The Business Angels Association of Turkey (TBAA) is galvanizing the entrepreneurship community in Turkey. The Association introduced a new model of entrepreneurship that promotes a ‘partnership culture’ where business figures and rising entrepreneurs form partnerships. Baybars Altuntaş, President of the TBAA, reaches out and fosters collaborations through his roles as Chair of the European Angel Investment Forum, President of the Links Angel BAN, and Vice-President of the European Business Angels Network (EBAN).
KITE Invest: Many associations bring businessmen and start-ups together in a mentoring scenario. In this regard, how do the Turkish business angel and start-up communities differ from others?
Baybars Altuntaş: In order to answer how Turkish business angel and start-up communities differ from such communities in other countries, we have to first understand the different way in which the early-stage investment ecosystem in Turkey developed.
If you examine how business angel associations serve and contribute to the early-stage investment ecosystem, you will see that almost all of them focus only on investments in start-ups. They act as matchmakers between business angels and start-ups or high growths; assuming that matchmaking in itself is sufficient to create value for its members.
But we take a different position on this.
When we set up the TBAA, we decided to separate investment activities from policymaking activities. We decided to talk about ‘money’ in the meetings of our business angel networks but not in the meetings of our association. We decided to talk only about what we can do to create a better environment for our member business angel networks. So at TBAA, we focus squarely on creating awareness in society, developing good relations with public authorities, encouraging public authorities to give tax incentives to members of our business angel networks, to convince public authorities to invest in start-ups together with business angels, to attract successful business angels from other countries to invest in Turkish start-ups in cooperation with Turkish business angels, and to become a global voice of Turkey in the early-stage market.
In sum, the main distinguishing feature of angel and start-up communities in Turkey is that there is a very clear job description for each player in the early-stage market.
For example, TBAA’s board is compromised of the presidents of 8 prominent business angel networks, each with more than 50 business angels as members. Each of these BANs is accredited by the Treasury Department of Turkey. So, if Turkish would-be angel investors want to benefit from tax incentives and co-investment opportunities in Turkey, they can make their application to the TBAA, who will direct them to its member BANs to follow up their accreditation. TBAA supports its member BANs by creating extra revenues for them.
But if a foreigner angel investor wants an accreditation in order to benefit from co-investment possibilities in Turkey and applies to a BAN, then this BAN forwards the application to the TBAA, and the TBAA proceeds with the application free of charge, absorbing the application expenses of foreign angel investors.
I am pleased to say that, as a result of this approach, the TBAA has 8 important business angel networks (Links Angel BAN, Sirket Ortagim BAN, Homores BAN, J-BAN, BUBA BAN, Istanbul Angels, Lab X, Keiretsu Forum Istanbul) as full members, out of the total of 12 business angel networks in the country. I think there is no other association in Europe where 80% of the entire early-stage market’s main players in one country are represented by one unique entity.
Another important differentiating characteristic of the Turkish angel investment community is the high activity level of the TBAA committees. We have 6 committees, each of which is led by a pioneer in the Turkish entrepreneurship ecosystem.
- The Crowdfunding Committee
- The Innovation & Technoparks Committee
- The Incubation Centers Committee
- The Start-up Committee
- The Exit Committee
- The Mentor Committee
As you see, presidents of business angel networks chair the TBAA’s board, but the TBAA focuses on more than angel activities at the investment level. The TBAA also brings other players of the ecosystem together to create a value for the ecosystem as a whole. Crowdfunders, Innovation Centers, Technoparks, Incubation Centers, Exit Strategies, Start-ups, and Mentors are all focused on one common goal – a better and more practical environment where all business angel networks will be able to reach out to the correct start-up, and exit easily.
We believe that orchestrating the whole ecosystem from a single address will accelerate the development of the early-stage market – and we have accomplished this.
