Innovation\u00a0and\u00a0entrepreneurship\u00a0are considered among\u00a0the most important\u00a0elements\u00a0of economic growth and job creation.\u00a0Considering\u00a0that\u00a0companies\u00a0such as\u00a0Apple, Google, Amazon, Tesla, NVDIA,\u00a0which are among the largest companies in the world with their market values and revenue figures, were\u00a0established as venture capital companies\u00a0and received investments as venture capital companies, the importance of innovation and entrepreneurship for all economies is more clearly understood\u00a0(NVCA 2023).<\/p>\n
Unfortunately, it is possible to say that the adventure of entrepreneurship in T\u00fcrkiye is not as successful as the countries that we take as a precedent. Although we have recently launched startups such as Getir, Trendyol, Peak Games, Insider,\u00a0 Dream\u00a0Games, which\u00a0are described as\u00a0“unicorns<\/em>”\u00a0(used in the entrepreneurship ecosystem for companies with a market capitalisation exceeding USD 1 billion)\u00a0and “decacorns<\/em>”\u00a0(used in the entrepreneurship ecosystem for companies with a market capitalisation exceeding USD 10 billion), entrepreneurship has not played an important role in Turkish economic history.<\/p>\n In addition to\u00a0the\u00a0social\u00a0and\u00a0economic reasons for\u00a0this situation,\u00a0there are also reasons\u00a0arising from the legal system.\u00a0The legal system referred herein\u00a0connotes to\u00a0the laws and regulations in force and their implementation.\u00a0However,\u00a0it should be noted that\u00a0conceptually\u00a0the\u00a0legal\u00a0system\u00a0is much more\u00a0than all these.\u00a0Many\u00a0concepts\u00a0and elements within the legal system such as\u00a0constitutional system, rule of law, organization and efficiency of the judiciary closely affect the investment atmosphere and entrepreneurial behavior in the country.\u00a0It will not be possible to expect entrepreneurship to develop, contribute to economic growth and create employment in a country where the justice system does not function, where there is no trust in the courts, where legal uncertainty is at a high level and where there is no respect for the rules of law.<\/p>\n Does Turkish Law Protect Intellectual Rights?\u00a0<\/strong><\/p>\n The subject of activity of venture capital firms is predominantly technology [1].\u00a0This either\u00a0means that\u00a0the venture company\u00a0produces an output such as software or hardware\u00a0in the field of technology\u00a0or that the transformative effect of technology is utilized in terms of company activities. As a result of this situation, the system and legal regulations regarding the protection of intellectual and industrial property rights become one of the main issues of entrepreneurship.<\/p>\n In terms of industrial property rights such as trademarks, patents and industrial designs, we can say that a modern system has been implemented in T\u00fcrkiye with the Industrial Property Law No. 6769 adopted in 2016.\u00a0However, it\u00a0should be said that our legal system has not kept up to date, especially in terms of the protection of software.\u00a0Law No. 5846 on Intellectual and Artistic Works (FSEK), dated 1951,\u00a0was a regulation for the protection and regulation of rights on works of science, literature, music, fine arts and cinema, but\u00a0with the additions\u00a0made later,\u00a0it has been extended\u00a0to software.<\/p>\n It should be noted\u00a0that these later additions are not sufficient, and that\u00a0the\u00a0FSEK, which ignores\u00a0the commercial and industrial side of software\u00a0and\u00a0its\u00a0digital and dynamic structure that differs from traditional intellectual and artistic works,\u00a0is insufficient for the protection of software. Moreover, the IPL can only protect certain parts of the software, which jeopardizes the integrity and functionality of the software. At this point, it should be noted that what we are discussing is not the protection of software as a work, and that\u00a0we are of the opinion that\u00a0patents\u00a0are not\u00a0suitable for the protection of software.\u00a0However,\u00a0we believe that\u00a0a\u00a0more\u00a0specialized\u00a0and comprehensive legal regulation is needed\u00a0for\u00a0the\u00a0protection\u00a0of\u00a0software\u00a0in T\u00fcrkiye.\u00a0A new regulation\u00a0should be designed to protect\u00a0the code structure, algorithm\u00a0and\u00a0innovative ideas\u00a0of the software\u00a0and should be flexible against technological developments. Such a regulation will protect the rights of software developers more effectively and encourage innovation in the software industry.<\/p>\n Which regulations are needed in terms of financing entrepreneurship?\u00a0<\/strong><\/p>\n The financing of entrepreneurship differs from traditional financing methods such as bank loans and borrowing\u00a0and shows unique characteristics. In this respect, the types of contracts, creditor behaviors, legal and financial relations in traditional financing lose their validity in entrepreneurship financing.<\/p>\n The unique, high-risk and creative structure of entrepreneurship financing involves significant difficulties in terms of the legal system.\u00a0The fact that the methods applied in the financing of entrepreneurship do not find any response in the legal system or that the legal system prevents these methods will have negative effects on entrepreneurship and thus innovation. This will cause entrepreneurs\u00a0to move to other countries whose legal infrastructure is favorable to the financing of entrepreneurship.<\/p>\n It should be noted that T\u00fcrkiye has come a long way in terms of financing entrepreneurship. On 27 October 2021, the Crowdfunding Communiqu\u00e9, which was published in the Official Gazette and entered into force,\u00a0established the\u00a0legal\u00a0infrastructure\u00a0of equity and borrowing-based\u00a0crowdfunding\u00a0and eliminated an important gap in this field.\u00a0Although the Crowdfunding Communiqu\u00e9 has aspects open to criticism,\u00a0it has shown significant success\u00a0in a short time.