“A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul”
Master Thesis LL.M. International Business Law Batuhan Türkeç ANR 915019 Supervisor: Prof. Erik P.M. Vermeulen 12.06.2017
A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______
Abstract
In the innovation-driven world, startup companies are seen as a solution to the progress of economic development. In order to create an entrepreneurial environment and successful startup companies; it is substantial to understand dynamics of entrepreneurship and startup ecosystems that have developed in the process of time. All over the world, there are some communities which have managed to establish a thriving ecosystem and by that way startup companies achieved success in those regions. One of the successful examples that can be shown is Boulder City in the United States. Developing countries and provinces, such as Turkey and specifically Istanbul, should see advanced ecosystems as an example to foster the entrepreneurship. The question that should be asked is how Boulder become successful in the context of achieving success in startup companies and ecosystem, and what are the other people missing in the Istanbul’s startup ecosystem. Consequently, the main purpose of presented study is to identify the factors that lead startups to success and make suggestions for specific emerging city. This paper revealed the three main challenges against achieving success in startup companies in Turkish startup ecosystem as the deficiency of supportive elements, the hardness of reaching the capital and failure to establish functional boards.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______
Table of Contents
1 Introduction ...... 4 2 Boulder ...... 6 3 Istanbul ...... 10 4 Supportive Elements for Thriving Startup Ecosystem ...... 13 4.1 Governments ...... 13 4.1.1 Difference between SMEs and Startups ...... 13 4.1.2 Supports of Central Administration ...... 15 4.1.3 Supports of Local Administration ...... 20 4.2 Universities ...... 24 4.2.1 Law Faculties and Clinics ...... 25 4.2.2 Technology Transfer Offices ...... 26 4.3 Accelerators ...... 28 5 Board as a Game Changer ...... 34 5.1 Board of Directors in Turkish Commercial Code ...... 38 5.2 Assessment of the Effect of Board Structure on Capital Raising ...... 40 6 Raising the Capital ...... 44 6.1 Crowdfunding ...... 45 7 Conclusion ...... 54 References...... 59
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______1 Introduction
In the rapidly-developing world, entrepreneurship is getting a higher significance for the progress of economies. Companies’ life cycles are getting shorter than the old times and as a result of that, large corporations struggling to achieve creativeness and value creating. Startup companies could be the solution for this problem. Recently, all over the world, lawmakers, decision mechanisms, and entrepreneurs aware of the significance effect of the startup companies.
To get a better understanding, first entrepreneurship should be defined. For doing that, it is critical to see that Schumpeter brought innovation into the entrepreneurship definition (Schumpeter, 1965). After the Schumpeter, Hisrich has developed the definition of entrepreneurship, based on the innovation, and brought it closer to the meaning that used today. He determined the entrepreneur as “someone who demonstrates initiative and creative thinking, is able to organize social and economic mechanisms to turn resources and situations to practical account, and accepts risk and failure” (Hisrich, 1990). After that, in a similar manner, Bolton and Thompson stated, “entrepreneur is a person who habitually creates and innovates to build something of recognized value around perceived value” (Bolton & Thompson, 2000), (Eroğlu & Pıçak, 2011). In the light of those definitions of entrepreneurship, Kaufmann Center’s definition is reliable and inclusionary for this paper’s purpose; “Entrepreneurship is the ability to amass the necessary resources to capitalize on new business opportunities. The term is frequently used to refer to the rapid growth of new and innovative businesses and is associated with individuals who create or seize business opportunities and pursue them without regard for resources under their control. They build something from practically nothing and usually reinvest earnings to expand their enterprise or to create new enterprises. Other words that characterize entrepreneurship include innovative, creative, dynamic, risk-tolerant, flexible, and growth-oriented” (Kayne, 1999).
Entrepreneurs and startup companies help the economies in various ways. In a tight financial position of states, entrepreneurs can add value to the economy by solving fundamental problems by producing and developing creative products or services, bring a new perspective to existing industries and businesses, and establish new job opportunities (Kayne, 1999).
Today, governments and large companies trying to create an entrepreneurial ecosystem all over the world to achieve greater economic development. In the context of economic development,
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______startup companies could be able to solve the problem of recession and give dynamism to the markets. Some of the present studies have shown that the significant part of the job creation coming from the new and growing companies and creating a supportive entrepreneurial network, so-called “ecosystem”, have a strategic effect to reaching success (Motoyama & Watkins, 2014). Similarly, almost all net jobs in the United States created by startup companies (Haltiwanger, 2012), (Haltiwanger, Jarmin, & Miranda, 2013). If we think the U.S. without startups, there would be no net job growth in there (Motoyama & Watkins, 2014). Additionally, as reported by Business Dynamics Statistics, startups is the most dominant factor for the job growth (Kane, 2010). According to the data, there is no coincidence that biggest economies in the world have invested to support and develop startup ecosystems. Countries that have a thriving startup ecosystem are able to achieve economic success and higher development rates.
As long as startup’s success has a significant effect on the development of countries both local and global levels, it is important to identify key factors that have a high impact on the development of startup ecosystem because obtaining the success with a startup company could be a coercive way. During the companies’ journey, several determinants have an effect on reaching the final goal. In that context, different practices have seen in various regions. As the National Commission on Entrepreneurship stated (Kayne, 1999), regulations, laws, incentives, and programs that are encouraging entrepreneurship have a colossal impact on both creating an entrepreneur ecosystem and chance of gaining success.
For creating successful startup ecosystems, all the factors should be assessed and action taken by the people who wants to foster their economy by the innovative, creative, and dynamic startup companies. For this purpose, in this paper, Boulder City has been taken as an example in order to ensure the developments Istanbul. After summarizing the two cities in Chapter 2 and Chapter 3, the main problems of the startup ecosystem in Istanbul were tried to find a solution with the example of Boulder, and some recommendations were made in the Chapters of 4,5 and 6.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______2 Boulder
The United States of America is well known for its successful startup communities and continuing to be a model for the whole world for its practices regarding the execution of policies to developing an entrepreneurial ecosystem. The country has high numbers of great and developed startup hubs all over in its territory.
At the beginning of the rise of startups, most of them were incorporated in several ecosystems like Silicon Valley. With the people’s understanding on startups changed, everybody, from the entrepreneur to policymakers, trying to create startup ecosystems all over the world. Although most of the people still believe that Silicon Valley is the leading center of the entrepreneurial activity, environment keeps changing dramatically and other areas getting important over the time.
One of the states that achieved success in startup companies, Colorado, is an example of the diversity of startups by a variety of companies incorporated in their border. One can easily find almost all kind of startups from the cyber security and enterprise software, to mobile apps and digital agencies companies (Ryan, 2016). Colorado is in the second place for the economic state growth (Business Insider, 2015), and first place for the labor supply (Forbes, 2015). Additionally, placed number two as most educated state in the United States in 2015 (Yahoo, 2015). Cities in Colorado played a part of the ten spots in a substantial tech startup activity, with the lead position of Boulder (Avery, 2013).
In the past years, it has been seen that Boulder, Co., come through from the bottom and become a remarkable hub for entrepreneurship and startup companies. Some may think that situation happened by itself, but it did not (Boulder Chamber, 2013). The State of Colorado and the City of Boulder has significant incentives to start a business including tax credit programs and collection of different kind of incentives encourage the entrepreneurs to come and start a business in the state. Together, the State of Colorado and the City of Boulder constructed an environment that suits best for new enterprises and businesses.
According to the analysis of National Employment Time Series (NETS), Bureau of Economic Analysis in 2010, Boulder, has the highest high-tech startup density among all the other metro cities. As seen in the table below, high-tech startup density in Boulder is higher two times than its closest follower. Together with the unemployment rate, as 5.4 percent which is below the average
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______of the United States and Federal Reserve’s goals (Helm, 2014), we can easily understand the importance of startups in job creation.
Table 1: Top 25 Metros for ICT High-Tech Startup Density in U.S. (2010) Metro Name Density Metro Name Density Boulder, Co 6.1 Des Moines-West Des Moines, IA 1.9 San Jose-Sunnyvale-Santa Clara, CA 2.9 Austin-Round Rock, TX 1.8 Seattle-Bellevue-Everett, WA 2.7 Wilmington, DE-MD-NJ 1.8 Fort Collins-Loveland, CO 2.6 Huntsville, AL 1.7 Washington-Arlington-Alexandria, 2.6 Portland-Vancouver-Beaverton, 1.7 DC-VA-MD-WV OR-WA Denver-Aurora-Broomfield, CO 2.5 Durham-Chapel Hill, NC 1.6 San Francisco-San Mateo-Redwood 2.5 Corvallis, OR 1.6 City, CA Cambridge-Newton-Framingham, 2.3 Cheyenne, WY 1.6 MA Colorado Springs, CO 2.2 Bethesda-Frederick-Rockville, 1.5 MD Raleigh-Cary, NC 2.1 Ames, IA 1.5 Provo-Orem, UT 2.1 Boise City-Nampa, ID 1.5 Salty Lake City, UT 1.9 Manchester-Nashua, NH 1.5 Missoula, MT 1.9 36 Additional Metros > 1.0 --- United States 1.0 United States 1.0 Source: National Employment Time Series (NETS), Bureau of Economic Analysis; author’s calculations
In the current climate, people see only the success stories of Boulder. However, if we want a formula for success of both startup companies and ecosystem, we should look at the history of the Boulder City. In the beginning, before becoming the heart of innovation, Boulder is nothing but the mining city. Boulder’s success for becoming a startup hub is laying in the combining the individual and government’s efforts as well. Although its success is unique, Boulder offers some explanations and lessons to become a gleaming center of startups (Helm, 2014).
In fact, as stated above, the success of Boulder is lying in the past of the city. Before the internet, there were lots of entrepreneurial activity in the city, and these activities have contributed to the formation of the culture of technology startups. Accomplishments of the companies in the past are the architects of success story behind the Boulder’s startup community.
For the high-tech industry first bullet shot by the IBM as they decide to establish one of their data storage division in Boulder. Afterward, StorageTek incorporated, and they were the first high-tech
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______success story and what is important is these developments happened in the 1970’s. After these two firms achieved success in Boulder, it has been a model for tech entrepreneurs and lots of tech companies established in Boulder by the 1990’s. These developments in the past have been the basis for the rapid evolution of technology startups.
Besides the developments in the tech industry, there were intense activities in other industries such as biotech and natural foods. Developments and success stories in those industries have opened the door to the diversity in Boulder and have contributed to the development of not only the internet based startup companies but also other innovative ideas.
After these enterprises create some entrepreneurial motility, it was not so hard to intercept the internet revolution due to their developed entrepreneurial culture and people seeking to put into practice their creative ideas. In that period, before the collapse of the internet bubble, most significant problem is segregation between entrepreneurs and investor. Especially, because of the tech startups need a high amount of capital to reach their goals, frigidity between entrepreneurs and investors was the biggest obstacle against startup community at that time. Eventually, most of the startup companies ended up with bootstrapping. They solved this problem by gathering together entrepreneurs and investors in the monthly events and therefore melted the ice between this two-essential party (Feld, 2012).
During the collapse of the internet bubble, startup companies in Boulder suffered as it was everywhere and progress of the community paused. What is important here, because of their experience in entrepreneurship they survived without getting too much damage and by the cause of their background, new activities started to pop up in Boulder. By their knowledge and infrastructure on entrepreneurship, Boulder has come today with the highest volume of successful companies.
A few of the main distinctive characteristic of the Boulder, are its openness, broad and non- hierarchical ecosystem. Another specialty and maybe the most important one is Boulder’s rationale of sharing. Of course, as every startup community in the world, there is a competition between startup companies, but one in Boulder is not harmful. Every entrepreneur has realized the influence of the sense of “giving before you get” (Feld, 2012).
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______Above all other impressions, Boulder’s success story lies in their experience and culture of collaboration. Mark Solon from the Highway 12 Ventures, summarized the success of Boulder with these words: “I’ve never seen another community reach out and devote as much time, passion, and hard work at helping startups as in Boulder.” (Feld, 2012).
All in all, with all its historical aspects and current situation, Boulder City, Co., is a good example in order to develop entrepreneurship culture and startup companies for Istanbul.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______3 Istanbul
History and the culture of entrepreneurship and startup ecosystem of Turkey are in its infancy. After the establishment of Republic of Turkey in 1923, there was a rigid policy of state control over the economy until the 1950’s. Later on, the policy was commuted but still active till the 1970’s. Since the mid-1970’s entrepreneurship has been supported but as it is seen in Table 2, it is not enough.