TBAA has seen its members hold important positions in the international arena, including the Vice Presidency of EBAN and board membership in the World Business Angels Association in the UK. Turkey is the the country which offers the highest amount of tax incentives to business angels and has 265 accredited business angels recognised by the government, and is one of the few countries in the world which has a ‘Business Angel Investment Law’ and the only country in the world which has a Private Market in its stock exchange where angel investors and start-ups come together.
KITE: How do you envision the path of entrepreneurship evolving in Turkey in the comingyears?
BA: In this interview I will explain for the first time a very important development for the evolving path of entrepreneurship in Turkey. 2015 will be a boom year of both early-stage entrepreneurship and the investment market of Turkey, owing to a co-investment law that is about to be passed.
According to this law, as far as I know, the government will match funds that accredited business angels put into start-up and high-growths. This is very similar to what happens in Israel and Portugal. With this new legislation, entrepreneurs and start-ups will be able to access to more smart finance.
This is going to be a milestone for the Turkish early-stage investment ecosystem, as angel investors and public funds will provide liquidity, and the Private Market of the Istanbul Stock Exchange will support the exit strategy.
KITE: What are some goals that the TBAA is aiming to achieve in the near future in order to provide greater assistance to the community and its members?
BA: Seeing a business angel law enacted, creating a co-investment fund scheme, converting public money to smart money, accrediting business angels, and opening a Private Market on the Istanbul Stock Exchange are all positive developments. But the TBAA thinks that these are very important steps IF a successful exit strategy is created for the Turkish market.
One of the main goals of the TBAA is to accelerate the exit process of investments made by business angel networks, so we recognise the importance of foreign business angels who have made successful exits in Silicon Valley or another market. With this in mind, the TBAA established an exit committee, which is tasked with identifying foreign business angels who have made successful exits and inviting them to co-invest in Turkish start-ups with accredited Turkish angel investors.
The TBAA plans to prepare an accreditation report of foreign angel investors so that these investors can receive an Accredited Angel Investor Licence from the Turkish Treasury Department, which will open the doors to co-investment opportunities provided by public funds in Turkey. With this accreditation licence, foreign angel investors will be able to take advantage of all the benefits that come with public funds, and they will have the right to be listed on the Private Market of the Istanbul Stock Exchange.
KITE: Why does the TBAA place so much importance importance on foreign angel investors?
BA: The answers is very simple: The Turkish angel investment ecosystem is still too young to produce global success stories for exits, so we believe that it is a must to convince successful angel investors of Europe, the USA, Canada and Asia to co-invest in Turkish start-ups in order to transfer their exit know-how. We believe that the know-how they will bring to the market is much more valuable than the money they bring for start-ups. TBAA is not going to charge foreign angel investors for the accreditation process if they have made a successful exit anywhere in the world. In short, the TBAA is going to assist its member business angel networks by opening the doors of Turkey to foreign angel investors with transfer exit know-how.
Another main focus of the TBAA is to shift the mindset of entrepreneurs to the viewpoint that entrepreneurship can be and is, in effect, a global network.
KITE: What measures does the TBAA take to assist business angels and start-ups in grasping the concept of a global network and thinking in a globalised way?
BA: As I have pointed out in previous answers, the TBAA is creating an early investment entrepreneurship and angel investment ecosystem by bringing together all relevant parties to guide the whole ecosystem toward a common goal: more successful exits.
There are many business angel networks and business angel associations in the global market. We differentiate the goals of these two different organisation types. The common goal of business angel networks in the global market is to invest in the correct entrepreneur and to exit with a good ROI in a short period of time. This common goal does not change from BAN to BAN. But the common goals of business angel associations (a few of them bring together more than five BANs under the same umbrella, like the TBAA does) may vary, depending on the needs of the local market.
The most important common goal of the TBAA is to assist business angels and business angel networks to make successful exits. Assisting business angels in this process means the TBAA also assists start-ups, since their basic goal is to successfully raise funds from the right angel investors.
