Every investor (“Investor”) should be aware that an investment in a single company or multiple companies on Aussie Angels (each, an “Company” or “startup”) involves a high degree of risk, regardless of whether such investment is direct or through a vehicle (“Investment Option”) formed for purposes of accommodating co-investment arrangement (“Syndicate”) with a lead investor (“Syndicate Lead”). There can be no assurance that (i) an Investment Option’s investment objectives will be achieved, (ii) a Startup will achieve its business plan, (iii) a Syndicate Lead has experience in investing, or (iv) an Investor will receive a return of any part of its investment. In addition, there may be occasions when a Syndicate Lead, and/or their respective affiliates may encounter potential conflicts of interest in connection with an Investment Option, such that said party may avoid a loss, or even realise a gain, when other Investors in the Investment Option are suffering losses. The following considerations, among others, should be carefully evaluated before making an investment in a Startup or an Investment Option.
Introduction to risks
All investments carry risks. Please also read the IM in this regard for risks relating to investing in general and startups. Furthermore (and in addition to the risks set out in the IM), there may be risks specific to a particular Investment Option. We set out some of the key risks specific for each Investment Option below. Each Investment Option will be subject to the following categories of specific risks:
- (Idiosyncratic stock performance risk): the risk that the value of the underlying share or asset does not perform as you expect for reasons that do not impact the broader market.
- (Underlying company performance risk): the risk that the company that issues the underlying share or for which the value of the underlying asset is derived does not perform as you expect.
We set out below a description of some of the risks that are most relevant for each Investment Option.
This list is not comprehensive and other significant risks may apply. You should consider whether there are other risks that apply to a specific Investment Option at the time you make an investment. The information set out in these specific risks below are based on Aussie Angels’ reasonable assessment of the key risks associated with an investment in these types of underlying securities based on its research of this asset class. This assessment, and these specific risks, may change over time as the performance of the underlying security and market conditions change. For more information relating to specific risks in connection with a direct investment in an underlying security, please see the Pitch Deck or other disclosure document for that investment where it is available. Information about underlying securities may also be available from public sources, such as market announcements. Such information (if any) does not form part of the Deal Note or the IM and we do not guarantee the accuracy of information contained in them.
Specific risks for each Investment Option
Some of the significant risks of investing in each Investment Option include but are not limited to:
- (Fraud risk) the risk that the company’s system is abused to perpetrate fraud or exposes the company to fraud claims by customers or third parties.
- (Execution risk): the risk that the company’s system, services or products do not function or do not function as expected by customers, resulting in claims and/or reduced sales performance over time.
- (Technology risk): the risk that the technology company uses or otherwise relies on fails or fails to perform as expected by the company.
- (Data quality risk): the risk that company’s data is of poor quality or granularity or otherwise is not sufficiently useful to support the company's value proposition.
- (Regulation risk): the risk that regulations or future regulations (including in relation to data and privacy) prevent a company from performing or increase its operating costs.
- (Security risk): the risk that company’s systems are hacked or experience a security breach.
- (Market risk): the risk that merchant’s don’t consume company’s products or that the market company intends to capture does not meet expectations.
- (Competition risk): the risk that other companies offer products similar to the company or otherwise reduce the opportunity for the company to exploit its proposed market.
- (Capital risk): the risk that a company cannot secure the capital it requires to operate – whether from customers or future investors.
In addition, investors should always consider the following risks:
Risk Inherent in Startup Investments; an Investor May, and Frequently Does, Lose All of Its Investment
Investments in Startups involve a high degree of risk. Financial and operating risks confronting Startups are significant. While targeted returns should reflect the perceived level of risk in any investment situation, such returns may never be realised and/or may not be adequate to compensate an Investor or a Syndicate for risks taken. Loss of an Investor’s entire investment is possible and can easily occur. Moreover, the timing of any return on investment is highly uncertain. The Startup market is highly competitive and the percentage of companies that survive and prosper is small. Startup investments often experience unexpected problems in the areas of product development, manufacturing, marketing, financing, and general management, among others, which frequently cannot be solved. In addition, Startups may require substantial amounts of financing, which may not be available through institutional private placements, the public markets or otherwise. Future investment rounds may dilute your initial investment, meaning the Investment Option in which you invest may own a smaller percentage of outstanding shares of a company. Dilution occurs when a company issues new stock or when holders of stock options exercise those options, resulting in a decrease of the existing stockholders’ ownership percentage of the company.
Risk of change in a Startup's plans, markets and products
The value of an Investor’s or a Syndicate’s interests in Startups may be susceptible to factors affecting Startups and the technology industry generally and/or to greater risk than an investment in a vehicle that invests in a broader range of securities. The success of Startups in the technology industry will likely be dependent on the strength of the overall technology industry, which is characterised by rapidly changing technology, evolving industry standards, new service and product introductions and changing customer demands. The changes and developments taking place in this industry may require the Startups in which a Syndicate invests to reevaluate its business models and adopt significant changes to their long-term strategies and business plan. The failure of such Startups to make such changes would materially adversely affect the business of such Startup, and potentially have a material negative impact on the returns of a Syndicate’s investment in such Startup, including potentially a complete loss of investment. Some of the many specific risks faced by such Startups include:
- Rapidly changing technologies and products that may quickly become obsolete;
- Scarcity of management, technical, scientific, research and marketing personnel with appropriate training;
- The possibility of lawsuits related to patents and intellectual property;
- Rapidly changing investor sentiments and preferences with regard to technology sector investments (which are generally perceived as risky); and
- Exposure to government regulation, making these companies susceptible to changes in government policy and delays or failures in securing regulatory approvals.