There are many different factors behind that but one of the main reason for not having an entrepreneurship culture, in the past, people wanted to guarantee themselves with the life-long job opportunities in big and stable corporations because of the volatility and instability in markets, in consequence of limited capital. Dikran Masis, the famous businessman and an entrepreneur in Turkey, once indicated in an interview in 2013 that, entrepreneurs who want to achieve success in their field of operation should go to the United States of America because of easiness to reaching capital despite Turkey. He also stated that Turkey does not have a supportive environment which promotes entrepreneurs (Masis, 2013). As Mr. Masis indicated, the real problem in Turkey is the hardness of reaching the capital and lack of governmental support. Similarly, Ali Sabancı, founder and the chairman of the Pegasus Airlines, stated that the biggest problem of Turkey’s entrepreneurial ecosystem is reaching the capital. He said that banks do not want to give credits to entrepreneurs because the need for high collateral (Sabancı, 2012). As it is seen in the interviews with two prominent entrepreneurs in Turkey, Turkish startup ecosystem has two main problems as reaching the capital and lack of supportive elements.
According to EY G20 Entrepreneurship Barometer in 2013, Turkey standing at the 17. position for the accessibility to funding, standing in 15. for entrepreneurship culture, and 17. in education and training about entrepreneurship (Ernst & Young, 2013). On an average, Turkey ended up in the fourth quartile and this data show there is many ways to go.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______Table 2: Overall Ranking of the G20 Countries over Fostering Entrepreneurship
Quartile 1 Quartile 2 Quartile 3 Quartile 4 Australia EU Brazil Argentina Canada France China India South Korea Germany Mexico Indonesia United Kingdom Japan Russia Italy United States South Africa Saudi Arabia Turkey Source: The EY G20 Entrepreneurship Barometer 2013
Even though Turkey fall behind in the race, there is a tremendous potential because of its high amount of young population and awareness of innovation. Approximately 50% of the country using the internet and Turkey stand on 5. position for the largest internet audience in Europe. In addition to this, one can understand the Turkish people’s interest on the internet by looking at numbers of usage the internet based services. E-commerce, mobile banking applications, and QR code scanning are thriving amongst the population as the result of pertinence. That kind of society gives a divine chance to being an attraction center for entrepreneurship and tech startups.
Despite the fact that there is an awareness of technological developments when it comes to adopting trends the situation is different. In the area of stock markets, one can easily see the resistance against financial methods and trends. By 2016, approximately 13% of 1.000 biggest companies in Turkey, less than 500, are in the stock markets and publicly traded, and rest of the companies are privately held (Sancak, 2016). It shows us, people in Turkey do not trust the modern financial instruments and this situation cause obstruction in the development of the market.
Another indicator of the weakness of Turkish entrepreneurial ecosystem is the amount invested in research and development, and patent applications. According to data provided from OECD, while Turkey spends 1% of its GDP to R&D, United States spend 2.7%, and the average of OECD countries is 2.35% in 2014 (OECD, 2017). Likewise, in the patent applications filed under the PCT, Turkey fall behind again. In 2014, there were 921 patent applications in Turkey, while in the United States it was 53.318 and there were 172.237 in all OECD countries (OECD, 2017). Turkey’s share in total patent applications is 0,53%, and that ratio is incredibly low. Evaluating this two indicator as a whole show that Turkey needs to invest more in its R&D facilities to achieve a higher rate of patent applications and to develop its entrepreneurial ecosystem.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______Specifically, with the 14.800.000 people, Istanbul has the 18.5% of the population in Turkey. Its share in gross national product (GNP) is 27%, national tax collected 40%, national bank deposits 35%, and contribution to the state budget is approximately 40%. Also, with the 267.248 companies, 29,5% of total firms of Turkey incorporated in Istanbul. Additionally, 46% of national export and 40% of import was made from Istanbul over the years. In this respect, Istanbul has the feature of being the primary business, financial, and capital center of Turkey. Also, it has a significant potential due to its strategic and central position between Europe and Asia. By its intercontinental position, Istanbul ranked the eighth position in International Congress & Convention Association with 148 congresses in 2015. This data shows how important Istanbul is in the world for gathering people together from all over the world. Geographic specialty combines with the young population; there is a huge chance of being a successful and well-known startup hub in the future.
All the aspects of Istanbul make it ready to be the center of innovation and entrepreneurial activity. With the elimination of deficiencies and improving the ecosystem with lessons from developed hubs of startups as Boulder, Istanbul will be the next big player in the entrepreneurial race.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______4 Supportive Elements for Thriving Startup Ecosystem
4.1 Governments
Entrepreneurs with meager experience need subsidiaries to grow their businesses. Governmental support is one of the factors that affects the success of startup ecosystem. When creating an entrepreneurial ecosystem, one of the load-bearing supporting columns is policymakers. Without the support of the incentives and regulations aimed for startup success from the regulatory body, it would be troublesome to gather success for newly founded businesses. Governments can be helpful regarding the tax policies and zoning regulations as well as regulations about the company and contract laws. Besides, governments, both on the local and national level, can create incentive and funding programs with their extensive source of income.
The National Commission on Entrepreneurship (The Commission) realized that, by created incentives and investments focused on entrepreneurship, states could contribute huge impact on the decision to choose where entrepreneurs decide to establish their businesses and those regulations have an impact on newly founded businesses (Kayne, 1999). Before the explanations, one should understand that the mission of the governments here is not to create but support the entrepreneurial environment.
In this chapter, first, the need of differentiation of small and medium-sized enterprises and startups has been shown with the examples from U.S., and contributions of both state and local level administrations has been assessed with a comparison of U.S. and Turkey at the central government level, and Boulder and Istanbul at the local level.
4.1.1 Difference between SMEs and Startups
All over the world, if policymakers and regulators want to help to startup ecosystems, they need to understand the distinctive features of different types of business. One big mistake that every policymaker does is the failure to separate small businesses and innovation-based startups. They try to use the general entrepreneurship definition with all economic activities although some of them are different with each other.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______The main difference is the base of the logic in startup companies that they are innovation-driven enterprises. That is the reason, Schumpeter’s definition has been used in this paper. According to U.S. Small Business Administration (SBA) definition of small business is “independently owned and operated, organized for profit, and not dominant in its field.” Differently from the small businesses, profit is not the main goal for the startups at the starting point. They want to be disruptive in an existing market or creating a new product without thinking the gain profit at the first point. While owners of small businesses want to secure their corner in regards of the profit at a local point, founders of startups see their companies as a temporary step to change the world.
Also, there are some other vital differences between two of them as innovation as a necessary point, ownership or company structure, and the difference between growth rates (Aulet & Murray, 2013). Accordingly, their needs and business models are completely different as it is seen in Table 3 below;
Table 3: Differences of SME Entrepreneurship and Startups
SME Entrepreneurship Innovation Driven Entrepreneurship (Startups) Focus on addressing local and regional markets Focus on global markets. only. Innovation is not necessary to SME establishment The company is based on some sort of innovation and growth, nor is a competitive advantage. (tech, process, business model) and potential competitive advantage. “Non-tradable jobs”—jobs generally performed “Tradable jobs”—jobs that do not have to be locally, e.g. restaurants, dry cleaners, service performed locally. industry. Most often family businesses or businesses with More diverse ownership base including a wide very little external capital. array of external capital providers. The company typically grows at a linear rate. The company starts by losing money, but if When you put money into the company, the successful will have exponential growth. Requires system (revenue, cash flow, jobs, etc.) will investment. When you put money into the respond quickly in a positive manner. company, the revenue/cash flow/jobs numbers do not respond quickly
Source: (Aulet & Murray, 2013)
In the U.S., most of the states created some rationales to differentiate the SMEs and startups. While State of California and Nebraska realized that capital needs are different between these two types of enterprise, State of Massachusetts draws attention to the difference on the rate of enlargement and startup’s dependency on rapidly changing technologies. Also, the States of Michigan and New
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______Jersey stated that the startups have the higher growth potential than the SMEs. Missouri approached that issues regarding the startups market are broader than the SMEs as the startups aim to reach markets outside of the state, SMEs intend to carry on business at locally. Furthermore, State of South Dakota indicated that startups’ demand for resources of research and improvement is higher (Kayne, 1999). In addition to those, there are more precedents in all over the U.S., and it is easy to say that states that made the distinction and approach to startups as an exceptional section to enhancing the economy, will be successful to support startup ecosystem. Consequently, governments that couldn’t differentiate between two concepts will fail to support startup ecosystem efficiently and can quickly go out of the line because they will not be able to produce a solution without understanding the needs of a particular issue.
In Turkey, most of the time startup companies and SMEs are seen as the same thing. Although policies for startup companies are becoming increasingly popular, often regulated in the same direction as SMEs. There is a noteworthy example of misunderstanding in Turkey which is Small and Medium Industry Development Organization (KOSGEB) that is a foundation of Ministry of Science, Industry, and Technology. Despite the fact that they have specific programs aiming to economic development and employment issues through the entrepreneurship, one can see that they do not understand the difference between small business and startups at all but recent developments showed that some developments occurred. Likewise, massive amounts of people see them as a similar enterprise, but the fact is different. If Turkish authorities want to support the startup ecosystem adequately, they should conceive the new way to approach startups with the different point of view. The difference should be stated in the blueprints and roadmaps prepared by the administration offices to foster the startup's contribution to the economy.
4.1.2 Supports of Central Administration
Before analyzing the local efforts to supporting startup ecosystem, it is important to see how regulations at the federal level have an enormous impact. As long as U.S. and Turkey have different political systems, central administration in Turkey should understand its impact on supporting startup communities because there is no power other than the central administration for legislation. Indeed, local authorities constitute some incentives, but they will not be as powerful
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______as statutes enacted by the legislative authority. On the contrary, if federal government in U.S. ignore to pass acts to support local startup communities, governments of states can easily regulate the missing parts. Eventually, it is vital that Turkish authorities should understand their importance on supporting startup ecosystem.
First of all, and undoubtedly, tax policies have a critical impact on supporting and fostering entrepreneurship, and entrepreneur’s choices on where to establish their businesses. Interestingly, on the scale of corporate tax rates, it seems that Turkey has a real advantage against the U.S. with the national rate of 20% while in U.S. it is 35% (Deloitte, 2017). Also, the U.S. has the one of the highest corporate tax rate in the world with 38.9% while the worldwide average is 22.5% (Pomerleau & Potosky, 2016). Only looking at these rates could mislead the people about the effects of taxes on entrepreneurial development because it is in inverse proportion to tax rates in the United States. The reason for this situation is the ability to create incentives, tax credits, and funding programs for startups.
In 2011, Startup America was created to foster high-growth entrepreneurial activity. Throughout this initiative, several supportive incentive programs envisaged to support and develop startup companies. Key objectives of the initiative are, facilitating the access to financial resources, improving the education and mentorship on entrepreneurship, supporting the commercializing R&D discoveries which are supported by federal funds, and establishing cooperation between startups and big corporations.
For instance, the Small Business Lending Fund (SBLF) and the State Small Business Credit Initiative (SSBCI) created to execute this purpose. The aim of the SBLF is contributing capital to the banks and development loan funds to improve the situation of debt-based capital raising by creating cooperation between banks and startup companies. Normally, startup owners do not choose the bank financing because of the high collateral rates and demands of the banks, and also banks are not enthusiastic about lending to startup companies due to high-risk levels, but with this funding program by increased lending money, banks participation to the innovation-driven startup economy increased. Since the program started, small business lending is increased by $18.8 billion, and 95% of participating banks have increased their funding portfolio on startup companies (U.S. Department of the Treasury, 2017). Similarly, SSBCI created to support state programs in order to enhance lending to startup companies. With this program, companies that need financing but not
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______able to get loans to develop their business can find lending opportunities by given federal funds to states to promote private lending. Also, the program allows states to create their own support programs by using the federal fund such as collateral support programs (U.S. Department of the Treasury, 2017).