\u00a0In 2022, the crowdfunding system raised 250\u00a0million TL capital\u00a0for 60 venture companies\u00a0and 20.6 million USD capital for 59 venture companies in 2023. We consider these figures, which are extremely low compared to their global counterparts, to be a significant success in terms of the implementation of the system in T\u00fcrkiye. In addition to crowdfunding, T\u00fcrkiye also shows significant success in incubation centers with public and university incentives. Technology development zones and incubation centers, which have been on the agenda in T\u00fcrkiye since the 1980s, have become the most important tools used by the public sector to finance entrepreneurship.<\/p>\n It is not possible to say that this relative success demonstrated in\u00a0crowdfunding and\u00a0technology development zones is demonstrated in the venture capital financing model. The venture capital financing model stands out as the most widely used model in the world in terms of financing entrepreneurship.\u00a0One of\u00a0the most important contract types in terms of the implementation of this model\u00a0is\u00a0convertible\u00a0bonds, which are a mix of\u00a0debt and\u00a0equity.\u00a0Convertible\u00a0bonds\u00a0are similar to loans in various aspects and investment against shares in various aspects, but they do not fully display the characteristics of both. In this system, the money paid to the venture company\u00a0is\u00a0followed as a debt for a certain period of time, but the debt\u00a0is converted\u00a0into shares upon the realization of a contractually determined transaction (investment purchase, etc.).<\/p>\n Convertible debt securities provide significant advantages for both entrepreneurs and investors.\u00a0Considering\u00a0the flexibility it provides\u00a0for\u00a0the entrepreneur and the investor, its low cost compared to the transfer of shares, and\u00a0the technical and financial impossibilities regarding the calculation of the value of early stage venture companies,\u00a0it should be noted that\u00a0such\u00a0contracts\u00a0provide a\u00a0significant\u00a0advantage.<\/p>\n When we look at the practices outside T\u00fcrkiye, we see that\u00a0various institutions\u00a0have\u00a0designed convertible debt agreements that are of a type in\u00a0order to\u00a0provide practicality, to make investment processes more efficient and standardized, and to\u00a0reduce\u00a0transaction costs.\u00a0Standardized agreements such as\u00a0SAFE\u00a0(Simple Agreement for Future\u00a0 Equity<\/em>) and KISS (Keep It Simple Security<\/em>)\u00a0can be cited as examples in this regard.<\/p>\n Under Turkish law, there are various institutions that are similar in form to the above-mentioned convertible debt instruments [2].\u00a0However, it is not possible to say that these institutions functionally meet the expectations of the venture ecosystem.\u00a0In Turkish law, issuance of convertible bonds is subject to strict formal requirements, extensive regulation and supervision [3], as well as technical difficulties\u00a0and\u00a0high\u00a0costs. This results in the disappearance of the speed and cheapness criteria expected from convertible bonds, and in practice, convertible bonds are hardly used at all.<\/p>\n Obligations of the State towards Entrepreneurs<\/strong><\/p>\n T\u00fcrkiye\u00a0allocates significant amount of resources for the promotion of entrepreneurship and carries out important activities in this regard. However,\u00a0it should be mentioned\u00a0that in addition to these activities which the state has actively carried out, it also has an obligation to create a favorable ecosystem for entrepreneurship.\u00a0In this context,\u00a0the state\u00a0has obligations to remove obstacles against\u00a0entrepreneurship\u00a0as well as actively supporting entrepreneurship.\u00a0According to the\u00a0Global\u00a0Entrepreneurship\u00a0Monitor [4], T\u00fcrkiye is in the “B” category with an entrepreneurial index score of 4.2, lagging behind many countries.<\/p>\n We believe that a new law for the protection of software is one of the priorities of the Turkish legal system. In addition,\u00a0we believe that\u00a0an\u00a0entrepreneurship law\u00a0that includes regulations such as easier establishment of start-up companies, operating within more flexible regulations without being overwhelmed by bureaucracy, and the establishment of an appropriate legal infrastructure for the financing of entrepreneurship\u00a0would be functional in terms of removing legal obstacles to entrepreneurship.<\/p>\n Notes<\/strong><\/p>\n [1] It should be noted that, theoretically, the subject of activity of the venture firm does not have to be technology, but the high growth potential, which is recognized as a definitional element of the venture firm, can only be in question for technology ventures.<\/p>\n [2] Article 504 of the Turkish Commercial Code (TCC) explicitly regulates that joint stock companies may issue convertible bonds. Article 463 of the TCC, which regulates the conditional capital increase, regulates that the capital may be increased conditionally by providing the creditors of the company or group companies with the right to acquire new shares by exercising their conversion or purchase rights in the articles of association, due to newly issued bonds or debt instruments. Article 18\/9 of the Capital Market Law (CML) directly refers to bonds convertible into shares.<\/p>\n [3] It should be noted that a convertible bond that is not issued in accordance with these regulations, in addition to the risk of being considered as an unauthorized credit transaction, there is a risk of constituting the offence of usury under Article 241 of the Turkish Criminal Code.<\/p>\n [4] The global entrepreneurship index is an initiative that prepares an entrepreneurship score for countries by taking into account the environmental factors necessary for entrepreneurship.<\/p>\n Bibliography<\/strong><\/p>\n National\u00a0Venture\u00a0Capital\u00a0Association\u00a0(2023). NVCA 2023 Yearbook. p. 11.\u00a0https:\/\/nvca.org\/nvcayearbook\/<\/a>\u00a0(e.t. 22.08.2024).<\/p>\n