Conventional investment methods such as stock investing are no longer sufficient to quench the appetite of investors in emerging financial markets. Financial markets develop as a result of the emergence of new investment tools, the expansion of conventional investment tools and the emergence of different financial tools. investors, in light of rapid changes in the economy, are looking for new ways of investing.

Investors trying to maximize their return at a self-determined level of risk may become weary of traditional investment methods such as buying stocks and government bonds for a variety of reasons. Below we will briefly discuss some investment methods encountered in practice. These alternative investment methods enable (i) the investor to buy discounted shares, get faster results from a transaction, appreciate the value of the company in a dynamic way, and (ii) the entrepreneurs have access to cash flow and financial support .

Convertible note: The convertible note is an investment vehicle inspired by a procedure developed in the United States. It has crossed the borders and found its way into practice under Turkish law in accordance with the principle of freedom of contract. Entrepreneurs can get the financing they need through equity or debt. Entrepreneurs can easily and effectively provide finance with the convertible note approach using short-term, low-interest borrowing. With this contract, the investor lends money to the company and can buy shares of the company when certain conditions are met in exchange for the loan. According to the practice under Turkish law, an investor must have a share in the company in order to be able to lend to the company. To overcome this obstacle, a share is symbolically given to the investor to qualify him as a shareholder of the company before taking out the loan. Thus, company shareholders can buy company shares by lending money to the company and using this loan money in a capital raising process.

SAFE: The Simple Equity Futures Agreement, or SAFE, is a contract that originated in the US. It can be translated into Turkish as “Gelecekteki Öz Sermaye için Yalın Küngütü”. The SAFE method is essentially supplying funds now for shares to be purchased in the future. While the SAFE includes the basic terms of the convertible note, it does not include the maturity and interest rate elements of the convertible note to facilitate the legal process and minimize the negotiation process. Under the SAFE mechanism, the investor gives the company funds in exchange for future shares at a discount or at the current valuation limit at the time of the triggering event. The SAFE method, which offers the investor an option to purchase shares in exchange for his investment and has no maturity date, facilitates the investment process by reducing the potential legal and financial costs associated with issuing traditional shares or debt securities , such as interests and tax liabilities. The SAFE investor receives his/her shares under the agreement when an investment round or other trigger event occurs at a predetermined valuation.

kiss: Keep it Simple Securities are mostly similar to SAFEs. This contract can appear in two types, the debt version and the equity version. Unlike SAFE, the debt version of KISS includes a maturity date and an interest rate. With KISS, investors can finance the company and receive discounted shares in exchange for their initial investment with any interest that has accrued. KISS allows investors to finance the company and receive discounted shares of the company in exchange for the principal investment amount and accrued interest on this amount.

The main difference between SAFE and KISS is that KISS has a monthly interest rate and maturity date. KISS also has a class of investors called “large investor”. A major investor means someone who invests at least $50,000 in a venture capital firm. SAFE, on the other hand, does not contain such a classification of investors according to the amount invested. KISS provides information rights to key investors. The ability to access information that is not disclosed to other investors can be very valuable indeed to investors.

One of the conditions of KISS is that all investors using such financial instruments must be offered the same valuation limit. A convertible note, on the other hand, places no restrictions on venture capital companies to invest in different valuations.

Although the Turkish market is used to dealing with traditional share transfers, familiarity with alternative investment instruments, which are commonly seen in foreign markets, is especially important for venture capital companies in order to meet their investment needs quickly. and effectively.

It is evident that the systems mentioned above, which are mainly developed through practice, require recognition and legislative regulation in order to enable the development of financial markets and the presentation of more investment options.

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