In addition to those, there are some other grant programs to support small businesses under the leadership of SBA. Despite the fact that, they named their grant programs as The Small Business Innovation Research (SBIR) and The Small Business Technology Transfer (STTR) when looking at the programs’ explanation, those programs aim to support startup companies. As stated above most distinctive characteristic of a startup company is innovation and mentioned programs based on innovation. SBIR program’s intent is to bring together the Federal Research/Research and Development and startups that have a future, by revealing their technological background through an award process and incentives to help them to make a profit from their innovative ideas. Program’s fundamental objectives are encouraging the tech innovation, achieve the Federal goals on R&D, support the participation of people who are economically disadvantaged in the society to the field of entrepreneurship and innovation, and foster the commercialization of innovative ideas. The structure of program based on three phases and the companies that are able to reach the second stage can achieve the award up to $1.000.000 (SBA, 2014).
Additionally, STTR grant program has the same goals with a different course of action. The program is more based on broadening the funding opportunities in the R&D sector. The main idea is enhancing the cooperation between startups and research centers, and by doing that increasing the process of commercialization of researches. Similar to SBIR program, STTR is structured on three phase process and companies that are able to reach the second phase can achieve the $1.000.000 (SBA, 2014).
Another Federal program that aims to foster innovation is Federal and State Technology (FAST) Partnership. The grant program is created to enhancing the competing power of startups in technology and help them to commercialize their ideas and preserve the U.S. in leading position in R&D in science and technology. Recently, the FAST program contributed $3.000.000 in total funding.
Above the incentives and grant programs, one of the most significant regulations in recent years is The Jump Start Our Business (JOBS) Act as known as Crowdfunding Act. The Act was adopted
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______with the support of both parties in the Congress despite the skepticism from the investors and regulators. Voices rose over the JOBS Act because it could put the unsophisticated investors at a dangerous point regarding the sale of the securities that includes distortion, over-pricing, over- promotion, and manipulation of the values in aftermarket transactions. Even though there were some argues against the Act, it could change the way startups financing and create a substitute to finding capital at the seed stage (Smith & Hong, 2016). It is a disruptive legislation move to challenge to problems of startups to reaching the capital. Details about crowdfunding will be explained in the later section. However, it should be stated that a law about alternative capital raising methods can make an enormous impact on a startup ecosystem even in a country that doesn’t have significant problems with accessing to capital because of its intense venture capital activities or other ways to reaching the capital. However, in a country that has some major issues about the money shortage, can make an enormous impact on the ecosystem. Recently, in Turkey, one of the significant incentives created by the law that is directly aim to startups and young entrepreneurs created by the amendments made in Income Tax Law in 2016, ensure that entrepreneurs who are under the age of 29 are exempted from income tax up to ₺75.000 of their profits during first three tax periods from incorporation year.
On the other hand, in line with the global efforts to support high-growth entrepreneurial activity, there are significant attempts in Turkey aiming to foster entrepreneurship. These efforts can be clearly seen in the 10th Development Plan prepared under the leadership of the Ministry of Development for the period of 2014-2018 (T.C. Kalkınma Bakanlığı, 2013). Under the section of entrepreneurship and SMEs, startup companies’ problems and policies to support them have been identified.
The role of the universities on entrepreneurship has been demonstrated in a later section, but to put forward the universities’ contribution the startup ecosystem, the effect of policymakers is non- negligible. Experimental entrepreneurship education should be supported by the officials by aware of institutions’ needs and respond them (Ewing Marion Kauffman Foundation, 2012). In the same way, first policy of the development plan to support entrepreneurship is developing the culture of entrepreneurship by education programs at all levels, improving the quality of recent programs, bring the luminaries forward, and rewarding the successful ventures (T.C. Kalkınma Bakanlığı, 2013). Also, with the cooperation of Scientific and Technological Research Council of Turkey (TÜBİTAK), Ministry of Science, Industry, and Technology, and Ministry of National Education
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______(MEB), it has been aimed to educate lecturers in the context of entrepreneurship. Since 2012, 2.000 lecturers have been educated and it has been targeted to reach 15.000 lecturers (KOSGEB, 2015).
Secondly, it has been decided to enhance all the supporter institutions’ capacity and cooperation with the private sector. Also, according to plan, the quality and quantity of incubators and accelerators will be increased to bring efficiency to this area. Additionally, one of the positive aspects of the development plan is to attract notice to problems of reaching the capital and decide to solve this issue with developing the venture capital business, investment capital, and capital market instruments (T.C. Kalkınma Bakanlığı, 2013). It should be stated that indicating the developing of the capital market instruments is a positive development that could lead the Turkish policymakers to regulate crowdfunding financing method.
Most important aspect of the development plan, along with the others, is the separation of the SMEs and startups and their needs and solutions are determined separately. By taking the first step of supporting the startup ecosystem successfully, Turkish authorities demonstrate their desire to catch their competitors on a global level.
In the same manner, in the action plan written by KOSGEB with the assistance of Ministry of Industry, the Entrepreneurship Strategy and Action Plan, it has been decided to establish a council of entrepreneurship to achieving the above-stated goals rapidly. Aims of the Council are developing and disseminating the culture of entrepreneurship and encouraging the establishment of high-tech startup companies, extinguishing the disincentives against entrepreneurship, and creating additional financing sources to remove the obstacles of capital raising (KOSGEB, 2015).
There are some incentive programs created by the KOSGEB that have been targeted startup companies. Technological Product Promotion and Marketing Support Program aims to strength startups to increase their competitive power on the global level. For doing that, they support startups on marketing and commercializing, and grant them up to ₺150.000 for their projects (KOSGEB, 2016). Another one aims succeed in startup ecosystem is R&D and Innovation Program that targeted to support innovation and tech-driven startup companies in their process of producing new products (KOSGEB, 2016). Also, Entrepreneurship Support Program grants up to ₺50.000 including free of charge education programs on entrepreneurship (KOSGEB, 2016).
As much as the KOSGEB, TÜBİTAK creates incentives programs to support startup ecosystem. One of them, Venture Capital Support Program, aims to support startups that have the potential of
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______producing innovative products by providing them seed/early-stage capital through the venture capital funds. With the program, it has been targeted to accelerate the establishment of new funds and encourage the venture capital fund managers to develop capital ecosystem (TÜBİTAK, 2013).
As it is seen, there are promising developments in Turkey to foster startup ecosystem and entrepreneurship. Creating a development plan, promoting the entrepreneurship education, tax incentives, separation of the SMEs and startup in the development plan, and grant programs will have the positive impact on enhancing entrepreneurship in Turkey. Despite the positive steps, amounts of grants quite a little by comparison with the United States. The first things to be done is increasing the amounts granted to startup companies and entrepreneurs, and introducing acts that have direct effects on startup ecosystem such as creating funding alternatives as it is done with the JOBS Act in the U.S.
4.1.3 Supports of Local Administration
As stated above, foresighted administrations have been started to support startups and entrepreneurial activities in their territories a long time ago. The former governor of Colorado, Bill Owens stated that governments should lessen the taxes on entrepreneurs and realized the importance of promoting incentives to get investments that contribute high-wage jobs (Kayne, 1999). Considering the need of capital for entrepreneurs, The Colorado Impact Fund has been created and aim to provide capital to Colorado’s startups, with the leadership of Governor John Hickenlooper.
Within the scope of tax policies, Colorado stands at the satisfying position in the overall assessment with different tax types. According to the evaluation of Tax Foundation with the consideration of corporate tax, individual income tax, sales tax, unemployment insurance tax, and property tax, Colorado stands at 16. position in all the 50 states in the United States. Colorado has one of the lowest corporate tax rates as 4.63% and has a single and low rate of income tax (Walczak, Drenkard, & Henchman, 2017). In addition to the tax rates, the tax burden is another indicator of whether the administrators are working effectively on tax policies. A study in 2012 indicated that, Colorado’s state-local tax burden as a percent of state income was 8.9%, with New York had the highest ratio as 12.7% and Alaska had the lowest ratio at 6.5%, which is lower than most of the
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______states and placed in 35. position in the assessment with the descending order (Tax Foundation, 2012).
As important as the tax policies, environment monitoring, quality of life standards and working places are factors that regulators can positively make changes, necessary to support entrepreneur ecosystem. In 2011, Office of Economic Development and International Trade, Colorado, published Colorado Blueprint 1.0, aimed to boost business in the state. The main purpose of publishing the work, reveal the vision for future development and examine the weaknesses and strengths of the state and give solutions to local administrations and entrepreneurs to implement specifically to their areas. By doing that, State of Colorado showed us how to support and raise entrepreneurship. Indicated tactics are some of the key factors that affect the success of startups excessively.
Some of the significant incentive programs for advancing the entrepreneurship generated by the government of Colorado;
- Business Loan Funds: Funding program aims to provide loans and loan guarantees to support and encourage the local ventures. - Colorado FIRST: Grant program aims to help companies that are expanding their operations with hiring new employees. - Strategic Fund Incentive: Funding program aims to support the establishment of new businesses, and expansion of existing companies. - Colorado Capital Access: Program aims to develop accessing to capital sources as banks and the other financial intuitions by encouraging them with the help of public resources. - Venture Capital Authority Funds: Funding program aims to ease the reach to capital in seed and early-stage capital investment. - Cash Collateral Support: Program that aims to support businesses that are struggling to get credits because of the collateral demands. - Certified Capital Companies Program: Venture capital program that supports startup and expanding companies with the state-wide capital pool.
In addition to those incentive and grant programs, one of the important and specific issues that can foster the innovation and startup activity is removing the non-compete clauses from the labor
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______contracts. Where non-compete agreements are not enforceable, startup activity is higher than the others because of those agreements hinder the ability of the employees to join a competitor or establish a startup company which is in the same market, and lower the economic performance and consequently destroy the culture of cooperation and contribute (Hyde, 2011). The principal argument against removing the non-compete agreement is the problem of employers’ desire to train employees and consequently decrease of skilled employees, but one should keep in mind that changing the job towards the different industries could cause more problem about that issue. If someone who has creative and innovative ideas could not change his/her job within the same industry, would want to change their living area and want to find employment in the same market but in the different place. It can be easily seen that, non-compete agreements causing more damage in the context of brain drain (Marx & Fleming, 2012). One of the two states that do not enforce non-compete agreements is Colorado. Consequently, Colorado has the highest startup density in the United States.
Although efforts on the federal and state level are necessary to support startup environment, there is something different in the Boulder with its local efforts to encourage entrepreneurship. Obviously, its success is not only because of the endeavor of local government but as a supportive element, Boulder’s administrators have been doing an exceptional job until now, and they have targeted to maintain their success. For instance, Innovation Blueprint 3.0 has been issued in 2013 by the leadership of The Boulder Chamber. The aim of the master plan is to improve and to progress further from Boulder’s leadership position, and nobody can ignore its influence over the ecosystem to preserve creativity and entrepreneurship. It shows to every startup community in the world, how important factor is that establishing a road plan by the administration to support innovation. Providing a scheme can ease to surpass entry barriers for startups and foster the creative thinking when encountering a problem. Contributing such a model is something to do for every administration which is aiming to improve its startup ecosystem (Boulder Chamber, 2013).
Additionally, there are some incentive programs created by Boulder City executives that can guide the executives in Istanbul to support their startup communities. One of them, Flexible Rebate Program, is aiming to keep Boulder’s high impact primary businesses if they demonstrate compliance with sustainability guidelines and have paid taxes. Once they are compatible, city manager of Boulder approves the incentive package. This program is not about the startups directly, but it helps to support the environment by keeping the established, high-impact business
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______in Boulder that is an essential building block of a startup ecosystem for leading to startup companies.
Another one is Boulder Microloan Program that contributes loans to small businesses and non- profit organizations in Boulder with a partnership of local banks and the Colorado Enterprise Fund up to $50,000 for businesses which have less than $2 million annual gross revenue.
An interesting one is about the standard of living, The Parks, and Recreation Group Discount Program. It offers resident pricing on annual and multi-use passes at City of Boulder Recreation Centers, the Boulder Reservoir, and outdoor pools to all employees within the City of Boulder. Employees that can provide valid proof of employment can benefit from the resident discount. Although one could think that is redundant, it has an incredible effect on people’s choice of where they should live or establish a business. The fact that founders or employees of startup companies are different from the regular employees that stuck in the large offices all day. Especially in Boulder, employees enjoy the outer world during the working hours, and it brings the creativity and innovation, and they care about the opportunities like this.
On the other hand, activity, to support startups in Istanbul, is not vibrant as it is in Colorado and Boulder. However, there are activities in order to foster the entrepreneurial ecosystem.
