An inside round is a financing in which only existing investors participate — no new lead, no outside money. Inside rounds happen for opposite reasons: defensively, when the company cannot attract an external lead and insiders bridge it to better conditions; or offensively, when insiders preempt the round because they want more ownership before the price rises. Distinguishing which kind you are in is the first analytical step, because the legal risks concentrate in the defensive case.
The structural problem is pricing without price discovery. When the same investors sit on both sides of the table — as board members approving the deal and as purchasers benefiting from a low price — every term is potentially conflicted, and a later down-exit or wash-out of non-participating holders invites fiduciary-duty claims. Market hygiene has hardened into a checklist: approval by disinterested directors and, where possible, disinterested shareholders; a genuine outreach to outside investors documented before pricing; and a rights offering extending the same terms pro rata to all existing holders, so nobody is diluted without the chance to participate. Pay-to-play features, if used, must be applied uniformly.
Practice notes for Turkish companies
In Turkish joint-stock companies the rights-offering logic has a statutory backbone: capital increases carry pre-emptive rights (rüçhan hakkı, TTK art. 461), which may be restricted only for justified reasons and by qualified majority. An inside round executed as a capital increase with rüçhan rights intact is therefore structurally self-cleansing — every shareholder can subscribe pro rata. The conflict analysis shifts to the valuation itself and to board members’ duty of care (TTK art. 369); contemporaneous documentation of the failed external process and an arm’s-length reference point for the price are the practical protections boards should build before signing.
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