Equity Crowdfunding

Also known as: Crowdfunding, Share-based Crowdfunding, Equity-based Crowdfunding, Crowdfunding Platform, Paya Dayalı Kitle Fonlaması

Author Ali Gül

In short

Raising funds from many investors in exchange for shares through a crowdfunding platform authorised by the Capital Markets Board, by a venture or venture company.

Equity crowdfunding is the raising of funds over the internet from many investors in exchange for shares, by a venture or venture company. Unlike a public offering, it does not require a prospectus; instead it is carried out through crowdfunding platforms authorised by the Capital Markets Board (SPK).

Legal Framework

Crowdfunding is governed by Art. 35/A of Capital Markets Law No. 6362 and the SPK’s Crowdfunding Communiqué (III-35/A.2). The Communiqué entered into force on 27 October 2021 and regulates equity-based and debt-based crowdfunding together. Campaigns may only be published on platforms on the SPK’s list.

Process

Platform review: The platform reviews the venture’s business plan and documents and decides whether to publish the campaign.
Valuation and target amount: The venture’s valuation and the amount to be raised are set.
Campaign: Investors commit through the platform within the set period; money goes into an escrow account, not directly to the venture.
Outcome: If the target is reached, the funds are transferred to the venture and investors receive shares; if not, the money is returned to investors.

A venture that has not yet incorporated sets up a joint stock company at the end of the campaign. An existing company makes a capital increase, and existing shareholders’ pre-emptive rights are restricted for that increase.

Investors and Limits

The Communiqué sets an upper limit on the amount non-qualified individual investors may invest through crowdfunding in a calendar year; for those with annual income above a certain level, the limit may be calculated as a percentage of income. Since the amounts can be changed by SPK regulation, they should be checked on the platform at the time of investment.

After the Campaign

Having many small investors as shareholders through crowdfunding affects the company’s later funding rounds and exit. Provisions such as the cap table, investors’ information rights and the drag-along right should therefore be planned before the campaign.

Frequently Asked Questions

Must a company be set up before raising funds through crowdfunding?

No. A venture that has not yet incorporated can also launch a campaign; if the campaign succeeds, a joint stock company is established with the funds raised and investors receive shares in it. An existing company runs the campaign through a capital increase.

Can anyone invest unlimited amounts through crowdfunding?

No. The Communiqué limits the amount that non-qualified individual investors may invest through equity crowdfunding in a calendar year. This limit does not apply to qualified investors.

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