Gorkem Gokce is Founding Partner & Managing partner of Gokce
Turkey’s startup ecosystem has seen a significant rise in the number and quality of start-ups that are based in the gaming, finance and healthcare sectors. These sectors have attracted both domestic and international investors and secured record-breaking valuations. We provide legal advice to many tech start-ups throughout their journeys at Gokce Attorney Partnership.
Gokce offers its legal advice to Figopara, a leading fintech Turkish company. Figopara acts as an intermediary between financial institutions, suppliers and customers through the Figopara website and offers solutions to cash flow problems arising out of discrepancies between payments and collections. Gokce, a veteran in the start-up industry, has assisted Figopara since its inception.
Figopara was awarded $11 million investment at a value of $50 million in its most recent investment round. This investment round closed in the fourth quarter of 2022. Figopara secured investment from 11 international and local leading investors in this latest investment round. This included the International Finance Corporation (the private sector arm the World Bank Group) and local and cross-border funds.
Gorkem Gokce is the founder and managing partner at Gokce. He aims to transfer his extensive knowledge of the start up ecosystem to Turkish start-ups in order to help them achieve their goal of being influential regional and international actors.
Turkey Investment Opportunities
Are there any sectors in Turkey that have attracted significant investment over the past few years?
It’s easy to say that Turkey has reached a new level, and is now a key investment area in many sectors. More than 300 start ups received $1.5 billion in investment from almost a thousand investors.
The last two years have seen eCommerce, gaming, and data analytics in finance (i.e. Machine learning and AI have become the fastest-growing sectors. It is important to note that almost half of these investments were made in start ups that had just received their initial investments.
It is therefore safe to say that eCommerce, gaming, and data analytics have seen significant investment and shown greater development in recent years than other areas, even though their rankings (in terms the number of transactions) differ. This is because traditional production methods are being replaced with technology, software and even blockchain-based apps in today’s world. These developments will have positive effects and I believe that there will be more of them in the future.
What is the reason for the sudden increase in Turkish investment?
Turkey is a regional center. Turkey is a regional hub. It has the potential to reach a large market, as well as a young, dynamic and educated population. These are the main reasons for recent investments in Turkish companies. However, I believe that the main reason for this surge is the increase in creative start-ups.
The global shift away from traditionality to a technology-centric approach is evident in Turkey’s investments. The main drivers behind the growth of Turkey’s start-up industry are the numerous projects that Turkish entrepreneurs have developed, particularly in the last 5 years.
What is the Turkish government doing to encourage such investment?
Turkish legislation offers many support mechanisms and incentives for any investment in Turkey, especially for start-ups. If the share certificates relating to shares acquired by a joint stock company have been held for at least 2 years, income from such certificates is exempt from tax for both real persons and legal entities. Additionally, R&D companies and start-ups enjoy greater tax exclusions.
Turkey is a regional center. Turkey is a regional hub. It has the potential to reach a large market, as well as a young, dynamic and educated population. These are the main reasons why Turkish companies have seen an increase in investment.
The Turkish capital market legislation regulates financial institutions, including venture capital investment trusts and venture capital funds (VCIFs). These have many advantages over start-ups and venture capital investments.
First, the income of VCITs or VCIFs arising out of their activities (including the sale and purchase of shares) is exempted from corporate and income taxes.
Secondly, they are able to provide a combination of equity and debt financing to start ups. This is a type of financing that is only available for shareholders under Turkish legislation, VCITs, and VCIFs.
Finally, management fees and carried interest are remuneration incentives for managers. They are designed to allow start-ups to get professional management support in investment processes from specialists in their field.
What are the biggest challenges foreign investors face when trying to invest in Turkish technology start-ups?
This question is best answered from both a legal and financial perspective.
Foreign investors might face difficulties in Turkey when trying to find business partners who have deep knowledge and expertise in the sector. They also need professionals who can offer brokerage and advisory services. Start-ups are different from traditional businesses. It is important to find advisors that understand how they work and what their motivations are. As a firm that strives to satisfy its clients’ needs, we offer legal support and expertise to foreign investors who are new to Turkey. We have joined international platforms and institutions in many countries around the globe.
How can you help investors overcome these difficulties?
