INVESTMENT RISK ANALYSIS 

INTRODUCTION

All investments carry a degree of risk and usually the Information Memorandum ‘IM’ for an investment, describes some of the potential risks associated with the investment. In the investment context, risk is defined as the probability that an investment’s actual return is different from that investment’s expected return, including the possibility that the Member may lose some or all, of their original invested capital. The Investment is not guaranteed to generate returns. You will need to determine how much risk you are able or willing to tolerate before making an investment.

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An investment with a strategy that is considered to have a very high risk, profile, is not suitable for investors who are unable to sustain the loss of all or part of the sum invested, or who require predictable levels of return or liquidity.

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Unlisted investment entities, for which there is limited secondary market opportunity and therefore no liquidity until the realization of the business by the investment entity or the sale of the entity itself. Similarly, there is no secondary market for a investor’s investment in the entity and a investor’s ability to sell their Interests is limited to their own ability to find a willing buyer.

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This analysis does not purport to list every risk that may be associated with an investment in the now or in the future, and the occurrence or consequences of some of the risks described in this analysis may be partially or completely outside the control of the investment entity, the Issuer and any associates. There can be no guarantee that the investment entity will achieve its stated objectives or that any forward-looking statement, or forecasts, will eventuate.

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In the IM’s you examine, the selection of risks presented will be based on their assessment of a combination of the probability of the risk occurring and the impact of the risk if it did occur. Their assessment will be based on the knowledge as at the date of the IM, but there is no guarantee or assurance that the importance of risks will not change, or other risks will not emerge.

Before applying to invest, any prospective investor should satisfy themselves that they have a sufficient understanding of these matters, including the risks described in the Risk Analysis section of the IM, and should consider whether the investment is suitable for them having regard to their own investment objectives, financial circumstances and taxation position before investing.

If you do not understand any part of the IM, or, are in any doubt as to whether, or not, to invest, it is recommended that you seek professional guidance from your accountant, solicitor, taxation adviser, financial adviser or other independent and qualified professional adviser before deciding whether to invest. An investment in an investment entity is highly speculative and you may lose all your capital invested.

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RISKS SPECIFIC TO AN INVESTMENT ENTITY 

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No Guarantee

None of the Issuer or Entity, their related entities, officers or personnel, guarantee the performance of the Entity (‘Entity’ | ‘Company’), or the repayment of any amount invested or any rate of return. No one makes any representation as to the success or otherwise of the Entity.

 

Early-Stage Company

The investment entity may be an early-stage unlisted company with no long period of operational history and not readily available or accessible to investors. There is no guarantee of success for their business model. Investing in an early-stage company bears the highest possible investment risk with a high failure rate. This means that there is a greater possibility that you could lose all your capital when investing in this company compared to an investment with much less risk.

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COMPLIANCE WITH TAXATION LAWS

Investors should be aware that there is a risk that the entity may not qualify for any tax benefits quoted including those as an Early-Stage Innovation company if applicable, under taxation legislation.

 

Conflict of Interest Risk

There is nothing to prohibit the Issuer, Company, or their affiliates from engaging in any other existing or future business, and the Issuer, the Company, or their affiliates may provide services to other investors. The Issuer, Company, and entities related to or associated with them may co-invest in certain investment opportunities. There may be instances whereby the Issuer, Company or their affiliates have a conflict of interest because of their activities outside of managing the Company. Other present and future activities of the Issuer, Company and their respective affiliates may give rise to additional conflicts of interest.

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EXIT STRATEGY RISK

The Company may not be able to identify and reach agreement on a suitable exit strategy.

 

Illiquidity Risk

It may take a number, of years, for the investment in the Company to be realized. The Company has a notional term to realize the sale of the business or the company of five to ten years. There may be no liquidity during this time, and investors may not be able to redeem their underlying assets. Investors who require liquidity should not invest in the Company.

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Investee Risk

The Company’s business may fail or may not be as successful as expected at the time of Investment or may take longer than anticipated to realize capital returns.

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Key Staff Risk

Companies including early-stage, usually have few employees and rely on the Founder(s) to grow the business and deliver value. There is the risk that something happens to these key people which adversely impacts the value or prospects of the Company. The Company itself is exposed to key person risk to members of the management team. The loss of these key management personnel, or any delay in their replacements, may adversely affect the Company’s ultimate performance.

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Loss of Capital Risk

Investment in any Company, especially early-stage one is speculative and may involve the loss of all or part of the contributed capital.

 

Tax & Regulatory Change

There is a risk that there may be a change in the laws or tax regime in which the Company operates that may adversely affect the Company or investors returns from the Company.

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Valuation Risk

The valuation of businesses, especially early-stage, are influenced by the valuation of listed technology and newly listed early stage companies. There is a risk that there is a significant drop in the valuation of such businesses, and, also the share market in general, which in turn will have an impact on the valuation of the Company.

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Competitors & New Market Entrants

The Company may have a competitive advantage in a product and/or service, which it currently provides or offers. However, there is always a risk of new entrants in the market or that another organization may disrupt its business and market share.

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No historical Performance of the Entity

The Company where newly established may have no operating or performance history.

 

Compliance with Laws, Regulations & Industry Compliance Standards

The Company is subject to a range of legal and industry compliance requirements that are constantly changing. In addition, there is potential that the Company may become subject to additional legal or regulatory requirements as its businesses, operations, strategy or geographic reach grows and expands in the future.

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Technology Superseded by other Technology or changes in Business Practice

The Company participates in a competitive environment and relies on technology to drive business strategy. Technology is continuing to develop and is subject to rapid and continual change, while business practices continue to evolve. The Company’s success will in part depend on its ability to offer products, services and systems that remain current with changes in technology, regulatory environment, evolving industry standards and changing consumer preferences. There is a risk that the investee companies, its systems, processes and technology may not be able to keep up with such changes.

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Risk of Litigation, Claims & Disputes

The Company may be subject to future litigation and other claims and disputes, in the course, of its business. There is a risk that such litigation, claims, and disputes could materially and adversely impact on the Company and subsequently it’s performance. While the Company may undertake to make all reasonable efforts to ensure that it is not subject to impending or existing litigation matters prior to the allocation of capital, there is no guarantee.