The main step taken in the recent years to improve the startup ecosystem in Istanbul is the collaboration of Istanbul Chamber of Industry (ISO) and Istanbul Technical University (ITU) (Istanbul Chamber of Industry, 2017). With the created “Seed Entrepreneurship Ecosystem”, it has been aimed that getting together the entrepreneurs, big corporations, investors, and professionals. At the end of the program, Chamber of Industry gives the most successful company a monetary reward worth ₺200.000. Additionally, ISO gives non-refundable monetary support including the education, advisory, and mentorship for one year worth ₺300.000 to all the entrepreneurs that reached the final stage within in the program.
Another important initiative, Istanbul Development Agency (İSTKA) was created with the participation of the Governor of the Istanbul, the Mayor of the Metropolitan Municipality, the President of the Provincial Council, the President of the Chamber of Industry, and the President of the Chamber of Commerce to establish cooperation to use resources in order to creating value for Istanbul. Most important activities of the initiative are giving interest-free loans and payment of the interests of received loans from banks. Also, in the action plan, they determined the problems
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______of the entrepreneurial ecosystem and suggested solutions for them. Creating a map of entrepreneurial activity, organizing educational and mentorship events for entrepreneurs, facilitating simpler infrastructure for entrepreneurs to apply for incentives and credits, the establishment of crowdfunding model in the Istanbul Stock Exchange and creating cooperation with Capital Markets Board are some of the most important points of the road map.
Specifically, İSTKA realized that one of the most significant problems against startup companies to gain success is reaching the capital at the early stage and see the crowdfunding as a solution. They put the creating infrastructure and legal arrangements for establishing crowdfunding system in the high importance.
In conclusion, it is seen that incentives and grant programs created by the local efforts are one of the reasons of Boulder’s and Colorado’s first place in the startup development. Despite the supports of central administration and institutions in Turkey, authorities in Istanbul do not seem to be willing place at the priority to foster the establishment of innovation-driven startup companies and usually do not show extra efforts to create additional incentives and attached to programs that created by the central administration to support entrepreneurship and startup companies. Local administrators should create comprehensive plans with the participation of all players of startup ecosystem as it is done in Boulder and Colorado. Additionally, non-enforcement of the non- compete agreements could impact the Turkish startup community and specifically Istanbul positively as long as it gives the employees the freedom of changing their jobs or creating their ventures and spread their innovative ideas. Thus their talent and ideas would not be stuck in the same place because of the fear of unemployment. Since Municipality of Istanbul does not have the authority to regulate this issue, at least they can try to put pressure on central administration with the example of Colorado. By that way, regulators can try to lower the validity period of non- compete agreements at the starting point at least.
4.2 Universities
It is unmistakably true that universities are one of the centerpieces for the economic growth and startup activities. With their capability of bringing money and talent all over the country, employing lots of researchers, and vast working spaces, universities are highly effective to support
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______startup communities (Ewing Marion Kauffman Foundation, 2012). Universities and other educational institutions contribute to the community with their research labs, technology transfer offices, open work areas, fund of knowledge of their professors, and programs that encourage entrepreneurship. Accordingly, universities and related institutions are crucial to improving states’ intellectual framework by collaboration between private sector and faculties, funds, and investments. They are dominant to leverage an economy that relies on innovation and technology (Kayne, 1999).
If it is wanted to contribute effectively to startup communities, it is needed to change the classical educational model with rising entrepreneurship trend in higher education and tailor to the needs of the new world (Ewing Marion Kauffman Foundation, 2012). Such programs include much more experiential learning and preparing entrepreneurs to real life. Specifically, in the recent years, significant movements occurred in the University of Colorado, Boulder (CU Boulder) regarding entrepreneurship, notably in the areas of computer science and engineering. Brad Feld stated that about this activity: “This is encouraging to me as I believe that a strong culture of entrepreneurship at “your local university” is important to the long-term health of any entrepreneurial ecosystem.” (Feld, Help Encourage Entrepreneurship At CU Boulder With A Sponsorship, 2009).
4.2.1 Law Faculties and Clinics
Evidently, startups need solid legal advice to support their activities but beware because of the related costs. The convergence of the law faculties and entrepreneurs with law clinics means that the entrepreneurs are not deprived of the legal support, and it leads to more robust culture together with the law.
With the exemplary CU Boulder, it is seen that one of the important action universities can take for supporting entrepreneurship is, creating law clinics that assist startups on the legal issues and bring together with entrepreneurs and law students. When looking at the Boulder, it has been easily seen in the CU Boulder, with the leadership of Dean of the CU Law Phil Weiser and Brad Bernthal, how effectively they handle it. They do not create just a law clinic, but they put law faculty in the middle of the entrepreneurial activity.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______Silicon Flatirons Center, set up in the law faculty in the CU Boulder, is a center for law, technology, and entrepreneurship. Their main missions are forming an environment to discuss policy issues regarding new technologies, promote entrepreneurship in the technology community, and developing and placing students in technology and entrepreneurial law. National conferences on entrepreneurship and related organizations, and law clinics on entrepreneurship that providing free legal advice to Boulder-based startups have been hosted by CU Law and Silicon Flatirons (Feld, 2012). Also, CU New Venture Challenge, a cross-campus entrepreneurship championship which gives a chance to CU Boulder society to learn to establish a business while learning about the process, is initiated in CU Law. This engagement of law and entrepreneurship has a high impact both on the entrepreneurship culture and understanding the role of the lawyers in the future.
When we look at the universities in Istanbul, there are no such events hosted by law faculties nor legal clinics which supporting startup companies. There is only one legal clinic in the Istanbul in Bilgi University, but they are dealing with the private and criminal law mostly. Although it is slightly late to catch on the global entrepreneurship education level, some universities in Istanbul have started to open programs. Leading private universities are a role model for the publicly run schools, and together they could make a positive impact on young and innovative minds.
To support innovative minds that might lead the future successful startup companies, universities in Istanbul should place their entrepreneurship education in the center of all other areas, specifically the law and engineering. Collaboration between different disciplines could impact the startup community positively by widening the point of views with various aspects. With the example of CU Law, law faculties should host entrepreneurial events alongside the establishment of law clinics that help entrepreneurs with their main problems.
4.2.2 Technology Transfer Offices
Technology Transfer Offices (TTOs) in universities has enormous importance on startup ecosystem because of their role as a bridge between the basic research and applied research towards technology development and product development.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______In the CU Boulder, there has been 141 startups incorporated in 20 years. However, rather than the number of incorporations, it is important to see how many of them still operating and how much capital raised. 80% of startups from the University of Colorado are still operating, and 96 of them are in the Colorado. While 8 of the 113 companies that have been survived are gone public, 19 of them have been acquired by public companies. In the fiscal year of 2013-2014, these startups raised over $70M in follow-on funding and the total; they raised over $6.2B in follow-on funding (University of Colorado Technology Transfer Office, 2013-2014). Those numbers show us that how important is the TTOs in a startup community.
So-called “valley of death” is the hardest thing to reach for researchers or innovators and Turkey faced this problem for many years. Despite the quality, research people struggling to transform their ideas into the real mechanism. Notwithstanding, the fact that almost every university have TTOs in Istanbul, generated work is significantly low by comparison with Boulder. Since there are no collective data about all of the TTOs placed in Istanbul, looking at the prominent ones can give the perspective against CU Boulder. One of them, Istanbul Şehir University, established its TTO officially in 2012 and until 2015, there have been 70 projects implemented and reached ₺20.000.000 worth portfolio. Another one, Özyeğin University TTO, have been increased its cumulative research funds in 2015 to ₺51.258.904 and from its founding year 2009, 48 patent applications registered both at national and international level. Also, another successful TTO in Istanbul Technical University have 74 patent applications since its establishment, and have executed 250 industry-university cooperation projects.
In order to achieve success in the context of turning researches into real mechanisms, the problem of intellectual property in TTOs should be solved. Although there is no precise data about spin-off companies and funding amounts of them in Istanbul, it is clear that innovators are struggling about to establish their businesses. To fix that problem, officials should constitute performing offices in universities to help the entrepreneurs about licensing and patent issues. It should be encouraged to constitute standardized and simplified license agreements for spin-off companies that will depart from universities. By doing that pricey and tedious negotiations between licensees, innovators and TTO staff on a license could be eliminated (Litan & Cook-Deegan, 2011).
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______4.3 Accelerators
During the recent years, after the increasing interest tends towards to startup companies, some several players in the startup environment have come insight. One of them, accelerators, have high importance to enlarge the startup ecosystem and achieve success in companies. Despite most of the people see them as same as incubators, and even there are some similarities between them, their role is comprehensively different in the way that they contribute to the startup community.
Before expressing the situation in Boulder and Istanbul, the definition of accelerators is needed to get a better understanding. Definition demonstrated by Cohen & Hochberg is the most accurate one up to now; “A fixed-term, cohort-based program, including mentorship and educational components, that culminates in a public pitch event or demo-day.” (Cohen & Hochberg, 2014). Simply and in a similar way, accelerator programs help companies by developing their company structure, clarifying their vision on company or product, and supporting to create certain strategies for later stages (Fenwick & Vermeulen, 2016).
On the other hand, incubators help the new ventures which are in a weak position before they get into the market and being self-sufficient. What they are doing is isolating the startup company and protecting it until they are ready (Cohen, 2013). In contrast with accelerators’ short-termism and density, incubators do not have a particular period for preparing the companies.
Another critical difference of accelerators that, they have batches in their programs. That means there are many ventures in the same program, and that cause the cooperation and fostering between each other (Cohen, 2013).
Lastly, the reason of entrepreneurs most likely to choose accelerator programs is their education and mentorship style. Usually, education in incubator programs is optional and in return for payment. Contrary to this, accelerator programs include the intensive educational seminars and also chance given to get private mentorship (Cohen, 2013). Individual mentorship in accelerator programs helps entrepreneurs to get all aspects of their market and knowledge about critical steps they will face in the future. The difference can be seen clearly in the Table 4.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______Table 4: Key Differences Between Accelerators and Incubators
Incubators Accelerators Duration 1 to 5 years 3 months Cohorts No Yes Business Model Rent; non-profit Investment, can also be non- profit Selection Non-competitive Competitive, cyclical Venture Stage Early or late Early Education Ad hoc, human resources, Seminars legal, etc. Mentorship Minimal, tactical Intense, by self and others Venture Location On-site On-site Source: What Do Accelerators Do? Insights from Incubators and Angels, Susan Cohen (2013)
With the growing numbers of accelerators, now they are more active in the startup ecosystem in all over the world. One of the most successful examples is TechStars accelerator program, founded in Boulder by David Cohen and Brad Feld, in 2006, and presently, operate in 11 cities. TechStars success and effect on startup community in Boulder can be apprehensible when paying attention to David Cohen’s words about starting point and objective of TechStars; “In 2006, Boulder had some interesting things going on, but being a professional investor would almost by definition mean getting on airplanes regularly. I wanted to change that by importing talented founders, organizing and leveraging the community, and helping new startups here in very meaningful way.” (Feld, Startup Communities: Building an Entrepreneurial Ecosystem in Your City, 2012). As it is seen he aimed to foster the startup community by his model as an accelerator and it can be easily stated that he achieved huge success over the years. Also, in his words, it is distinguishable how he was enthusiastic about developing his startup community when establishing this model; “…TechStars started because I wanted to find better way to make angel investments, the equally important reason was that I wanted to improve the startup community in Boulder.” (Feld, 2012) Moral of this words is, people who aimed to establish accelerator in their ecosystem should have some passion for contributing and not just copying and pasting some successful models for gaining some benefits as equity.
Every player in the startup ecosystem who wants to help the community should understand the model of TechStars. As stated above best example that could assessable is TechStars since it is from Boulder and has proven success. Since it is founded, 1002 companies graduated and 90%
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______percent of them active or acquired. Besides, companies raised $3.3B in total funding and have $8.1B market cap (Techstars, 2017). These numbers show us the model of TechStars success on education. They chose the best startups at the beginning by focusing only on the very best people. By that way, they do not erogate their energy to startups that do not have future. For assessing companies truthfully, they pick the very best team as mentors as they do on startup companies (Feld, 2012).
