvement of an angel investor in the management of a company is limited as companies eligible for investment must meet certain qualifications. The minimum investment limit for an angel investor is between £2.000, to £100.000. In joint investments, the maximum amount of capital that can be invested in each venture company annually is £2 million.
Furthermore, it is essential that the angel investor does not hold more than 50 per cent of the shares of the venture. Additionally, the IPI or IPI partnerships must not hold direct or indirect control over the venture company, either individually or collectively. The individual participation investor may not, directly or indirectly, together with persons with whom they are related, own more than 50% of the shares representing the capital and more than 50% of the total voting rights represented by the shares, and may not appoint more than 50% of the members of the board of directors.
Limits on the involvement of angel investor in venture capital companies include:
IPI's involvement in the management of the venture capital company is restricted to serving on the board of directors.
IPI is prohibited from taking on administrative roles within the venture company, apart from being a board member, and cannot work as an employee of the company.
IPI is not allowed to receive any form of salary or compensation from the venture capital company.
IPIs or partnerships involving IPIs are not permitted to become the controlling shareholders of the venture company, whether directly or indirectly, either individually or collectively.
Furthermore, the qualifications that a venture company must meet to receive investments include:
Being a joint-stock company governed by the Turkish Commercial Code,
Having a net annual sales figure not exceeding 5,000,000 Turkish Lira in the two financial years before IPI’s participation,
Employing a maximum of fifty individuals,
Not having any direct or indirect affiliations or influences with IPI, their spouse, their descendants, their next of kin up to the third degree, or in-laws concerning management, supervision, or capital,
Not being under the control of another company,
Operating in sectors or activities listed by the Ministry for potential state support, and
Not having publicly traded shares.
To conclude, in return for equity, angel investors provide financial support to start-ups in their early stages, typically before the seed stage. They also offer mentorship and access to industry connections to assist the startup's growth. In addition, they should have detailed business plans that cover market opportunity, competitive advantage and financial projections. Entrepreneurs should prepare a thorough business plan that addresses market prospects, competitive advantage and financial projections.
Opmerkingen