We are Gokce and have years of experience working with start-ups. We have been providing legal advice at every stage of a start up’s journey since its inception. We can also meet the needs for our tech and start-up clients because we offer full-service, with Corporate, TMC&Privacy and Litigation.
The Gokce team has the unique ability to structure legal deals in the most efficient way to achieve the financial outcomes that both parties desire. To design a legal relationship, we always consider the financial dynamics of the investor and investee.
Last but not the least, Gokce’s long-standing and highly-qualified network in legal and financial circles plays an active part through its business partners, who are experts in their respective fields. This helps to provide the expertise foreign investors or start-ups might need in other fields.
The uniqueness of the Gokce team lies in their ability to structure legal deals so that they achieve the desired financial outcome.
Do you see any trends in the operations of these tech companies and their impact on the Turkish economy?
Tech companies aim to offer products and services that are more practical, affordable, and accessible. Tech start-ups offer more precise, quicker, and cheaper solutions than traditional tools in areas that require development. This includes the everyday needs of people as well as the financial analysis requirements of businesses. This determination makes it easier to see the core activities and the ways they can improve these activities. Tech companies have a tendency to offer more precise, affordable, and fast services. They also tend to automate these services. Data analytics, machine learning, and artificial intelligence are some of the key trends that tech companies have observed in their activities.
Confidentiality is the second topic I can address. Access to information in a globalized world is easier than ever. This has both advantages and disadvantages. Data analysis has advanced to the point that it can enable personality analysis. This tool can also be used to guide masses. Data analysis is vital for the development of service industries. However, confidentiality and privacy concerns inherent in data analysis are becoming more important than ever. Technology is the answer to these problems.
While there have been many high-profile privacy violations cases and tracking of crypto transactions, blockchain-based options such as zero-knowledgeproof and decentralised identity prove useful in giving individuals control over their data. This will be a major consideration for financial players in the coming years.
Gokce: Life in the City
Are you able to see your team working on other important transactions in Turkey over the next few years?
As Gokce, our role has been key in the exit and investment rounds of start-ups for our clients. We also provide ongoing advisory services. We were involved in many transactions that were similar to or larger than the Figopara investment round in 2022, regardless of whether they were publicly disclosed or not. In the last few years, we have seen a rapid increase in the number of investments for which we offer our legal advice. Given the sheer number of start-ups we have assisted in the past, it is not surprising that we continue to play an important role in transactions of this size.
Is there any change in your practice as a result of the global economic downturn.
We have had a varied client portfolio since our inception, including start-ups and established companies.
It has been difficult to obtain funds in many areas due to the ongoing global crisis and financial players, including central banks, trying to curb cash flows. Every crisis is a chance to grow, and this principle applies to both the economy and markets. Both the economic crisis and other crises like the pandemic have caused a contraction in certain sectors over the years while opening the door for others. This principle is best illustrated by Figopara. Figopara is a fintech company that mediates cash flow issues. It has been able bring about a solution for the cash flow problem facing market actors. Investors welcomed this idea as a solution for the current crisis. It led to one the largest investment rounds in Turkey in 2022.
Other than this, other start-ups we offer consultancy have developed solutions that shift physical services to internet mediums responding to a pressing need during the pandemic. They were therefore able to grow quickly amidst the crisis.
Due to the effects of the economic crisis on investors’ risk perceptions and behavioural finance attitudes many investors have switched from traditional investment tools to start-up investments.
Figopara, a fintech company that mediates solutions for cash flow issues, was able to solve the cash flow problem facing market actors.
These facts have demonstrated that changing circumstances can create new business areas and new challenges, as well as new opportunities for expansion in existing business areas. We can adapt quickly to changing market conditions by offering consultancy services to clients in different fields. This allows us to be flexible and minimize the impact of the economic floating structure.
What are the biggest challenges that you face when advising start-ups regarding their investment rounds?
All start-ups face the fundamental challenge of economics. The demands of financial actors can be unlimited, but resources are limited. This assumption is true in every aspect of commercial and everyday life. This assumption can also be used to view the situation of investors and start ups participating in investment rounds. This assumption reveals that the biggest challenge in all start up investments is to balance the needs of all parties. Multilateral and cross-border transactions make it a difficult task to reach a consensus in any transaction.
