Frequently Asked Questions About Venture Capital Investment Funds (VCIFs)
Venture Capital Investment Funds (VCIFs) are relatively new financial investment instruments, established and managed by Portfolio Management Companies authorized by the Capital Markets Board (CMB) that meet certain requirements.
Venture Capital Investment Funds (VCIFs) are relatively new financial investment instruments, established and managed by Portfolio Management Companies authorized by the Capital Markets Board (CMB) that meet certain requirements.
What Are VCIFs and Why Are They Important?
VCIFs primarily invest in startups. At Boğaziçi Ventures, through the technology-focused investments we have made for years, our goal has been to create value for both entrepreneurs and investors. With the experience we have gained, we continue to expand our activities and investments in this field.
In this article, we’ve compiled the most frequently asked questions from capital owners about VCIF investments, so that you can gain a clearer understanding of how they work.
Expectations and Management in VCIF Investments
To best manage your investments, it is critical to first set your expectations correctly. VCIF investments are long-term, usually spanning around 10 years. They are more suitable for investors who want to generate returns from the fast growth of startups. For example, while Borsa Istanbul’s performance over the last 10 years resulted in an average annual loss of around 2% in USD terms, the Nasdaq index generated an average annual gain of 15.6% in the same period. These figures are important considerations when making investment decisions.
Why Choose a VCIF?
Direct investments in startups can carry high risks. If such investments are not made with the right strategy and in sufficient numbers, the investor may face a risky position. VCIFs, however, aim to optimize fund returns by aligning with investment fund strategies and making a statistically significant number of investments.
In addition, investing in startups requires professional management. Valuation, auditing techniques, signed agreements, and minority rights must all be handled by an experienced team. For this reason, opting for a VCIF over individual startup investments can be more beneficial.
Tax Advantages of VCIF Investments
The tax advantages offered by VCIFs are also significant for investors. Individuals and institutions are exempt from income and corporate taxes on gains from VCIF investments. Additionally, corporations can deduct their VCIF investments from their taxable income within certain limits, reducing their corporate tax burden. This incentive reflects the strong government policy in Turkey supporting VCIF investments.
Information Flow in VCIF Investments
How much information you receive about investments made through a VCIF depends on the service terms of the company you work with. Generally, investors are informed once a year through a fund report. However, some funds pursue a more transparent and frequent communication policy. For example, Boğaziçi Ventures funds send detailed fund and portfolio information reports to all investors every three months. This shows one of the advantages of investing via a fund rather than individually.
Co-Investment Opportunities
Some VCIFs grant “co-investment” rights to investors who commit a certain level of capital. This allows investors to directly invest in companies of their own interest while benefiting from the support of a professional partner. Such strategies enable professional support in managing investment and valuation processes, helping investors take strategic positions.
Exit Timing from VCIF Funds
The exit timing of a VCIF depends on the fund’s bylaws. Generally, when the fund enters its liquidation period, the fund manager sells its equity in the valued companies and distributes the returns to investors. Before this period, it is also possible to exit by selling your fund shares to another investor.
Boğaziçi Ventures Example
Inveo Portfolio Management Inc., where Boğaziçi Ventures is the key investor and sits on the fund’s investment committee, manages the Boğaziçi Ventures Venture Capital Investment Fund (BVG). For investors looking to invest in startups based in Turkey, VCIFs represent an important opportunity.
For more information and investment opportunities, you can reach out to Boğaziçi Ventures.
Contact: [email protected]