SAFE Agreements and Investment Contracts in Turkey: How Should Startup Financing Be Structured?

Short answer: A SAFE (Simple Agreement for Future Equity) is a contract type developed by Y Combinator in 2013 that has become the standard instrument for early-stage investment in the US startup ecosystem: the investor pays money today, and in exchange receives the right to acquire shares once the company's valuation is clarified (typically at the next financing round) — without interest or a maturity date. Turkish law has no direct equivalent of the SAFE, and the Turkish Commercial Code (TCC) subjects capital increases and share issuances to strict formal requirements. For this reason, startups and investors in Turkey seeking the same economic outcome as a SAFE generally use a combination of a convertible loan agreement (a debt instrument granting a future right to acquire shares) and a shareholders' agreement (SHA). Structuring this correctly under the TCC is critical to protecting the rights of both the investor and the founders.

What is a SAFE, and why is it popular?

A classic convertible note is a debt instrument: it has a maturity date, an interest rate, and a repayment obligation upon default. A SAFE deliberately strips out these elements — it is simply a "right to acquire shares in the future" agreement. The investor pays a set amount to the company; in exchange, at the company's next "priced round," the investor acquires shares at a price more favorable than that round's price, based on a pre-agreed valuation cap and/or discount rate. If the company is sold or liquidated before the next round, the SAFE typically provides for repayment of the invested amount (sometimes multiplied) or conversion into shares.

Its popularity stems from speed: funds can be raised quickly through a standard document of a few pages, without the parties negotiating a valuation. The burden of determining valuation is deferred to the next round — a point at which more information is available.

Obstacles to the SAFE under Turkish law

The SAFE's "not debt, but a future right to acquire shares" nature creates direct tension with fundamental principles of Turkish company law:

• Capital increases are subject to formal requirements (TCC Art. 456 et seq.): In joint stock companies, issuing shares is a transaction subject to strict formal requirements, requiring a general assembly resolution, an amendment to the articles of association, and registration with the trade registry. A commitment along the lines of "the company will issue shares to the investor at any time, by unilateral decision" does not, by itself, produce a legal effect — the relevant corporate resolutions must always be adopted for any share issuance.
• The issue of shares granted free of charge or below their real value: The SAFE logic of "issuing shares in the future at a valuation cap fixed today" may mean that, at the time of the future capital increase, the share price is set below its then-current real value; this can conflict with the pre-emptive rights of other shareholders and with the TCC's principle of capital protection (TCC Art. 480 et seq.).
• Tax and balance-sheet consequences of the "not debt" nature: Turkish tax legislation classifies payments made to a company largely as either "debt" or "capital/capital advance." The SAFE's US-style "neither debt nor equity" intermediate category has no counterpart in Turkish balance-sheet and tax practice; for this reason, it must be determined from the outset which account (shareholder loans, capital advance, suspense accounts) will record this payment.

The structure used in practice in Turkey: convertible loan + SHA

Because of these obstacles, the structure most commonly used for early-stage investments in Turkey — and compliant with the TCC — combines the following elements:

1. Convertible loan agreement. The investor lends a specified amount to the company (or, depending on the structure, to the founding shareholders). The agreement sets out the maturity, the interest rate (if any), the conversion triggers (the next financing round, a company sale, or maturity), and the valuation cap and/or discount rate. Because it is a debt relationship, it is not subject to the TCC's capital increase formalities at the time it is signed — the obligation is fulfilled through a capital increase once conversion is triggered.

2. Capital increase commitments and proxy mechanisms. To ensure the necessary general assembly resolutions can be adopted quickly upon conversion, it is common practice to obtain pre-signed general assembly resolutions, voting commitments, or powers of attorney from the founding shareholders in advance. While this does not create the impression that "the investor automatically receives shares on demand," it ensures a frictionless conversion process.

3. Shareholders' Agreement (SHA). After conversion, the rights attached to the investor's shares (information rights, veto rights, tag-along/drag-along rights, liquidation preference, anti-dilution protection) are governed by an SHA. The SHA must be consistent with the TCC's mandatory provisions (for example, matters where voting rights cannot be waived, and the principle of equal treatment); otherwise, certain clauses of the agreement cannot be enforced against the company and may only give rise to a claim for damages between the parties.

Clauses that deserve careful attention

• Valuation cap and discount: It should be clearly stated which one applies first (it is standard to select whichever is more favorable to the investor).
• Conversion triggers: The definition of a "qualified financing round" — i.e., the threshold amount above which a round triggers conversion — should not be left ambiguous.
• Liquidation preference: The investor's right to recover the invested amount (sometimes with a multiplier) before other shareholders in the event of a sale or liquidation; the effect of this clause on the founders' share should be modeled out in advance.
• Anti-dilution protection: Protection of the investor's stake against dilution if shares are issued at a lower valuation in a later "down round" — it should be clear whether full ratchet or weighted average anti-dilution applies.
• Pro-rata rights: The investor's right to make additional investments in future rounds to maintain their ownership percentage.
• Foreign exchange and data protection dimensions: If the investor is foreign, the inflow of the investment amount into Turkey and changes to the shareholding structure may need to be reported to the Ministry of Treasury and Finance (foreign direct investment notifications).

Conclusion

Using a SAFE in Turkey on a "copy-paste" basis creates uncertainty and dispute risk for both the investor and the founders — because the expectation of "automatically receiving shares" upon conversion runs into the TCC's strict formal requirements. Instead, preserving the SAFE's economic logic (fast, valuation-free early investment) while structuring a TCC-compliant convertible loan plus SHA arrangement prevents future disputes over "when and how will these shares be delivered to me." Before signing an investment agreement, both the investor and the founders should obtain an opinion from an attorney experienced in company law and tax law to ensure the agreement is enforceable under Turkish law.

Sources

1. Turkish Commercial Code No. 6102, Art. 421, 456-484 (capital increase and share-capital protection provisions).
2. Y Combinator, SAFE (Simple Agreement for Future Equity) standard documents and explanatory notes.
3. Law No. 1567 on the Protection of the Value of Turkish Currency and Decree No. 32 (foreign investor notifications).
4. Capital Markets Board, Communiqué on the Principles Regarding Venture Capital Investment Funds (regarding institutional investor participation).

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