Gokce also analyses the financial needs of parties to a transaction. We strive to ensure that these demands are reasonable and in line market conditions, and that all parties agree to the transaction. We use the knowledge we have gained over the years to try to reflect the financial demands of transaction parties to legal realm. This is done both using the tools provided by the legislation and creating new legal fiction as permitted by the law. This situation, while objectively difficult, can be subjectively characterized as an added benefit when viewed in conjunction with Gokce’s deep experience.
Ayse Uku Yalaz, Nilay Goker Duran are partners at NAZALI
NAZALI, an international full-service law company, provides a wide range of advisory services to clients. It has a qualified team that includes lawyers and experts from different areas. These areas include tax, competition lawantitrust and IP, as well as finance, customs, audit, social security, audit, and privacy. Nilay Goker Duran, Ayse Uku Yalaz are the co-leaders of NAZALI’s Corporate and M&A department. The team has more than 15 years combined experience and provides advisory services for its international and local clients at all stages of buy/sell-side M&A transactions. They also represent investors, entrepreneurs and start-ups in finance deals, fund raising, structuring, and financing. These deals are highly interconnected and NAZALI is the right partner for them because they are evaluated by a range of experts, including highly respected partners. NAZALI is a result of its sectoral expertise in M&A transactions in healthcare, energy and fintech sectors.
NAZALI’s primary objective is to build long-lasting, trust-based relationships with its clients. NAZALI’s ability to assess matters from all aspects of the case and develop solid strategies through interdepartmental communication is what makes it stand out.
Could you please tell us about the work done by you and your team during this round of investment?
L2G Ventures was the major investor. ScaleX, a client of ours, referred us to them. It is a privilege to work with highly respected and experienced clients. L2G Ventures was advised by us on the drafting and negotiation of the documents. We also conducted extensive tax and legal due diligence. Our client was also supported during the closing, post-closing and signing stages.
If any, what obstacles were you able to overcome during the round?
This involved a thorough legal due diligence process, which required the analysis of numerous regulations intertwined with each other, including eCommerce, banking, finance and privacy. There are also non-regulated areas of markets that fintech and tech support. Legal due diligence was a challenge in this regard, as it also included unregulated areas. We liaised with the Figopara team in order to understand and systemise their operations. This allowed us to accurately identify the benefits and risks and took a business-minded approach. Thanks to our client, we also adopted an entrepreneur-friendly approach with an open dialogue by sharing our due diligence findings with the Figopara team, allowing them to clarify such issues in a prompt manner ahead of closing. We were able to manage such a complicated process quickly thanks to the invaluable cooperation of Figopara’s legal counsels. This approach was also beneficial to other investors.
The SHA was complicated to finalize due to Figopara’s complex shareholder structure and the many clauses accustomed growth finance deals such as liquidation preference and anti-dilution. We had to avoid conflicts because SHA was subjected to English law. This made it compatible with Turkish law. It was difficult and vital to find a balance, and reach a viable SHA/articles of incorporation. These challenges were overcome and the SHA was tailored by us working with all counsels, which allowed us to make invaluable contributions.
Turkiye is also monitoring tech M&As. These deals are of particular interest to the Turkish Competition Authority. It recently amended its communique on mergers and acquisitions. This deal was only possible if the Authority had approved it. The deal was designed to allow control change clauses to become lawful after approval.
How did you collaborate with Gokce Attorney Partnership, and other firms to achieve a satisfactory result for all parties?
With their open, cooperative and constructive approach, representatives of Figopara and Gokce Attorney Partnership and other counsels contributed greatly to the process. Our colleagues had worked together on other transactions before, which helped us overcome obstacles in a more friendly and timely manner. Without the cooperation and collaboration of all involved, such a large deal would have been impossible.
Do you have any comments or questions about the operation?
Growth finance deals do not involve short-term transactions. As stability is essential, it is important to follow the closing process. A ‘closing Bible’ is also prepared that details what should be done after the deal has been closed. We continue to support and assist our clients after closing.
We also noticed that legislation sometimes falls behind emerging technology-related market. We are keen as legal professionals to understand these technologies and find a balance.