Venture Capital Investment Compartment

Venture Capital Investment Compartment
Investment of €2M into Cyprus Special Investment Compartment of the Fund entitles to Cyprus citizenship provided

Venture Capital Investment Compartment shall consist of different classes of Participating Shares which could be created or liquidated by the decision of CIO approved by the Board of Directors. For the time being there shall be one Class of Participating Shares:

Class “VC1” Participating Shares

Venture capital investments into equity and convertible debt of small and medium-sized enterprises with high growth potential.

Investment product for investors with higher risk appetite who can tolerate uncertainty inherently present in newly formed businesses without established track record, but based on sound business ideas and executed by experienced teams. The Company concentrates on b2b services’ sector being disrupted by transfer from offline to online business models, on internet technologies and on industrial innovations, however other segments could also be of interest provided that Company’s officers and advisors believe to have sufficient expertise in the field.

INVESTMENT STRATEGY

The investment strategy used for this compartment is a combination of “bottom-up” approach and fundamental analysis. We strongly believe that potential targets should be cherry-picked within the generally well-performing sector of economy.

TECHNIQUES EMPLOYED

When evaluating potential target for acquisition, Chief Investment Officer takes decision based the following criteria:

  1. Fundamental analysis of the counterparty’s financial statements confirms presence of room for growth and improvement,
  2. The team behind the project has proper expertise and experience,
  3. The business model faces low competition and potentially big market, is scalable and internationally viable,
  4. There are potential exit strategies, future buyers could be identified at the moment of purchase.
MANAGEMENT METHODS

Diversification: as a rule, any investment should not exceed 15% of the total assets in the portfolio;

Benchmarking: the company should grow faster than the market and existing competitors.

The Company shall be entitled to enter into the following transactions:

  • Shares of small and medium-sized enterprises with high growth potential;
  • Convertible debt of small and medium-sized enterprises with high growth potential;
  • Other types of financial instruments allowing the Company to exercise voting and dividend rights in the target company as deemed appropriate by the CIO.
RISKS

Risks associated with Venture Capital investments are of the same nature though in the latter case are more profoundly manifested.

Volatility Risk

Risk of rapid and abrupt changes in valuation of the target company

Risk of Liquidity

There could be no market for the shares of the target company for a long period of time

Execution risk 

Much of a target company’s success or failure depends on the management team. The Company ideally look for a target that’s run by managers with a track record of success, either within the company they are giving the money to or in previous positions. Investors take a significant risk in the human side of the equation because they can’t always predict how human beings will behave. They can’t guarantee that the talented management team they are supporting will stay on board or that they really will produce as promised.

Market Trends

Investors look for companies with high growth potential. The risk factor lies in the word “potential”. Market trends can impact the growth of a company once poised for success. Investors seek business investments with companies that offer a competitive advantage often is based on projections and assumptions about the future of a product or service, the market’s acceptance of the new entry and the movement of the competition. While they may do their due diligence in depth before providing the funds, outside market factors can ultimately decide the fate of a new company.

Barriers to Success

While entrepreneurs seeking funding may have covered all the bases they need to get their product or service on the market, every company still has barriers that must be overcome. Investors are acutely aware of those barriers and consider them risks when they are outside the company’s control. Government regulations are barriers that may or may not be predictable. Economic factors such as government shutdowns or a recession are unforeseen barriers that investors risk facing. Corporate theft of intellectual property and patent infringements are other barriers to success that create risk in the investment.

Timely Exits

Ultimately, investors must be able to see an end to the risk and enjoy their profits. The two most common ways of paying off investors are through an initial public offering and a buyout. Investors face the risks that the company managers won’t be able to pull off the planned exit strategy. They may not produce enough revenue to offer the company to the public and sell shares. Smaller companies looking for a big buyer may not be successful enough to make the grade, leaving investors stuck. When exit strategies fail, investors either cut their losses or stick around and try to turn the company around by taking a more active role in its management.

Market timing risk

Is now the right time for the business? It’s often hard to evaluate this risk, but nevertheless, it’s an important consideration.

Business model risk 

Is there a clear business model? Do the unit economics seem to work? If not, what are the assumptions required to achieve profitability?

Market adoption risk 

Are there strong competitive players in the market? What are the major barriers to entry?

Market size risk

If the company is successful, is the exit scenario large enough to provide the types of returns our fund needs?

Technology risk

Does the company have to develop a new technology that may not reach fruition, or may take much longer than expected?

Capitalization structure risk

Does the company have enough room in the cap table to take more investment necessary to grow while still ensuring employees and executives are well compensated?

Platform risk

Is the product built atop YouTube, Twitter or Facebook? How strong is their relationship? Are their product plans in the direct path of the platform or complementary?

Venture management risk 

Is the company receptive to feedback? Is the team candid about the state of the business?

Financial risk

How much money does the company require to achieve its goals? Is the financing risk manageable given the current environment and company trajectory?

Legal risk

Does the company have a high likelihood of lawsuit for patent or copyright infringement? Does the company have any outstanding complaints with early employees or founders? Are there regulatory challenges involved in this sector?

USE OF LEVERAGE

Up to 50%

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