Changing Economic Conditions
The success of any investment activity is determined to some degree by general economic conditions. The availability, unavailability, or hindered operation of external credit markets, equity markets and other economic systems which an individual Startup or a Syndicate may depend upon to achieve its objectives may have a significant negative impact on a Startup’s or a Syndicate’s operations and profitability. The stability and sustainability of growth in global economies may be impacted by terrorism, acts of war or a variety of other unpredictable events. There can be no assurance that such markets and economic systems will be available or will be available as anticipated or needed for an investment in a Startup to be successful or for a Syndicate to operate successfully. Changing economic conditions could potentially, and frequently do, adversely impact the valuation of portfolio holdings.
Future and Past Performance
The past performance of a Startup, its management, or a Syndicate Lead, is not predictive of a Startup’s or a Syndicate’s future results. There can be no assurance that targeted results will be achieved. Loss of principal is possible, and even likely, on any given investment.
Difficulty in Valuing Startup Investments
It is enormously difficult to determine objective values for any Startup. In addition to the difficulty of determining the magnitude of the risks applicable to a given Startup and the likelihood that a given Startup’s business will be a success, there generally will be no readily available market for a Startup’s equity securities, and hence, an Investor’s investments will be difficult to value.
A significant portion of an Investor’s investments (either directly or through a Syndicate) will represent minority stakes in privately held companies. As is the case with minority holdings in general, such minority stakes will have neither the control characteristics of majority stakes nor the valuation premiums accorded majority or controlling stakes. Investors and Investment Options will be reliant on the existing management and board of directors of such companies, which may include representatives of other financial investors with whom the Investor or Syndicate is not affiliated and whose interests may conflict with the interests of the Investor or Syndicate.
Lack of Information for Monitoring and Valuing Startups
Investors in the Syndicate ordinarily will not obtain information rights from the Startups the Syndicate is investing in. Accordingly, the Investor or the Syndicate may not be able to obtain all information it would want regarding a particular Startup, on a timely basis or at all. It is, therefore, possible that the Investor or the Syndicate may not be aware on a timely basis of material adverse changes that have occurred with respect to certain of its investments. As a result of these difficulties, as well as other uncertainties, an Investor may not have accurate information about a Startup’s current value or the value of the securities held by a Syndicate.
No Assurance of Additional Capital for Startups
After an Investor has invested in a Startup, either directly or through a Syndicate, continued development and marketing of the Startup’s products or services, or administrative, legal, regulatory or other needs, may require that it obtain additional financing. In particular, technology Startups generally have substantial capital needs that are typically funded over several stages of investment. Such additional financing may not be available on favourable terms, or at all.
Absence of Liquidity and Public Markets
An Investor’s investments will generally be private, illiquid holdings. As such, there will be no public markets for the securities held by the Investor, directly or through a Syndicate, and no readily available liquidity mechanism at any particular time for any of the investments. In addition, an investment in a Syndicate will be illiquid, not freely transferable, and involves a high degree of risk. There is no public market for membership interests in a Syndicate (an “Interest”), and it is not expected that a public market will develop. Consequently, an Investor will bear the economic risks of its investment for the term of a Syndicate.
There are many tax risks relating to investments in Startups that are difficult to address and complicated. You should consult your tax advisor for information about the tax consequences of purchasing equity securities of a Startup or an Interest in a Syndicate.
Early Stage Innovation Company (“ESIC”) tax concessions may be available to investors when investing in a Startup via a Syndicate. We make no guarantee that ESIC tax concessions will be available. Although care has been taken in determining whether a company currently qualifies under the ESIC framework, Aussie Angels expressly disclaims any responsibility for the completeness or accuracy of information provided by the Startup for this determination. Despite qualifying at the time of investment, there can be no assurance that a company will qualify as ESIC at the end of the tax year.
Withholding and Other Taxes
The structure of any investment in a Startup or in or by a Syndicate may not be tax efficient for any particular Investor, and no Startup or Investment Option guarantees that any particular tax result will be achieved. In addition, tax reporting requirements may be imposed on Investors under the laws of the jurisdictions in which Investors are liable for taxation or in which a Syndicate makes investments. Investors should consult their own professional advisors with respect to the tax consequences to them of an investment in a Startup or a Syndicate under the laws of the jurisdictions in which the Investors and/or the Startup or Investment Option are liable for taxation.
