Venture Capital and Private Equity Investment Models in CMB Regulations

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Venture Capital and Private Equity Concepts in CMB Regulations Investment Company Model

Scope of Activities and Types of Models Establishment Conversion to an Investment Company Sale of Shares and Public Offering Portfolio Limitations Portfolio Management and Performance Fee

Fund Model Scope of Activities and Features of the Model Establishment Issue and Sale of Units Portfolio Management and Performance Fee

Tax Regulations

Outline

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No specific distinction between “private equity” and “venture capital” concepts according to CMB regulations. Both terms can be used interchangeably.

These concepts are defined to cover both private equity and venture capital investments, respectively.

Definition of Venture Company in CMB Regulations:

Companies (joint stock companies and limited companies) established and operating or to be established in Turkey, carrying a growth potential and in need of resources

Venture Company: - private companies - publicly held companies (non-traded shares)

Venture Company ( portfolio company) concept in CMB Regulations

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Private Equity and Venture Capital Investments

Investments in Venture Companies

Indirect

Venture Capital

Investment Fund Units

Collective Investment

Funds established

abroad

Special Purposed

Joint Stock Companies established

in Turkey

Securities of other

Venture Capital

Investment Companies

Direct

Shares of Venture

Companies

Debt Securities of

Venture Companies

Mezzanine Finance

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Venture Capital Investment Company (VCIC) Model

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PRIVATE EQUITY AND VENTURE CAPITAL INVESTMENT ACTIVITIES

INVOLVE in MANAGEMENT of VENTURE COMPANIES

INVEST in LIQUID ASSETS- Money market instruments and listed securities

PARTNER or FOUNDER of LOCAL and/or FOREIGN ASSET MANAGEMENT COMPANIES (Max. %10)

PARTNER OR FOUNDER of LOCAL and/or FOREIGN CONSULTING COMPANIES (Max. 10%)

VCIC Activities

RENDER MARKET CONSULTING SERVICES in Emerging Companies Market of ISE

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1) Public offering model At least 25% of outstanding shares of VCIC shall be sold through public offering and be listed on stock exchange

2) Private offering Sales to qualified investors

VCIC TYPES: In terms of public and private offering

Qualified Investors : Financial institutions, public administrations and entities, natural persons and legal entities who have individual net worth that exceeds TRY 1 milion and natural persons holding angel investor license.

Establishment of VCIC

Registered capital Min. paid in/issued capital TRY 20 million

(approx. $ 9,25 million) Min. shareholder’s equity TRY 20 million Privileged shares regarding management

rights At least one leading shareholder- general

partner

Registered capital Min. paid in/issued capital TRY 5

million (approx. $2,3 million) Min. shareholder’s equity TRY 5 million Privileged shares regarding

management & dividend righst No leading shareholder requirement

Public Offering Sale to Qualified Investors

Sale of Shares

Prospectus to be approved by CMB Issue document to be approved by CMB

Public Offering Sale to Qualified Investors

Establishment Initial Investment

Sales to Qualfied Investors

Build Porftolio

1 Year

EstablishmentInitial

InvestmentBuild Portfolio

and Public Offering

18 Mo 18 Mo 18 Mo 18 Mo

Portolio Limitations

Investments other than PE and VC: Max 49% Investments in Foreign CIS: Max. 49% Pledges, mortgages and guarantees given-

established on behalf of SME’s in the portfolio: Max 10%

Participation in Management and Advisory Companies: Max 10%

Unlisted shares of publicly held companies Max 25%

Public Offering Sale to Qualified Investors

Investments other than PE and VC: Max 49%

Participation in Management and Advisory Companies: Max 10%

Basis of the limitations is the total assets reported in audited annual financial reports.

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Portfolio Management & Performance Fee

Base for performance fee calculation

Sales profit gained on exits

Dividend and interest revenues earned on VC companies

Public Offering

Sale to Qualified Investors

Performance Fee Max.

20% No limit

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Venture Capital Investment Fund (VCIF) Model

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PRIVATE EQUITY AND VENTURE CAPITAL INVESTMENT ACTIVITIES (Min. 80% of Net Asset Value)

INVOLVE in MANAGEMENT of VC COMPANIES

VCIF Activities

INVEST in LIQUID ASSETS- Money market instruments and listed securities

Basis of the limitations is the net assets value as reported in audited annual financial reports.

VC&PE investments are to be valued by independent appraisal firms by the end of each calendar year at minumum.

Net Assets Value is to be notified to qualified investors at least once a year.