The TBAA is very aware that investing in the right team is very important for the business angels it represents. By the same token, receiving investment from the right team is very important for start-ups. So TBAA has specific programmes for the four different types of players of the ecosystem:
- Investment Readiness Training – for entrepreneurs & start-ups
- Angel Investment Training – for business angels
- Mentorship Training – for mentors
- BAN Management Training – for BAN & pipeline managers
KITE: Please describe business angel and start-up matchmaking in Turkey — sectors, funding size, length of relationship, exit, etc.
BA: A report released in July 2014 takes a look at entrepreneurial activity, attitudes and experiences in 33 countries and ranks Turkey as the second most entrepreneurial. Perhaps somewhat counter-intuitively,the Global Entrepreneurial Report from the Oracle Capital Group points to a group of developing nations as the most entrepreneurial.
The report presents a ranking measure of entrepreneurism in 33 major industrial nations and emerging economies, measuring the opinions, attitudes, experiences and activity that contribute to entrepreneurism by looking at factors such as “perception of entrepreneurs”, “attitude to risks involved in starting a new venture”, “fear of failure”, “willingness to risk personal finance” and “national levels of entrepreneurial activity”, amongst others.
The report does contain some interesting comparisons between attitudes and experiences in participating countries. The report provides valuable insights into the significance of entrepreneurial features that Turkey has in common with most other developing economies in terms of its scoring well on attitude to risk, low fear of failure, desire, willingness to self-fund and early-stage business activity. This report shows that early-stage finance is not a major challenge for Turkish entrepreneurs because they are willing to self-fund their start-ups. The time thus saved by self-funding means they have more time available for creating their demos and pitching to angel investors in a relatively short period of time once they have produced their demos. Additionally, Turkish entrepreneurs’ low fear of failure and their openness to risk are two important competitive advantages in the global entrepreneurship ecosystem.
KITE: Could you please some shed light on the European Angel Investment Forum, milestones achieved, and the significance of the Forum being held in Turkey?
BA: European governments have recognized the importance of angel investment in supporting start-up and early-stage businesses in Europe, and notably through tax breaks of up-to 75% as a major incentive to individuals to back small businesses. However, it is also vital that the angel-backed ventures are able to reach their full growth potential and become the global businesses of the future, generating employment and wealth into the European economy. Many highly experienced angel investors have developed extensive portfolios, including some very promising highly disruptive businesses that they have taken through several rounds of funding. However, many of these businesses have reached the stage of development where the angels need to seek the next level of growth and potential exit liquidity in order to move on to making investments in other early-stage businesses.
Currently, the opportunities to find suitable sources of growth or exit routes for angel–backed businesses are very limited. Exits through a trade sale remain very difficult to achieve, with corporates being reluctant to make investments in the current economic climate. Up to now, the route to IPO and public markets for angel-backed businesses has largely been regarded by the angel investment community as inaccessible and too onerous and difficult to contemplate.
The European Business Angels Investment Forum has therefore brought these key parts of the equity market together to discuss the benefits and challenges for the angel investment community in achieving successful growth for their businesses and to discuss what more can be done to connect the early-stage market ecosystem. Notably, we have also considered whether there is a need for further regulatory and fiscal changes, as well as ways to create better understanding and develop confidence for angel investors in approaching public markets.
The key findings of the Forum are:
- Local ecosystem reliability is essential for attracting cross-border investments from angel investors. Stock markets can play an important role by opening their doors to create a reliable platform for local start-ups and angel investors.
- A good way to create such a platform is to open a Private Market for start-ups and entrepreneurs where they will be registered on the stock exchange, meet registered accredited angel investors, and have access to finance in a secure environment.
- To create a successful ecosystem, the platform provided by stock exchange should be supported by mentorship programs and service providers such as independent audit firms, and law companies should be part of it so as to allow start-ups to take advantage of cost-cutting services.
- Developing co-investment funds is very important in developing an early-stage investment market. Banks should be accepted as public entities and should be encouraged to make start-up investments with angel investors. In this way, a certain amount of their profits every year (for example 0.01%) should be required by law to go to co-investments.