Limited Operating History of Investment Options
Each Investment Option is or will be a newly formed entity and has no operating history. Each Investment Options investment program should be evaluated on the basis that the Syndicate Lead’s assessment of the prospects of investments may not prove accurate and that the Investment Option will not achieve its investment objective. Past performance of a Syndicate Lead, or the management of a Startup is not predictive of future results.
Conflicts of Interest; Investment Opportunities
Instances may arise in which the interest of a Syndicate Lead (or its members or affiliates) may potentially or actually conflict with the interests of a Syndicate and/or its Investors. For example, conflicts of interest may arise as a result of a Syndicate Lead having investments in portfolio companies of the relevant Investment Option as well as other investments both public and private.
Investors in a Syndicate may have conflicting investment, tax, and other interests with respect to Startup investments, which may arise from the structuring of a Startup investment or the timing of a sale of a Startup investment or other factors. As a consequence, decisions made by the manager of a Syndicate on such matters may be more beneficial for some Investors than for others. Investors should be aware that the manager of a Syndicate intends to consider the investment and tax objective of each Investment Option and Investors as a whole when making decisions on investment structure or timing of sale, and not the circumstances of any Investor individually.
Lack of Investor Control
Investors in a Syndicate will not make decisions with respect to the management, disposition or other realisation of any investment made by the relevant Investment Option, or other decisions regarding such Investment Option’s business and affairs.
Certain information regarding the Startups will be highly confidential. Competitors may benefit from such information if it is ever made public, and that could result in adverse economic consequences to the Investors.
Forward Looking Statements
The information available to Investment Options and Investors may contain "forward-looking statements". These statements can be identified by the fact that they do not relate strictly to historical or current facts. Forward-looking statements often include words such as "anticipates," "estimates," "expects," "projects," "intends," "plans," "believes" and words and terms of similar substance in connection with discussions of future operating or financial performance. Examples of forward-looking statements include, but are not limited to, statements regarding: (i) the adequacy of a Startup’s funding to meet its future needs, (ii) the revenue and expenses expected over the life of the Startup, (iii) the market for a Startup’s goods or services, or (iv) other similar matters. Each Startup’s forward-looking statements are based on management's current expectations and assumptions regarding the Startup’s business and performance, the economy and other future conditions and forecasts of future events, circumstances and results. As with any projection or forecast, forward-looking statements are inherently susceptible to uncertainty and changes in circumstances. The Startup’s actual results may vary materially from those expressed or implied in its forward-looking statements. Important factors that could cause the Startup’s actual results to differ materially from those in its forward-looking statements include government regulation, economic, strategic, political and social conditions and the following factors:
- recent and future changes in technology, services and standards;
- changes in consumer behaviour;
- changes in a Startup’s plans, initiatives and strategies, and consumer acceptance thereof;
- changes in the plans, initiatives and strategies of the third parties that are necessary or important to the Startup’s success;
- competitive pressures, including as a result of changes in technology;
- the Startup's ability to deal effectively with economic slowdowns or other economic or market difficulties;
- increased volatility or decreased liquidity in the capital markets, including any limitation on the Startup’s ability to access the capital markets for debt securities, refinance its outstanding indebtedness or obtain equity, debt or bank financings on acceptable terms;
- the failure to meet earnings expectations;
- the adequacy of the Startup's risk management framework;
- changes in the IFRS or other applicable accounting policies;
- the impact of terrorist acts, hostilities, natural disasters (including extreme weather) and pandemic viruses;
- a disruption or failure of the Startup's or its vendors' network and information systems or other technology on which the Company's businesses rely;
- changes in tax, federal communication and other laws and regulations;
- changes in foreign exchange rates and in the stability and existence of foreign currencies; and
- other risks and uncertainties which may or may not be specifically discussed in materials provided to Investors.
Any forward-looking statement made by a Startup speaks only as of the date on which it is made. Startups are under no obligation to, and generally expressly disclaim any obligation to, update or alter their forward-looking statements, whether as a result of new information, subsequent events or otherwise.
Liabilities held within the Fund
Each Class is referable to a particular pool of assets and liabilities held within the Fund. When you invest in a particular Class of Units, you obtain exposure to the investments relevant to that Class. The assets and liabilities of the Fund are attributed to the relevant Classes and are administered separately so the Unit price and performance of each Class is independent of the other Classes, and we make every attempt to ensure liabilities are ring-fenced. However, Unitholders should be aware that, legally, the assets and liabilities of a particular Class are assets and liabilities of the Fund as a whole. If the Fund becomes insolvent, all Classes of Units may be affected and creditors may make a claim for all assets in the Fund irrespective of which Class they are attributable to (and whether or not that Class is technically insolvent).
Limited Operating History of the Platform
The Platform and the operating company (Aussie Angels Pty Ltd) is a newly established fund and does not have a track record of performance, even if the individuals involved do have some form of track record in working with startups. Past performance of the Platform, or the management of Aussie Angels Pty Ltd is not predictive of future results.
The foregoing risks do not purport to be a complete explanation of all the risks involved in acquiring equity securities in a Startup or an Interest in a Syndicate. Each Investor is urged to seek its own independent legal and tax advice and read the relevant investment documents before making a determination whether to invest in a Startup or a Syndicate.