Portfolio Man. Co & Venture Capital

Portfolio Man. Co

Qualified Investors

Funds of Funds

VCIF

Founder,Manager

& Fund Investor (General

Partner)Fund Investor

Venture Company

Venture Company Foreign

VC&PE Fund

Venture Company

Qualified Fund Units

VCIF Investment Model

Establishment of the Fund

Fund rules document to be approved by CMB Authorised Portfolio Depositary to be determined Min. Fund Commitment (initial closing): TRY 5 million (approx. $ 2,3 million) Min. amount of TRY 5 million to be invested in eligible assets within portfolio

limitations defined in regulations and fund documents Investor Agreement - including the terms and provisions regarding fund commitment

payments, performance fee and regulates matters that are not included in fund rules and issue document

Establishment

Completing Initial Closing of

fund commitments

Build Portfolio

1 Year 1 Year

Sale of Fund Units

Issue document to be approved by CMB Issuance of Qualified Fund Units

• Priviledge on dividends and have management rights Up to 20% of the fund units can be invested by the founder (portfolio

management company) Fund units can be transferred among qualified investors upon approval of the

founder

Sale to Qualified Investors

Establishment

CompletingInitial Closing of

fund commitments

Build Portfolio

1 Year 1 Year

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Portfolio Management and Performance Fee

Base for performance fee calculation

Sales profit gained on exits

Dividend and interest revenues earned on VC companies

No limit imposed on Performance Fee

VCIC’s Statistics

Source: Public Disclosure Platform www.kap.gov.tr

12 VCICs, # traded on Borsa Istanbul :6 and # sold to qualified investors :2

VCICs as of December 31, 2013

Name of VCIC Net Asset Value Portfolio Value Market Cap. % of VC Investments in Portfolio

Gözde GSYO A.Ş. TRY 350.554.790USD 164.548.812

TRY 773.977.677USD 362.637.715

TRY 727.501.591USD 340.861.917

91,24

İş GSYO A.Ş. TRY 258.979.564USD 121.341.687

TRY 259.702.012USD 121.680.181

TRY 172.633.860USD 80.885.470

28,12

Rhea GSYO A.Ş. TRY 76.767.962USD 35.968.683

TRY 74.624.330USD 34.964.311

TRY 28.669.500USD 13.432.741

100,00

Egeli & Co. GSYO A.Ş.

TRY 42.997.319USD 20.145.864

TRY 14.254.565USD 6.678.801

TRY 60.200.000USD 28.205.969

62,30

Gedik GSYO A.Ş. TRY 20.566.851USD 9.636.344

TRY 16.205.456USD 7.592.866)

TRY 5.250.960USD 2.460.272

(in transition)

Egeli & Co. Tarım GSYO A.Ş.

TRY 19.586.917USD 9.177.208

TRY 13.525.094USD 6.337.016

TRY 10.560.000USD 4.947.758

74,42

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Taxation of VCIC’s and VCIF’s:• VCICs and VCIFs are exempt from Corporate Tax• Corporate Tax exempted incomes of VCIC’s and VCIF’s are

subject to 0% witholding tax.

Taxation of VCIC’s and VCIF’s Investors•Resident Corporations (including non resident corporate tax payers

that have a permanent establishment, such as a branch office, in Turkey)

•Resident Individuals

Tax Regulations for VCIC’s and VCIF’s

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Corporates• Sale of listed VCIC shares: Witholding tax rate: 0% No Witholding Tax• Sale of VCIC shares are included in corporate tax base• Redemption of fund units : witholding tax rate : 0%• Capital gain from non-listed VCIC shares held min for 2 years is subject

to75% Corporate Tax exempt • Dividend income from VCIC shares and VCIF unites are exempt from

Corporate Tax

Individuals• Dividend income from VCIC shares and VCIF unites : 0% witholding tax• Dividend income from VCIC shares and VCIF unites : Half of their gross

dividend amounts are exempt from income tax. If the remaining amount exceeds a threshold such amount shall be declared with the annual income tax return.

Tax Regulations Cont’d(Back-end incentives)

Front end incentive regulation was introduced in 2012 to be put into effect by 1/1/2013.

Applicable for resident corporates (including non resident corporate tax payers that have a permanent establishment, such as a branch office, in Turkey) and resident individuals.

Venture Capital Reserve: Individuals and corporate tax payers are allowed to reserve a special fund from their annual income to be invested in VCIC or VCIF, up to 10% of their taxable annual income or corporate tax base of the relevant year AND up to 20% of their equity.

Venture Capital Reserves can be deducted from the corporate or income tax base as long as such investment is actually made in VCIC or VCIF.

Venture capital reserve cannot be used for any other purpose, withdrawn, distributed to shareholders/unitholders.

In case of dispose of the venture capital reserve investment in VCIC or VCIF, such amount shall be reinvested within six months following such disposal.

Tax Regulations(Front-end incentive)

Non-Resident Corporates• Sale of listed VCIC shares and dividends from VCIF’s are subject to

0% Witholding tax • No further requirement for any filling

Non- Resident Individuals• Sale of listed VCIC shares and dividends from VCIF’s are subject to

0% Witholding tax • No further requirement for any filling

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Tax Regulations Cont’d