Behind the success of TechStars, there are certain factors. By its nature, TechStars has a mentor- driven structure. They invite successful entrepreneurs to teach from their experience to disciple entrepreneurs. Learning from the ones that achieved success in startups is more efficient way rather than learning from who did not experience any entrepreneurial activity or just know entrepreneurship from studies. To encourage the successful entrepreneurs to lead others in the accelerator program, the idea of “give before you get” should be injected to the startup community. By doing that in an accelerator program could make it entity that based on cooperation and that is the heart of TechStars from the beginning.
The second thing is, in the beginning, TechStars was target and mechanized by the local community. Consequently, investors and mentors are both locals from the Boulder. Because of every startup community have different needs in the world, that is important to understand localization. One big mistake in Istanbul that accelerators do is inviting non-local people to invest and be pathfinder to startups incorporated in Istanbul. If accelerators in Istanbul want to achieve success with their programs, they should keep local as TechStars did.
Lastly and maybe the most important one is creating a long-term view for accelerator program. It is relevant to all members of startup community who want to contribute and prevent events from becoming theaters. Rather than aiming to short-run success, by committing to local startup environment, accelerators can achieve the success. The feeling of engagement to the local environment is key to success for an accelerator program. David Cohen’s idealism contains the desire to have an impact on startup ecosystem and engagement to Boulder. Accelerators established by locals have higher possibility to success than the stranger’s because their unfamiliarity to the community and have no objective to add value to the ecosystem.
When we look at the startup ecosystem in Istanbul, 18 entities defined as an accelerator by “startupswatch.com”. Hereafter, accelerator companies in Istanbul have examined, and it is
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______concluded that whether they are sufficient or the answer to the description of accelerators worldwide. Because of their importance in the startup ecosystem, it is critical to assess them to achieve healthier and thriving ecosystem in Istanbul.
Table 5: Accelerators in Istanbul by January 2017
Name of Accelerator Founded Year Game Garage Part of the Startupbootcamp Inovent 2006 e-Tohum 2008 Founder Institute 2009 Startupbootcamp Istanbul 2010 İTÜ Çekirdek 2012 Gemim 2013 SuCool 2013 TEB Girişim Evi 2013 Türk Telekom Pilot 2013 İTÜ Gate 2014 InnoCampus 2015 Girişim Fabrikası 2015 KWORKS 2015 Garanti Partners 2016 Hackquarters 2016 Teknoloji Türkiye 2016 Teknogirişim Okulu H.P. 2016 Source: “startups.watch”
As seen in Table 2, most of the accelerators in Istanbul are newly founded. 22% of 18 accelerators founded in 2016 and 67% is not even five years old. It can be said that Istanbul’s ecosystem needs more time to settle.
Even some of the organizations mentioned in the table are described as an accelerator by “startups.watch”, they have a confusion about what they are as noted above. For instance, Gemim, TEB Girişim, and Teknoloji Türkiye have real issues to define themselves as an incubator or accelerator. Also, there is one entity that defined as an accelerator by “startups.watch”, iNEO, is a TTO rather than accelerator and that is why it was deleted from the list. It is important to understand the difference between incubators and accelerators to get most from both. People who want to help startup companies in Turkey as an accelerator, needs to understand this difference to make an impact on success.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______On the other hand, accelerator named İTÜ Gate aims to support innovative ideas that showed up in Istanbul and prepare them for the U.S. market which is a very questionable and problematic aspect for Istanbul’s startup ecosystem. Moreover, they do not only prepare them but also help them to take the company and establish in the U.S. This situation, which is entirely contrary to the idea behind TechStars as a role model, has negative aspects against Istanbul’s startup ecosystem. Even if they adhere to the accelerator definition, the mission they undertake has a harmful effect on the ecosystem.
Furthermore, there are two accelerator programs in Istanbul which are the part of international programs as Startupbootcamp and Founder Institute. Even if they do not come from the heart of the Istanbul and lack of necessity to being local, the presence of such organizations in a startup ecosystem may be regarded as positive progress. Although outsourced, they are ultimately successful in collecting the entrepreneurial components of Istanbul together.
E-Tohum is an accelerator and angel investment platform where investors can choose the companies and invest, and be partners with them. Their team and mentors have high quality, and it can be said that they have been doing an excellent job regarding to support the ecosystem. Even though their system has been successfully established, their narrow point of view will lead them to substantial problems. By mean of a narrow perspective, they do not have an idealistic view about the Istanbul’s startup ecosystem, and they have a complex of inferiority against Silicon Valley. It can be understood by looking at the 7. question at FAQ section on their website. It is stated there when they choose the projects they are not looking for utterly innovative, striking and wow-to-do projects that will make them travel on time or find cures for cancers. Also, they said to people that, again this year they will not be able to see “producing oxygen in the moon” type of projects. Moreover, they stated that they believe, in the coming years, more companies in Istanbul will be able to sell technology to all over the world, but it is too early for that now. After that, they link the reason for there is no ground-breaking ideas to Istanbul being in early stage and said that it might be wrong to compare the projects in Istanbul and Silicon Valley for today (e-Tohum, 2017). Although, they are right about stating that the ecosystem in Istanbul is at an early stage and it will expand over the next years, it is irrelevant to compare Silicon Valley and Istanbul based on creative ideas. Stating the people cannot see groundbreaking ideas in this program, creates a situation that undermines the imagination of entrepreneurs and reduces the odds of world-changing ideas that would come up from Istanbul.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______Among all, there are two entities, KWORKS and TT-Pilot, completely meet the definition of the accelerator by their programs. In contrast with E-Tohum, KWORKS aims to create technology initiatives that challenge the world. With their high profiled executive team and mentors, they are doing a prodigious job in the same direction as TechStars. Similarly, TT-Pilot completely understands accelerators’ role in the startup ecosystem and establish their program with compatibility to the well-accepted definition of the accelerator.
In conclusion, accelerators and their programs in Istanbul are promising, even though they are premature by comparison with developed startup ecosystems. As all over the world, there is a confusing on accelerators, and it is important to understand this to get the highest efficiency from each element in the startup ecosystem. What needs to be done is the characterization of entities and harmonization of programs with accepted and fruitful programs. Without the homogeneity on specific instruments in the ecosystem, it is impossible to gain success. For doing that TechStars, Boulder is a good role model for the accelerators in Istanbul.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______5 Board as a Game Changer
One of the biggest problems in Turkish startup ecosystem is entrepreneurs’ line of a vision to establish a board. Most of the entrepreneurs do not understand the effects of the board widely, but a team that contains right people for the companies’ vision could make a huge impact and take the company to another level. It has been said that good structured corporate governance increases the better chance to have improved overall dynamism and qualified decision-making process in a company (Vermeulen, 2017). In this chapter importance of the boards is explained and the situation of the startup companies in Boulder and Istanbul are assessed.
The value of having a board that contains outsiders/independent directors has been realized widely. For instance, having a board of directors that have a greater number of independent directors than the insiders have been made mandatory for the listed companies by the New York Stock Exchange and NASD (Harris & Raviv, 2008). Similarly, Securities and Exchange Commission changed the rule about the percentage of independent directors for the mutual fund board and made it %75. Also, made mandatory to have an independent chairman (Harris & Raviv, 2008). Even the amendments in the regulations made for the listed companies and not directly for startup companies; it shows that how important to have a board of directors composed of independent directors.
Clint Korver, the partner of Ulu Ventures, once stated that: “The most common mistake startups make is not having a board at all.” Also, “Founders who are overconfident or choose to avoid conflict often miss an opportunity to bring in fresh perspective and structure these decisions from appropriate individuals” says Clint. “The other common mistake founders make is to populate the board with friends and family—you need to think carefully if they can address challenges or make decisions in the interest of the startup. Finally, often only founders populate the startups board — this often leads to confusion with respect to decision making and authority.” (Feld & Ramsinghani, 2014). Words of Korver are the exact problems in all over the world, especially in the Turkey.
Consequences of the well-established board have been proven with the empirical studies, and those are too indisputable to be skeptical about the necessity of the board. The fact that founders of the startup company should not be expected to master of all issues of the business, indeed, they need some other experts inside in the company and this is where board gets on the stage. Obviously creating a board is an onerous job, but once created with proper planning it has many benefits related
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______to critical decisions and strong corporate governance. Well-chosen board members can contribute an enormous impact on the company’s success, and establishment of a diverse board can be a real game changer. Diversity in the board does not mean that the members of the board should be from the entirely different line of businesses but means that they should have different perspectives on how to do business, sets of skills and knowledge, practices (Dutia, 2014).
After the necessity of the boards in startup companies, there is an important point to note which is determining the roles and responsibilities. In companies where roles and responsibilities have not drawn strictly, board causes harm rather than contribution. The main point of the boards in startup companies is to bring a different point of views but if the people forget their roles it can cause confusion in company and that is not good for the growth and long-term plans. Defined roles in boards can prevent the mess in the business choices. In addition to that, designating members’ role in the board will give a chance to solving problems easily and establish the clarity to find what is the problem.
The most compelling situation that entrepreneurs faced is creating board when they are reaching the capital. Common practice and belief are, when investors provide capital for a startup, they buy their places in the board of directors and because of that choosing the right investor become more important when it comes to board structure (Feld & Ramsinghani, 2014). It is highly important that having people with capital that is harmonizing with the companies’ dreams. A high number of founders avoid the outcomes of having a non-suitable member of the board when it comes to reaching the capital. Founders of startups should understand that the important thing at the beginning is choosing the right people rather than massive amounts of money. In the starting point, startup companies can easily be ruined because of the wrong choices of members who is holding the capital. To build a company that has the dedication to create something groundbreaking, entrepreneurs should choose the member of the board precisely. Since investors looking for profits, there is an excellent chance of seeing conflicts in the board, and it is hard to find the right person for the company. The approach of the startups’ board of directors should be the guidance to exceed the threshold and keep running the company rather than aiming short term profits. Founders of the startups should realize that adding the person who can contribute strategic value and has the same passion for the future is more beneficial than capital.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______Inevitably, if a startup company raised capital from an investor, investors want to have control over the company and give critical decisions like appointing board members. Whether they have the same passion with the founders of the company or not, this could cause hostility in the company. To prevent that kind of a conflict, parties should designate the rights and duties with shareholder rights agreement extensively. Also, another solution for preventing the investors making decisions over the companies’ objectives unfavorably, is appointing an outside director to the company (Feld & Ramsinghani, 2014). That person could be the other CEO who understands the needs of a startup company and knows how to handle the problems between two parties with an objective perspective. If one does not determine the rights and responsibilities of members, can easily lost control over his company.
One more important point when building a board is control issues. Even though, some of the most successful companies in the world have the boards that running by the same person who is the founder and CEO, those are only exceptions. The most obvious examples of those companies are Facebook and Alibaba. Although, they are two of the most successful companies in the world, having a separate chairman of the board of directors is widely recommended.
In today’s world, it is important to create a board that their members can express different opinions without constraint. It is not so far to remember the failure of the hierarchical corporate structure as Volkswagen’s inability to meet emission standards or Samsung’s failure of manufacturing healthy batteries. All the missteps are because of the centralized order and the fear of giving the bad news (Vermeulen, 2017). To solve this problem, startup companies should create an environment that everybody freely expresses their opinions.
In the present, people want to see companies that have a flat culture rather than the hierarchy and startup companies can start to do that from separating the founder or CEO and the chairman of the board. Moreover, in the situation that CEO or the founder of the company is the chairman, there is a great probability to abandon different strategic ideas that would come from the board meeting. The absence of the freedom of board members could cause groundless optimistic and myopic view of the position of the company. The main duty of the board is to help the CEO or founder to gain a wider perspective on the issues apart from internal operations. For fulfilling this duty seat of the chairman should be the different person than CEO or founder because the need for the freedom and board members should not feel any pressure to give bad news. If companies chose to chairman
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______and CEO as the same person as founder, there is no reason to build a board. To prevent conflicts would happen in the next rounds or the later stages, the board of the company should work collaboratively. Basic comprehension must be the accomplishment of the companies’ long-term plans and interests as the Union Square Ventures partner Fred Wilson stated, “Boards should not be controlled by the founder, the CEO, or the largest shareholder. For a board to do its job, it must represent all stakeholders’ interests, not just one stakeholder’s interest.” (Feld & Ramsinghani, 2014).