- Private investors should be licensed to co-invest with Public Funds.
- Policymakers must be trained to show best practices, pros and cons, and the how-to’s of co-investment funding. The EU should finance relevant training.
- Start-ups need demos for their pitches to angel investors. Crowdfunders should therefore be classified as mini-business-angels and accepted internationally as a seed funding structure.
- Stock exchanges and crowdfunders are in complementary distribution, that is, each one occurs where the other does not. This places them in a position of co-operation rather than competition.
- Crowdfunders are supporting start-ups at the beginning stage of the entrepreneurial journey, where as stock exchanges can provide financial support in the final stages. Think-tanks should be set up with the participation of stock exchange teams and crowdfunders to look for better understanding and cooperation with the aim of easing access to finance for start-ups.
- Start-ups need more than money. They also need a network, know-how and mentoring. While public institutions are not in a position to offer know-how, networking or mentoring, they can provide finance. They also could contribute by cooperating with business angels to convert public money to smart money. To achieve this aim, establishing an accreditation scheme for qualified angel investors should be set up, as a matter of priority. Public authorities should recognise and create a pool of qualified angel investors who are ready to invest in start-ups.
- The second step is to support new legislation that will match the funds of accredited angel investors who decide to invest in start-ups. In this way, the public will benefit from the expertise of the angel investor.
- The Turkish angel investment ecosystem is dynamic and fresh. Angel investors and business angel networks are aware that, within a few years, they will need to be making successful exits — otherwise, the market will lose its energy.
- BANs in Turkey have to develop connections with the global angel investment market to ease exits. For this reason, it is essential that they follow global events and establish links with global players.
- Turkish business angels perceive foreign angel investors as potential mentors for themselves. Turkish business angels are therefore encouraging policymakers to introduce more incentives for foreign angel investors with the dual goals of co-investing in Turkey as well as transferring exit know-how.
- Accelerators will gain importance in the very near future. Angel investors will direct start-up applications to acceleration centers, where they will be checked professionally to determine if they are investment-ready.
- Acceleration centers will eventually be accepted as institutional angel investors since they perform the same functions as angel investors.
- In the future, start-ups will first come not to an angel investor but to acceleration centers. It will become clear that acceleration centers will guide them toward smart money (angel investors).
You can watch videos of all sessions at: www.european-business-angels-investment-forum.com
KITE: Finally, is there a single message or piece of advice that you can give to entrepreneurs — regardless of whether they are affiliated with TBAA, EBAN, Links Angel BAN or the Forum?
BA: In answering this question, I’d like to present two short extracts from the translation of my best-selling book ‘Off the Bus, Into a Supercar’, published last month by Balboa Publications in New York:
An entrepreneur has to have rules. If you are going to produce a product or service, you have to do it right. If this doesn’t happen, and if what you sell is not good value for the money, this makes you something, but not an entrepreneur.
Laws, rules, and regulations may carry stipulations for the development of certain product types. However, even if it is not required by law, you are morally obligated to produce better quality if you can. For example, if there is a regulation that stipulates a paper product has to be ninety grams but it would be even better if you produce it at 300 grams, then it has to be 300 grams. In this way, you will be producing a quality brand, instead of simply buying and selling a product. Such individual decisions constitute the Baybars Altuntas rules. I place a high value on my rules. One is to invest in good entrepreneurs. I am interested in the entrepreneur more than the project when making investments and entering into partnerships. Think of it this way: let’s say an entrepreneur is the one who runs the ball down the field, and you are the coach. If your man in the field is good, he accepts the advice that you give, and if he applies his own ethical rules, then he is a good player. He may be a good player, but if he is not a successful one, then you have to change the game. For example, he might want to play basketball or soccer. He will not succeed if he does not have the skills of a soccer player, even if he insists. When a B-type of guy comes up with an A-type project—that is, a mismatch—I do not invest in him. I prefer to work with an A-type guy who comes to me with a B-type project.’