SAFE and Convertible Note are investment instruments used in early stage startups. Turkish TCC article 331 et seq. They are privatized in parallel; "valuation cap", "discount", "MFN" clauses are critical.
SAFE (Simple Agreement for Future Equity)
- Y Combinator standard; one-page investment contract.
- The investor gives money today, it is converted into shares in a future round.
- It is not a debt; There is no interest or maturity.
- For Turkish TCC harmonization: preliminary agreement + option contract (TTK art.341 light) structure.
Convertible Note
- Debt + option to convert into shares.
- There is an interest rate (usually 4-8%) and maturity (12-24 months).
- Partnership + debt class in Turkish law; bond-like.
Critical parameters
- Valuation Cap: The maximum value at which the investor will receive shares (e.g. 5M USD).
- Discount: 15-25% discount on next round price.
- MFN (Most Favored Nation): Automatic transition if subsequent SAFEs offer better terms.
- Pro-rata: Right to participate in the next round.
- Information Rights: Monthly report, financial statements.
Can I register SAFE as a share transfer in the Trade Registry?
No. SAFE is a future equity promise; There is no registration in the registry. A registry change is made at the time of conversion to shares (usually in the next round).
What happens if the investor company closes down?
In SAFE, the investor is in a "preferential" position during the distribution to the partners; but only after the creditors. Before the partners because there is debt in the Convertible Note.
How is SAFE evaluated for tax purposes?
SAFE does not come/expense as soon as it is received; Withholding tax + KVK arises at the time of conversion to shares. Convertible Note interest income is subject to withholding tax in the period in which it is received.
Is TFRS compliance required for foreign investors?
If the investor is a foreign VC: TFRS compliant financial statement, KVK art.30 withholding tax waiver (double tax agreement), HMK authorization clause (usually Singapore/UK arbitrage).
Situations where Founder negatively impacts SAFE?
Multiple SAFE accumulation (10+ separate SAFEs) creates investor panic in the next round; It's called "SAFE drag". Founder's shareholding falls below 20%. Solution: If there is 5+ SAFE, a "tidy-up" round (priced round) is held between rounds.
Relevant legislation
- Turkish Commercial Code art.331-644 — A.Ş. and LTD establishment, share transfer.
- FSEK art.2/1-1 — Protection of software as a work.
- SMK No. 6769 — Trademark, patent, utility model, design.
- KVKK article 12 — Data security, by-design principle.
- TBK art.193 et seq. — Contracts, guarantees, indemnification.