Another thing that effects the functionality of the board of directors thereby the success of the company is the size of the board. Apart from the agency problems, there is a direct connection between the size of the board and firm profitability. There are two different arguments in the doctrine about the relation between board size and success. Some authors believe that the larger boards can easily handle the workload and in the context of diversity of perspectives larger boards are more functional than the smaller ones. Some argue against that if the members of the board of directors are too much, the quality and the effectiveness of the board shall decrease, and it will be hard to the participation of all the members. On the other hand, in the smaller boards, members of the board easily get to know each other and create a cooperation to work on a particular aim due to communication and involvement easier. Instead, in contrast with bigger boards, smaller ones may be overloaded with the intense workload, and some point of views may not be represented in the daily turmoil (Ammari, Kadria, & Ellouze, 2014). Specifically, in the startup companies, it is believed that creating a close and intimate relationship in the company is important. By keeping the board smaller and enlarging related to firm’s lifecycle is more rational. Another point for keeping the board smaller is that for maintaining the board under control, it should not contain more members. If a startup company keep getting members to its board without having any future prospect, it will be hard to handle.
Consequently, the importance of the board of directors in the companies cannot be neglected but especially in new ventures board is the vital part the healthy way of doing business. Due to the turmoil of the daily operations, founders of the companies can be distracted easily. For keeping the company in the right direction, founders may need the supporters from a broad range of the business areas related to their businesses to help them. To be able to this, it is necessary for the founders to include independent third persons in the process rather than family, friends or themselves while establishing the board of directors. Another important point when establishing a board is not only
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______whether the independent/outsider directors to be selected are successful or not, but also to ensure they match with the company’s profile and goals even if they are the people with capital. In that context, entrepreneurs should be aware of choosing the best people is not always the straight thing to do but choosing the right person is. It does not mean the best business people in some specific area is well suited to the companies’ goals. Also, entrepreneurs need to realize that although appointing independent board members is an important thing to do, without the separation of the chair and founder or CEO; they will not be able to create a flat culture in the company. Hence, without having freedom in the board of directors by establishing a hierarchical order, it may be difficult to achieve the intended success with the presence of the board. Lastly, entrepreneurs should pay attention to the fact that the number of board the board members should not be increased too much due to the reasons of functionality and controllability.
After the explanation of how should be the board of startup companies, the situation of the companies in Boulder and Istanbul are shown below. The effect of having a board, and separation of the founder or CEO and chairman on the success has been tried to be shown in directly proportional to how much capital they have raised. Before that, one should know the basics of establishing the board of directors by Turkish Commercial Code (TCC) on corporate structure.
5.1 Board of Directors in Turkish Commercial Code
By the amendments were made in 2012 on TCC, establishing a joint stock company becomes easier by repealing the minimum number of shareholders, reducing the minimum amount of initial capital, lowering the liabilities of partners. Due to advantages of joint stock companies, %29,3 of the seed/early stage startup companies that are tracked by Pitchbook established between the years of 2014-2017 in Istanbul, have been incorporated as a joint stock company.
According to TCC, all joint stock companies should have the general assembly and the board of directors. Although, all of the startup companies, which established as joint stock company, have a board of directors on the paper, it is important to see who is the chairman of the board or does they separate the chairman of the board and founders from the understanding that they are congruent to gain success in the future, according to above-explained points on how to create a board. It is important because after the amendments made, it is possible that the only one person
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______is enough to form a board of directors and at the same time this member can be the legal entity or the same person as the founder of the company. Under the circumstances, founder of the startup company can be the only member of the board of directors which is against the purpose of the existence of the board of directors. The aim of this amendment is to protect small, family businesses, and companies of foundations and similar entities from the outsiders’ existence on the board of directors and consolidate the management in one hand which is against diversity. Even the amendments arranged for the family businesses; it is clear that there is no obstacle against the usage of this system in all joint stock companies and this situation leading up to more hierarchical entities which are against the modern approach of the board of directors and flat company culture.
Instead, in the previous regulation, there was a requirement for being a board member that necessitate the members should be the shareholders of the company, by the amendments, this necessity nullified. That was a positive step for creating a diverse and independent board of directors. By doing that members of the board of directors can be chosen outside of the company regarding their professionality because there is no dependence on only the current shareholders of the company.
Another mostly preferred company type in Istanbul is limited liability companies. In the context of establishing the board of directors, there is no obligation to create a board of directors in that type. According to TCC, limited liability companies may establish a board of managers. Creating a board is a choice of founders of the company but appointing a manager is mandatory. Also, founder of the company can be the only manager of the company. Although the name of the board is different, it is organized in the same scope as the board of directors in the joint stock companies. Because of that, there is no mistake that calling the board of managers as the board of directors. All of the characteristics that board of directors should have is the same for the board of managers.
In addition to the joint stock and the limited liability companies, another mostly preferred type in the startup ecosystem is general partnership due to the fact that there is no requirement of written form or registration in trade registry and any incorporation fees. It is the simplest way to doing business; the only necessity of establishing a general partnership is having two or more partners for executing the same purpose. According to Turkish Code of Obligations (TCO), unless otherwise agreed in the articles of incorporation, which is not mandatory, management of the company belongs to partners equally. Furthermore, management of the partnership can be
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______transferred from the partners to third parties. By that way, the legislator regulates and allows the transfer of the management in the general partnership, thus, opened the way for the establishment of the board of directors.
As it is seen, although it is necessary to form a board of directors in the joint stock companies, the founders can easily appoint themselves as the chairman of the board and by that way they can overcome the legal obligation. Hence, they will be deprived of all the privileges that the board of directors brings. On the other hand, because there is no obligation to establish a board of directors in limited liability companies and general partnerships, founders do not prefer to form one. Regardless of the company type, all entrepreneurs in Turkey should understand the importance of having a board of directors that contains individuals who are independent and where opinions can freely have expressed has the prime value on the startups to accomplish their goals and achieve the success. What needs to be done is to establish a board of directors without looking at the costs that the company has to bear at the beginning and to move forward with solid steps towards the targeted success.
5.2 Assessment of the Effect of Board Structure on Capital Raising
The research about the board structure is based on the data gathered from CrunchBase and website of the Turkish Trade Registry, and the capital structure of firms from Pitchbook. A high percentage of companies’ data about their board of directors have been reached, but unfortunately, some have not. Additionally, companies that are not tracked by the Pitchbook are not included for the assessment. Also, it should be known that all the companies that have been assessed are in the seed/early-stage startup companies and stated raised amount below indicated the seed/early stage capital.
First of all, from 2014 to February 2017, 91 seed/early stage startup companies that tracked by Pitchbook have incorporated and still doing business in Boulder. It has not been able to find out whether 25 startup companies have a board of directors and/or advisory board. 35 of the companies have no board of directors or advisory board. On the other hand, 31 of them have either have a board of directors and/or advisory board, specifically, 13 of them only have the board of directors
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______and 14 of them have only the advisory board. Only 4 of them have both board of directors and advisory board.
Startup companies that do not have any board raised $17.835.024 in total funding and $1.715.000 of this amount is bridge financing. Companies that have only an advisory board raised $11.275.000 in total, and two firms raised undisclosed amounts, and $950.000 of raised capital is bridge funding. On the other hand, companies that have an only board of directors have raised $38.417.500 in total, and there is one firm that raised undisclosed amounts. Also, only one firm raised $500.000 bridge funding. Lastly, companies that have both board of directors and advisory board have raised $6.520.000 in total.
Table 6: Percentage of Companies in Boulder Regarding Having a Board of Directors and/or Advisory Board and Percentage of Capital Raised Depends on Board Structure
No Data No Board of Percentage of Companies Percentage of Directors or Depending on Capital Raised Depending Advisory Board Board Structure No Board of on Advisory Board Directors or Board Structure Advisory 4% Board Board of 15% 28% 9% Board of Directors 24% Directors 14% 15% Advisory 52% 39% Board of Board Directors and Advisory Board
According to data obtained, it can be easily seen that having a board has a tremendous effect on a startup's success regarding the capital raised. Although the total percentage of the companies that have a board of director and/or advisory board is lower than the companies that do not have any board, the total percentage of capital raised is higher with 76%. Data shows that startup companies that decide to create a board have a huge chance of being a successful company in the context of funding.
Also, bridge loans are subsidiary financing method to keep the startup firms alive. Raising money with bridge financing is known as a method that preferred by companies are in a problematic stage in their life cycle and seen as a last chance to survive. This type of financing often occurs during
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______the economic difficulties and weaken the position of the entrepreneurs against investors (Zhuo, 2016). Generally, companies that are seeking bridge financing are losing money (Wilson, 2011), and without the bridge financing possibility of reaching the next round is low. When looking at the data, companies that have no board of director and/or advisory board got bridge financing higher than the other while they are more in number. This data indicated that having a board of directors and/or advisory board lowers the chance of finding themselves in a risky situation and increase the chance of survival to the next funding round.
In comparison, from 2014 to February 2017, 58 startup companies that have been tracked by Pitchbook incorporated and still doing business in Istanbul. As it is seen, despite its advantage over Boulder on the population it is 33 companies lower than Boulder by the cause of Istanbul is a developing startup ecosystem. It has not been able to find out whether 26 of the startup companies have a board of director and/or advisory board. 11 of the companies have neither board of directors nor advisory board. 20 of the startup companies have a board of directors and 2 of the companies only have an advisory board. There is no startup company that has both board of directors and advisory board.
Companies that do not have any board raised $455.000 in total, plus undisclosed amounts. On the other hand, companies that have a board of directors raised $7.640.000, and 3 of them raised undisclosed amounts. Lastly, companies only have advisory board have raised $1.525.000.
Table 7: Percentage of Companies in Istanbul Regarding Having a Board of Directors and/or Advisory Board and Percentage of Capital Raised Depends on Board Structure
Percentage of Companies No Data Percentage of Capital Raised Depending No Board of Depending on Directors or Board Structure on Advisory Board Board Structure No Board of Directors od Advisory Board Board of 3% Directors Board of 16% 5% 34% 44% Directors
19% Advisory Board Advisory Board 79%
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______Similar to the situation in Boulder, it can be seen that, companies that have a board of directors or advisory board raised more capital than the companies that do not have any board. %95 of the raised capital obtained by the companies that have a board of directors or advisory board. However, numbers show us the huge amounts of raised capital captured by the companies that have a board, and the fact that percentage of the companies that have a board is higher than the Boulder, data does not legitimately show whether it is the influence of establishment of independent and diverse board because of the situation in the corporate law structure in Turkey.
As it is stated in the previous sub-chapter, founders of the companies may appoint themselves as an only member and chairman of the board of directors. Despite the fact that most of the startup companies have a board of directors, the reality is different due to the obligation to establish the board of directors. Only 7 of the tracked companies that have a board of directors have separated the founder and chairman of the board of directors, and one of them have completely independent and outsider members who are not shareholders of the company. The fact that the number of companies that have a board of directors is larger does not mean that entrepreneurs understand the importance of having an independent and diverse board in Turkey, but means that easiness of the establishing joint stock company and the necessity to compose the board of directors for it.
In the end, however, startup companies that did not separate the founder and the chairman of the board of directors fall within the overall assessment, it is possible the see that the establishment of the board of directors have a colossal impact on the capital raising, hence the success of the startup company with the assessment of two different startup ecosystems, one is developed and the other developing. Specifically, in Istanbul, startup companies that already have a board of directors but have the same person as a chairman as founder, should adjust their structure to align with the modern approach of the board of directors. By that way, they can achieve the success more easily with the help of diverse and different point of views along with the other benefits of the independent boards.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______6 Raising the Capital
As stated above, this paper mainly focuses on three problems that have been encountered in Istanbul. Unmistakably, the hardness of reaching the capital is one of the most significant problems of startup ecosystems, and financial structure is one the main factors that affects companies’ future and business strategy. Along with all the other factors, difficulty to raising the capital is the reason of ecosystem in Istanbul still couldn’t make the expected breakthrough despite its potential. In this chapter, crowdfunding as an alternative financing method suggested to improve accessibility for capital in Istanbul.
First of all, it should be stated that, unlikely the other parts of this paper, because of the complete difference on capital resources in the region, Boulder did not seen as an example for Istanbul in this section. If startup companies in Boulder were taken as an example about preferred capital sources, none of the startup companies in Istanbul should see the crowdfunding as an alternative method. The reason for that is the main resources of capital such as VC funds or business angels are developed in the U.S. and specifically in Boulder, but even there, regulators have been focused on crowdfunding to create ease to access the capital. Even if most of the startup companies’ in Boulder do not choose the crowdfunding as an alternative method, JOBS Act can be the roadmap for how to amend recent laws to make them compatible with crowdfunding applications.
