General Remarks on Investment Risks

Investment is offered in the form of an Early Stage Venture Capital Limited Partnership (ESVCLP) Fund and should be considered speculative. Investors should have the capacity to sustain the loss of all or part of their investment. The value of units in the Fund can rise or fall. Investment in the Fund is subject to a variety of risks, some of which are specific to Underlying Investments of the Fund. Others originate in the broader economic and financial climate in which the Fund operates. Some risks may be mitigated by appropriate actions by the Manager but many are outside our control. The risks outlined below should be carefully considered by all Investors before applying for investment in the Fund.  No person associated with the Manager or CVC Limited can guarantee any future earnings, that any of the underlying investments will succeed or that the units in the Fund will appreciate in value. The risks canvassed below cannot be relied upon as a comprehensive statement of the risks associated with an investment in the Fund. There may be other risks that adversely affect the performance of the Fund which, at the time the investment is offered to investors, were unknown to Add+Venture or CVC Limited. Furthermore, to appreciate the risks associated with an investment in the Fund, it is not sufficient to read this section only. These risks should be read in conjunction with all of the material provided to the investor including, but not limited to, the Information Memorandum. An investor, in consultation with one or more suitably qualified professional adviser(s), should carefully consider his or her own financial circumstances before applying for an investment in the Fund. Below is an outline of the further potential risks in investing in the Fund.

Investment Performance Risk

The Fund will be investing in companies that are early stage in their lifecycle and part of their value or business proposition remains unproven. If the proof of concept is not successful, the company fails to execute the strategy or the market environment changes, there is a risk that the entire value of your investment may be lost. The nature of venture capital investment is inherently speculative. The assets of the Fund will consist primarily of equity investments in non-listed business entities. It is riskier to invest in unlisted entities than entities listed on a reputable stock exchange because:

  • an unlisted entity may have inferior control and reporting systems;
  • there is no immediate market for an unlisted entity’s securities; and
  • unlisted entities are often less financially strong than listed entities.

Each investment also carries its own particular business risks such that they may be unable to achieve their goals regardless of the factors outlined in this section.

The performance of the Fund is dependent on the performance of the Companies that comprise the Underlying Investments as well as the Manager’s ability to achieve a sale of its shares in these Companies. There is a risk that, notwithstanding the best efforts of Add+Venture and CVC, investee companies may fail or not perform to a level which achieves expectations. Even if the investee performs adequately, there is no guarantee that the Manager will be able to realise or exit its investment so as to meet the Manager’s target rate of return. The realisation of the each investment will depend on various factors including general market conditions, many of which will be outside the control of Add+Venture or CVC.

Availability of Additional Investment Capital

Venture capital investments often require several rounds of capital throughout their growth and development phase. The inability of such a company to access additional capital following investment by the Fund may have a significant negative impact on the company and the value of the Fund.

Lack of Control

Investors in the Fund will have no ability to participate in the management, day to day operations or decision making of either the Fund or the Underlying Investments. Investors must rely on the Manager to manage both the Fund and it’s interaction with the Companies that form the Underlying Investments.

Reliance on the Manager and Key Personnel

The success of the Fund will depend largely upon the performance of the Manager.  The Manager is also dependent upon its directors and key personnel. There is a risk that these individuals may leave the employment of the Manager. The loss of a key executive may have a materially adverse effect on the Fund.

Liquidity Risk

Applicants should note that units in the Fund are not listed on a stock exchange and thus there is no ready market for them. Applicants should consider an investment in the Fund to be illiquid. As a consequence, there is a risk that unit holders may not be able to realise or sell their units or, if they do locate a buyer, that the sale price will be less than the amounts invested or may be at a discount to the original or existing value per unit. Investors may not have access to a market price for the underlying investment in the Fund they are wishing to exit.

Regulatory, Legislative & Governmental Policy Risk

The Fund’s performance may be affected by changes to regulations, legislation and/or governmental policy. For example, some of the underlying investments in the Fund may depend upon direct or indirect government subsidies for viability. Similarly, changes to the taxation laws and the interpretation of those laws could materially affect the operating results of the investor’s holding in the Fund or the Fund’s ability to distribute profits in a tax effective manner.

General Economic Climate

Changes in the general economic climate in which the underlying investments operate may adversely affect the financial performance of the Fund and the ability to realise or exit the investments. Factors that may contribute to that general economic climate include:

  • the sentiment of capital markets both in Australia and overseas, and volatility experienced from movements in share prices of publicly listed investments;
  • industrial disruption in Australia and overseas;
  • the level of direct and indirect competition faced by the companies into which the Trust invest;
  • the economic conditions and rate of growth of the economy in Australia and overseas;
  • interest rates in Australia and overseas;
  • currency exchange rates;
  • changes to the rate of inflation; and
  • changes in relevant taxation and other legal and administrative regimes and government policies in Australia and overseas.

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