Redemption rights give preferred investors a put: after a defined period — classically five to seven years from the investment — the investor may require the company to repurchase its shares, usually at the original purchase price plus accrued dividends or an agreed return. The right exists because venture funds have finite lives; if a company is profitable-but-stagnant (“lifestyle outcome”), redemption is the contractual exit of last resort where no sale or IPO is in sight.
In practice the right is more leverage than liquidity. Companies that trigger redemption rarely have the cash to honour them, so agreements typically stage the payout over two to three years and attach escalating remedies for non-payment — board control flipping to the preferred being the sharpest. US market data consistently shows redemption rights appearing in a minority of deals and being exercised in far fewer; their real function is to force a negotiation about liquidity, not to produce cash.
The Turkish law problem
Under Turkish law a classic redemption against the company collides with capital maintenance rules: a joint-stock company may acquire its own shares only within the limits of TTK art. 379 et seq. — in principle up to 10% of share capital and only out of freely distributable reserves. A redemption obligation that exceeds these limits is unenforceable against the company as drafted. Turkish practice therefore restructures the economics: the put is directed at the founders or controlling shareholders personally, sized to survive scrutiny, or replaced with liquidity covenants — an obligation to run a sale process after year N, drag-along triggers, or IPO best-efforts undertakings. Investors negotiating Turkish deals should treat company-level redemption as a soft signal and shareholder-level exit mechanics as the enforceable core.
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