Entrepreneurs have used different methods for financing over the years. Equity and debt are the main distinctions of funding. In the case of equity financing, raised money goes to the company directly, and shares of the company go to investors in return. During this exchange, investors want to seize varying control rights in the company (e.g. being a member of the board) due to the risks they receive. Differently, in the debt financing, people who provide capital try to lower their risk by different types of methods such as collateral. Hence, debt for funding is not preferred or reached by the startup companies because of the absence of fixed incomes and stable cash flows to meet the high burden of interest payments (Schwienbacher & Larralde, 2010).
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______Table 8: Different Types of Entrepreneurial Finance Investors, Grouped by Debt and Equity Claims Investor
Investor Description Entrepreneur and team members The entrepreneur invests his own money in the company, or money he obtained through a personal loan Friends and family The entrepreneurs’ friends and family Business angels Wealthy individuals willing to invest in small
projects Venture capitalists Specialized investors gathering money from non-specialists and placing it into bigger Equity projects for a period of 5-7 years Stock markets Members of the public invest in the company through a public offering Other companies/ strategic investors Other companies can decide to invest in projects they believe have strategic importance to them Banks Loans Leasing companies Provide equipment and office space to
entrepreneurs against lease payments
Government agencies Subsidy for particular projects
Debt Customers/ suppliers e.g., trade credit Bootstrapping Use of trade credit, credit card and other methods, including working capital management Source: Crowdfunding of Small Entrepreneurial Ventures (Schwienbacher & Larralde, 2010)
Especially in Turkey, collaterals and interest rates are so high that startup founders cannot afford it and almost all entrepreneurs stated that as a principal problem against the development of entrepreneurship. By April 2017, the interest rate in Turkey is 8% while it is 1% in the United States by May 2017 (Global-rates, 2017). Moreover, there is a trust issue with the banks and other entities that provide debt financing. Eventually, with the other factors, entrepreneurs keep away from the debt financing.
6.1 Crowdfunding
In addition to classical methods of financing, entrepreneurs see the crowd, the regular people, to create a direct financing method via the internet rather than depending on venture capital firms or
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______banks (Schwienbacher & Larralde, 2010), because of the challenges they faced at the early stage financing (Mashburn, 2013). Crowdfunding is the alternative method of financing of projects or ventures, from the regular people or investors instead of all other parties that are in the Table 8 abovementioned (Schwienbacher & Larralde, 2010). Raising capital without the huge liabilities of banks or professional investors such as venture capital firms, through a website by announcing companies, their projects or products, and business plans to reach their initial goals is the core rationale behind the crowdfunding. One of the most successful examples of these websites, Kickstarter, based on reward-based crowdfunding, facilitates a platform that startups raise capital to reach their primary goals (Smith & Hong, 2016).
It can be seen that how crowdfunding is a dilatational trend in the world by looking the amount of raised money worldwide on various platforms. $2.7 billion raised in 2012 and 2015, $34.4 billion raised worldwide with the increase of 1174%. Table 9 below shows the growth rate over the years.
Table 9: Capital Raised in the World by Crowdfunding Platforms
Capital Raised by Years 40
35
30
25
20
15
10
5
0 2012 2013 2014 2015
Column1
Source: 2015 CF Crowdfunding Report
A considerable number of people see the crowdfunding as a disruptive method of financing. The reason for that the method is changing both ways of financing. On the one hand, it lowers the need for institutional investors and external debt, on the other hand, it increases the ordinary people’s and unsophisticated investor’s participation in startup companies. Lowering startup companies’
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______dependency on angel investors or venture capital firms is important because when a startup company choose the obtain its initial financing from VC, it suffers by the cause of dilution at the next stages of funding because of the given rights and also by the given control rights, there is a chance to lost control over their companies. Certainly, most of the companies looking for the crowdfunding options rather than the VC funding to prevent equity dilution. Besides, usually, most of the VC’s and angel investors do not prefer to invest startup companies that do not have a chance to provide high returns in a short span of time.
One of the reasons of people prefer equity financing over the debts is a need for the additional managerial assistance, and this can be contributed by the equity investors generally because of their background of running the same kind of startup companies. According to past studies, it could be a wise move to choose equity financing over the debt because the growth rates of startup companies that chose equity financing is higher than companies that chose debt financing due to the outside assistance and contribution of experience (Keuschnigg, 2004), (Bottazzi & Da Rin, 2001). Similarly, some attract notice to detriments of crowdfunding method in the same issue. It is stated that avoiding the sophisticated and institutional investors including the VCs at early stage investment will cause the lack of contribution and advice would be given by the experienced professionals (Smith & Hong, 2016). It is true that support for the managerial issues or economic assessment may needed at the first stage by entrepreneurs and startup companies. However, there is one thing that should not be forgotten; the argument of “wisdom of the crowd”. One of the favorable aspects of crowdfunding is the chance to find out what is the people’s opinion about the project or product. Rather than the judgments of some few professional investors, it could be beneficiary to hear what are the actual future users’ thoughts about startup’s product and those comments can lead the company to develop their projects or companies in a more efficient way (Schwienbacher & Larralde, 2010). Hence, this situation can be solved by creating a functional board of directors or advisory board as described above.
Some other argue that crowdfunding is only convenient for the small amounts of money, but the fact is different. In the recent years, many startups prove that enormous amount of money could be raised on crowdfunding platforms. The largest amount ever raised up to now is $168.000.000 by the time of May 2016, The DAO project, via the Ethereum platform (Metz, 2016). In addition to this, in the more common and famous platform named Kickstarter, the amount of raised capital confutes the people who argue that crowdfunding is only for limited amount of money. The ten
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______most-funded Kickstarter campaigns raised $94.487.188 in total with the leader of Pebble Time which is raised $20.338.986 (Zipkin, 2015). These numbers demonstrate that crowdfunding can be useful for both small projects and projects that need high amounts of capital and generally funded by the classical methods of capital raising.
There are different types of crowdfunding, and each of them has its advantages and disadvantages. As a basis, the main distinction is a donation and investing. Donation model is divided by two as donation based and reward based. On the other hand, investing model is divided by three distinctions as equity based, lending based, and royalty based.
Table 10: Different Types of Crowdfunding Models
Crowdfunding Model Business Model Donation Donation-based Reward-based Investing Equity-based Lending-based Royalty-based Source: Crowdfunding’s Potential for the Developing World, infoDEV, The World Bank
The first model of crowdfunding, donation, aims to raise capital without the participation of securities. Donation-based crowdfunding form on the charity for supporting a project or product, and is the most risk-free type of crowdfunding, but since there is no return for funders, it could be hard to raise considerable amounts of capital. Distinctly, in the reward-based model, funders get the prototype of the product or early access to services in exchange for their contribution (infoDev, 2013). The only risk for this type is the possibility of not getting the promised product.
On the other hand, in the investing crowdfunding model, different types of financial instruments are involved in different business models. In the equity-based crowdfunding, funders receive equity or similar instruments for profits in exchange. The most important advantage of this model is that the probability of the unlimited gains. Differently from the equity-based, in the lending- based model, funders receive a fixed interest in exchange for their investment. Accordingly, their gains are definite. Certainty is the main advantage of this type, and due to the trust of investors, companies can raise high amounts of capital. Final and the last type of the investment crowdfunding is loyalty based. Basically, funders receive a share in the unit trust that invests in royalty interest of intellectual property and funders paid by a percentage of revenue in exchange
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______for their investments. In a similar manner with equity-based crowdfunding, possible gain is unlimited, but the rate is determined before (infoDev, 2013).
After the short definition of crowdfunding and different types of applicable models, it is important to see how it could be the solution for the Istanbul in the context of limited capital resources. Startup ecosystem in Istanbul needs to develop its infrastructure with a higher growth rate from its competitors. Rather than losing time on the classical and usual methods that other developed startup hubs already have improved on, working on to develop new trends could be a wise move.
Today, removing the intermediaries in transactions is in high demand and underlying the logic of the crowdfunding. The main reasons of hardness to reaching the capital in Istanbul are high-interest rates, demand for collateral by credit providers, the inadequate banking system, and excessive selectivity of VC’s and other investors in respect of to which startup company are they going to invest. Crowdfunding could be the solution by ignoring those intermediaries and getting easy access to capital in Istanbul by direct investments through the crowd.
First of all, a geographical non-affiliation feature of crowdfunding (infoDev, 2013) is one important indicator of being a solution to infertility of capital in Istanbul. Most of the classical methods of fund-raising use local sources to gathering the capital and if there is a problem with local sources then startups suffering because of the lack of capital. For the classical methods of funding, proximity is a necessity. Most of the VC’s try to keep closer with companies they invested and according to studies favored distance is half-hour (Ergen, 2004). With the crowdfunding, necessity of proximity is gone and now, the distance between investors and entrepreneurs is 4.800 km on average (Agrawal, Catalini, & Goldfarb, 2011) because of the universal accessibility. Formation of reliable crowdfunding system could provide access to global capital resources.
Secondly, classical methods of fund raising require too much effort and time to find the adequate amounts of capital which are highly ineffective (infoDev, 2013). Meetings after meetings could be harassing when especially facing rejections by investors. While working on the companies’ progress, founders of the company should not be distracted by the time-consuming capital seeking at the seed or early stage. Rather than explaining key features, business plans, and products of the company to every investor on an individual basis, founders can reach the audience by using the various crowdfunding platforms more easily. Specifically, in Istanbul, it could be the solution to avoid vain meetings which are ended up limited capital or none.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______Another favorable aspect of crowdfunding in emerging markets is the possibility to get more decent assessments and feedbacks on product or project. Especially, where the activity of equity financing is limited, investors tend to reject projects more easily because they do not have so many resources to try. They want to make more secure investments and when doing that they do not waste their times for helping the companies that they reject by improving their ideas. By using the crowdfunding, startup companies can develop their products according to the people’s suggestions. Also, companies could assess the market opportunities and prevent the failure before getting into the market. Besides, proven success on crowdfunding platform could help the companies for reaching the other capital sources more easily at the later stages because if they reach their goal in a platform, it means that there is a demand for their product or project and investors who see the demand are willing to invest the company (infoDev, 2013).
According to infoDEV higher ratios of usage of the internet and specifically social media is one crucial factor in enhancing the probability of the success of crowdfunding (infoDev, 2013). The reason of crowdfunding’s disruptiveness is the ability to draw attention and reach the masses by using the web-based platforms and social media to broaden the awareness. Internet usage rates in Turkey were 61.2% for the age range of 16-74. Also, for the first three months of 2016, 82.4% of people use the internet for the purpose of using social media platforms, and among the other purposes of internet usage, social media was in the first place (TÜİK, 2016). It can be said that when viewed from the point of the internet and social media usage rates, Turkey is ready to adopt crowdfunding platforms.
Recently there are several platforms in Turkey, and all of them are using the donation and reward- based models, but in the current situation, even donation based crowdfunding is inconsistent with the Law on Collection of Donation and Principles and Procedures of Collection of Donation. According to law, donations shall only be collected by real persons, associations, institutions, foundations, sports clubs, newspapers, and magazines in accordance with the public interest, to fulfill their objectives, to provide assistance to needy people, and to perform or support one or more public services (TBMM, 1983). As it is seen, all of the parties that can collect money stated clearly and recent donation based platforms are not suited with the regulation. This situation causes uncertainty and safety problems.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______Many countries can be an example for Turkish regulators to amend the existing regulations to make applicable crowdfunding. U.S. is one of the first countries that have regulated the crowdfunding with the Title III, “CROWDFUND Act”, in the JOBS Act. Before the JOBS Act, same as Turkey, Securities Act dated 1933 did not allow the crowdfunding financing method.
According to regulation, companies that intend to raise capital via online platforms, cannot raise more than $1.000.000 during the 12-month period started with the first capital raising activity without the approval from SEC and companies that financial statements approved by SEC can raise up to $2.000.000. Additionally, if the company has less than 100 shareholders, they are not required to present their financial statements. Besides, there is no requirement that investors should be accredited or not but there is a limit for their investments according to income or net worth. Investors that have annual income or the net worth less than $100.000 cannot invest greater than $2.000 or %5 of their annual income for the 12-month period, and investors that have an annual income or net worth higher than $100.000 can invest up to 10% of their annual income or net worth (JOBS Act, 2012).
Another important aspect of JOBS Act is the necessity to registration of crowdfunding intermediaries with SEC. According to regulation all the transactions should made with the intermediaries as broker or funding portal. That means that capital seeking companies cannot raise capital with their own portals. Brokers and funding portals should contain and take action about the following features:
- Acknowledge the investors about related risks, - Assure all the investors that using the crowdfunding analyze the investor-education information, - Ensure that the all investors realize the risk level of investing startup companies and could lose all of his/her investment through the investment, - Take precaution to lower the risk of fraud by gathering the information about the issuer company, - Supplying information to SEC and investors about the issuer 21 days prior to the first transaction, - Ensure that raised capital will be transferred to issuer only the targeted amount achieved, - Making sure that all the investors are compatible with the investment limits,
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______- Take precaution to protect investors privacy, - Impeding the directors, officers, or partners to make an investment or having any interest in any of the issuer company.
Furthermore, in addition to the requirements for intermediaries, there are some obligations for issuer companies too. Issuer should provide the explanation of the business plan, financial condition of the company, deadline of the fund-raising process, aim and the intended use of raised capital, price of the equity and method of calculation that used to finding the price, and ownership and capital structure to brokers or funding platforms, and available to investors.
Similar to amendments made by regulators in U.S., in the draft law, Turkish authorities chose the create exemptions in existing Capital Markets Law rather than legislating a completely new law. It can be easily seen in the general preamble of the draft law, need of alternative financing methods realized by the regulators. It has been stated that startups that are seeking financing at the seed/early stage capital are having difficulties to reach traditional financing methods such as bank credits, especially after 2008 financial crisis. This situation has been seen as a handicap against the development of economy by the participation of tech-driven startups. Crowdfunding has seen as a solution to ease the reaching the capital by getting together the sophisticated and unsophisticated investors, and for that reason crowdfunding has been included in the scope of the Capital Market Law.
According to the draft law, companies that are using the crowdfunding platforms to raise capital, are exempt from the definition of public company and issuer in the Capital Market Law. With this exemption, it is intended that companies which are raising capital via the crowdfunding platforms shall not subject to high costs of capital raising and obligations for publicly traded companies and issuers. Also, the necessity to submit registration statement has been removed for issuer companies. Another important point is that even if the numbers of shareholders of the crowdfunding companies, through the platforms, exceeds 500, they will not be counted as publicly traded companies.
As it can be seen, the importance of crowdfunding has been realized with the draft law, and the main infrastructure has been established for the future regulations. The Capital Markets Board has been authorized for the future and detailed regulations.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______To sum up, crowdfunding as a disruptive and an alternative method of financing has great numbers of benefits. On the contrary to classical methods, there are no high amounts of collaterals or interest rates, and suffering from the control rights given the VCs or dilution as the reason of capital raising. Also, having a chance of being aware of what actual customers think about the product or project is increasing the preferability of crowdfunding. Additionally, geographical non-affiliation, and easiness to reach initial capital are one of the reasons for preference especially in the developing countries that have capital constraints. Lastly, with the trend of removing intermediaries in startup financing and proven success of opportunity to raise high amounts of capital, crowdfunding could be the solution to capital shortage. Recently, all of the mentioned aspects of crowdfunding are solving the entrepreneurs’ problems about reaching the capital. Specifically, all features are capable of solving the problems in Istanbul in the context of capital shortage.
Unfortunately, despite all advantages of crowdfunding, existing regulations do not answer the needs of the community about crowdfunding, and if Turkey wants to catch other developed countries in entrepreneurship, regulations should be change carefully so that investors and entrepreneurs will not be harmed in the future. Policymakers can either add an exception for crowdfunding platforms to raise money for their companies’ goals without taking into account the public interest for the donation based model or enact a new law about the crowdfunding platforms. For the investing based crowdfunding model, needed amendments should be made in the Capital Market Law immediately as draft law aims because of the fact that model has the characteristics of securities and derivatives under the definition given in the law. Given example of JOBS Act could be a roadmap for detailed regulations in Turkey. Particularly, recent draft law and future amendments in the capital market law for the investment based crowdfunding model, ensure that Turkey will be able to create diversity in the capital sources and catch its competitors on the international level.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______7 Conclusion
In the current economic situation, it is now possible to see that entrepreneurship is encouraged to enhance countries’ economies or maintain their position. Especially with the decrease in the costs of technology development and the rise of the participation of millennials to the economy, given definition of entrepreneurship in this paper is more popular nowadays. The effect of the millennials is related to their desire to take risks and establish startup companies in line with the modern approach of entrepreneurship, as they no longer want to work within the large corporation that guarantees lifelong job opportunities.
Historically, some countries have not sufficiently understood entrepreneurship and deprived of the economic contributions of the startups, and many examples from the developing countries could be given in the world. In that context, Turkey and Istanbul have been focused on as long as they have an important place in the world trade and potential to become the next successful startup hub with its high population of young people which are in line with recent trends and desiring to establish their ventures. To make the Istanbul a well-known startup hub and fostering the success rates of startup companies in the next years, it is important to analyze its core obstacles against entrepreneurship. For that reason, in the light of empirical works, it has been realized that main problems that are against the development of Istanbul, and startup companies that established there, are the deficiency of supportive elements, the hardness of reaching the capital and failure to establish functional boards.
On the other hand, some countries and their specific regions have been known as startup hubs by reason of they have already recognized the role, the importance and, the influence of the entrepreneurship and startups in the economic development of countries. Achieving success in the startup companies is the result of long-term commitment and compatible policies. The U.S. placed at the top of the countries that have been able to embrace entrepreneurship culture, with its policies towards entrepreneurs and the efforts shown locally. Specifically, Boulder City in Colorado is chosen as the model for Istanbul because of its proven success and distinctive characteristics. Indeed, it is revealed in this work that the underlying factors of Boulder's and U.S.’ success in creating a startup ecosystem have the ability to solve the main problems of Istanbul. Besides, one should realize that achieving success in the startup companies and creating an outstanding
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______ecosystem needs a collaborative work with the participation of policymakers in the central and local administrations, universities and other subsidiaries of startup ecosystems such as accelerators, and most importantly entrepreneurs. Without processional approach to startup ecosystems, it is impossible to achieving success in ecosystems and startup companies.
In the chapter of supportive elements of the startup ecosystem, three of the critical players in the startup ecosystem are assessed as governments, universities, and accelerators. First, the need for differentiating the startups and SMEs by the policymakers for contributing effectively to them due to the difference in their requirements and steps should be taken after the distinction is mentioned. With the example observed from the U.S., it is seen that as a result of the distinction and understanding, regulators could constitute more effective programs and define the policies more clearly. As a result, it has emerged that the Turkish authorities need to make a clear distinction in this respect. After that, the importance of establishing the regulations, incentives, and grant programs on startup success has been highlighted for both central and local administrations, and the supportive programs in the U.S., specifically in the Colorado and Boulder, have been unveiled. At the same time, similar programs in Turkey and Istanbul are assessed, and it is determined whether they are sufficient or not in the context of supporting the startup success. According to the results, it is observed that there are few incentives and grant programs compared to the U.S. but is stated that the steps taken by the central administration are positive. It has been achieved that the central administration’s efforts to foster entrepreneurship should be further accelerated and local administrations should also work in the same direction.
The contribution of the law faculties and clinics, and the technology transfer offices to the startup ecosystem are explained by the example of CU Boulder, after the universities specified as another supporting element that effective on startup success and assessed by how they could contribute to startups. It has been emphasized that entrepreneurship education has to move away from traditional understanding and towards practical education, and should not be locked in the business schools but taken to the center of campuses so that different disciplines can come together and different ideas contribute to the development of innovative ideas. Specifically, the impact of the law faculties and the law clinics on the entrepreneurship startup ecosystem and the companies is explained by the Faculty of Law in the CU Boulder. It can be seen that faculty of law in Boulder has been transformed into a structure that is central to entrepreneurial activity and place that
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______entrepreneurs are provided with various legal support. When looking at the Istanbul in comparison, it is seen that there is no such tendency in any of the law faculties. It has been achieved that the entrepreneurship education in the universities and law faculties in Istanbul should be structured with a modern approach and the activities and events related to entrepreneurship should be taken in the center of university campuses to cover different disciplines and increase the participation. At the same time, law faculties should be included in the process through the clinics and events that will take part in there. Additionally, when activity in TTO in the CU Boulder demonstrated and compared with some TTOs in the Istanbul, it was observed the activity in Istanbul is very low. As a solution to this problem, it is proposed to establish more functional offices, and facilitate and standardize patent and license agreements.
In the part which the accelerator programs determined as another supportive element, firstly accelerators are defined and separated from the incubators. In fact, if an accelerator program aims to achieve success to support startup companies, it must be recognized and structured in such different way from similar organizations. Then the structure, features, and operating model of the Boulder-based and worldwide-proven TechStars accelerator program are described. In the same way, entities in Istanbul that identified as an accelerator program were examined and investigated whether they are fit in the definition of accelerators. According to results, it is understood that most of the programs are at their early stage and they did not realize the unique features of the accelerator programs. Also, among those who successfully define themselves, some practices can negatively affect the Istanbul’s startup ecosystem such as not seeing the future clearly, pessimism about the creativity of projects and innovation, and aiming to transfer promising startup companies to abroad where the startup ecosystem is developed. It has been observed that quite a few of them are literally contributing to the success of the startups and developing the ecosystem. It is suggested to accelerators in Istanbul to take the TechStars as an example model, and without completely copying, develop and adapt it to their business models.
After supportive elements of startup ecosystems, how to establish the board of directors, which have a great importance in achieving the success in the startups, is explained with taking into consideration the board structures in mostly preferred different company types in Turkey. The importance of having independent/outsider directors in the boards, creating a flat, non-hierarchical board to discuss ideas freely and emerging different opinions by separating the founders and
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______chairman of the board are discussed within the scope of achieving success in startups. In this context, the effect of the startup boards on the success is assessed with the raised capital. According to the results, it is observed that the companies that have the board of directors raised more capital than the ones that do not have. Specifically, it has been seen that the startups with board of directors in Turkey are raised more capital in a similar way; but it is a fact that they do not fully understand the role of the board, usually because the founders and chairman are the same person and generally the reason for establishing the board of directors originating from the legal obligation. As a solution, it has been suggested that startups should separate founders and chairman and have a board of directors in the line with mentioned principles.
Finally, the difficulty of reaching the capital, which is directly influential on the success of startups and the worldwide problem that often encountered in the startup ecosystem of Istanbul, has been addressed and the method of crowdfunding has been proposed to overcome the difficulties. After the short explanation of classical methods of capital raising, it is seen that crowdfunding as a great solution in the countries where venture capital or classical methods of capital raising did not developed, by lifting the intermediaries out of the way, possibility to learn the real thoughts on product or project of the consumers directly, finding out the market position and opportunities. Then, the features of the JOBS Act in U.S. are explained and it is stated that regulation in that context could be the solve the problems of Turkish startup ecosystem in the meaning of capital. In the same direction, it stated that the draft law in Turkey had been prepared correctly and it is a positive development that the legislator recognizes the importance of crowdfunding. It is determined that the problems experienced in reaching the capital in Istanbul will be solved by the immediate changes in the recent laws in the light of the draft law.
To sum up, in this study, the deficiencies and inaccuracies on the basis of supportive elements in the startup ecosystem, board structure, and the access to capital were determined as the factors that are effective on the achieving success in startups in Istanbul and answers were sought in the Boulder’s developed startup ecosystem. The results show that although there are positive developments in Istanbul, there are still many points that need to be improved when the comparison is made with the Boulder. Considering the examples shown in the Boulder, it is necessary to broaden the regulations about accessing to capital and specifically about crowdfunding, increasing
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______the variety and amount of the incentive programs and grants, and develop entrepreneurs' views on the board of directors in startup companies.
Herewith, present research can be a valuable resource to build successful startup companies and ecosystems for both entrepreneurs and regulatory bodies in Turkey. Further studies on every specific chapter of this paper on startup success would extend our knowledge for identifying new challenges to research.
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A Multidisciplinary Approach for Startup Success: An Overview of Boulder City and Istanbul ______References
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