PFR Biznest

Appendix 7 Term Sheet

Notice of a Call No. 12 for Tenders for Financial Intermediaries

Rules for the Submission and Selection of Tenders Call of Tenders No. 12

Appendix 1 Tender Form

Appendix 2 Tenderers Team Form

Appendix 3 Appendix A Financial Schedule

Appendix 3 Financial Intermediaries Operating Concept

Appendix 4 Business Angels Ecosystems Partner Entities Form

Appendix 5 List of Potential Co-investment Projects

Appendix 6 Tenderers Statement

1. Can the Managing Entity own additional shares in the Eligible Enterprise?

The Managing Entity cannot own additional shares in the Eligible Enterprise. In the Coinvestment model, Members of the Team of the Managing Entity may make coinvestments with the Financial Intermediary in accordance with Art. 27 of the Term Sheet.

2. What are entrance terms and conditions for PFR Biznest FIZ (what % in the company)? Is there any other interference in the operation of this entity, apart from a representative with a limited power of veto?

PFR Biznest FIZ acquires no more than 96% of shares/stocks/investment certificates of the Financial Intermediary. Apart from a representative with a limited power of veto, PFR Ventures has neither other impact on the operation of the Managing Entity nor preferences for the composition of the board of directors/supervisory board. However, please remember that the assessment of the Bidder will focus of the Team, including Key Personnel, which should constitute the Financial Intermediary’s board of directors.
At the level of an investment in the Eligible Enterprise, the Financial Intermediary, together with coinvesting Business Angels, may acquire from 5% to 49% of shares in the Eligible Enterprise. (Art. 10 of the Term Sheet)

3. Can the Financial Intermediary invest in companies which were incorporated by subsidiaries of members of the Team of the Managing Entity or of advisors / a committee / Key Personnel or the very Managing Entity?

Because of the conflict of interest, the Managing Entity and Financial Intermediary may not invest in Eligible Enterprises where Members of the Team of the Managing Entity already own shares. The Eligible Enterprise must be independent of the Managing Entity, members of the Team of the Managing Entity and of coinvesting Business Angels.

4. Can a Business Angel which is a member of the Team in the Coinvestment Model acquire shares in the Eligible Enterprise via the Business Angel’s investment vehicle or must the shares be acquired by such a member in person?

In the Coinvestment Model, the Business Angel acting as a member of the Team of the Managing Entity may acquire shares in the Eligible Enterprise both in person as
a Business Angel (25-75% of Business Angels’ parts), as well as by via its own investment vehicle (which it owns in 100%).

5. Can members of the Team of the Managing Team perform management functions and receive remuneration in the Eligible Enterprises?

The members of the Team of the Managing Team can perform management functions in portfolio companies, but they cannot receive remuneration for such functions. The only form of remuneration for members of the Team of the Managing Team is a management fee from (1) the Financial Intermediary, (1b) Business Angels or (2) Carried Interest.

6. Must the Financial Intermediary exit the whole investment even if the project holds promise and develops/acquires further tranches of finance? Does the same apply to the Business Angel? Does the Business Angel have to leave the investment when it is left by the Financial Intermediary?

- Simultaneous exit is considered as best practice (this reduced the risk of conflict between the parties significantly). Such a solution is required from Business Angels and Financial Intermediaries.
- The Financial Intermediary and Business Angel define terms and conditions for their exit from the Investment in the Coinvestment Agreement. The major assumptions of the Coinvestment Agreement will be attached to the Investment Agreement between PFR Biznest FIZ and the Financial Intermediary. Investments must be completed by the end of the exit process, i.e. within 4 years of the end of the Investment Period, subject to potential extension in reasonable circumstances by 1 year or 2 years with the consent of PFR Biznest FIZ, however at the latest till 31 December 2031.

7. Do we understand it well that in the case of an exit from the Eligible Enterprise:
- Upon the sale of shares: up to 100% of share, proportionally to the invested amount, is distributed between Business Angels and the Financial Intermediary.
- Then, the surplus is paid out at the maximum: 65% to Business Angels and at least 35% to the Financial Intermediary. PFR Biznest and the Managing Entity are paid proportionally from money received by the Financial Intermediary.

Yes (Art. 30 of the Term Sheet)

8. Does the Carried Interest mean a surplus upon the repayment of the whole contributions of PFR Biznest and the Managing Entity? This is, for example, if PFR paid 10 million to the intermediary, only when 10 million is paid back to PFR, can a surplus and related Carried Interest be calculated?

Yes (Art. 30 of the Term Sheet)

9. Must the Managing Entity be dedicated solely and exclusively to the management of the Financial Intermediary?

Yes, the Managing Entity must be dedicated to the management of the Financial Intermediary.

10. Is the money paid back to PFR Biznest immediately upon the exit from the investment?

Yes (Art. 30 of the Term Sheet)

11. Can the Managing Entity negotiate and charge the Carried Interest on the surplus of Business Angels every time upon the exit from the investment?

No, the Managing Entity charges the Carried Interest in the portfolio settlement in accordance with Art. 30 and 31 of the Term Sheet.
The Managing Entity may charge Business Angels for a management fee (provided that it has been prior agreed).

12. When must the Managing Entity’s contributions for the Financial Intermediary and Business Angels’ contributions to coinvestments in the Eligible Enterprise be paid?

- The Managing Entity’s contributions: when the Investment Agreement is signed in accordance with the agreed schedule concerning the management fee and as at the capital call proportionally to the Managing Entity’s share in the Declared Capitalisation of the Financial Intermediary.
- Business Angels’ contributions to coinvestments: together with the Financial Intermediary when a coinvestment in the Eligible Enterprise is made.

13. If proceeds from the management fee amount 20% of the Financial Intermediary’s contributions at the maximum, must the Business Angel pay the same amount?

No, there is no such requirement. The management fee is negotiated with Business Angels.

14. A demand for employees increases when the investment grows. Can the remuneration of personnel be supplemented with the Managing Entity’s current revenues?

No, the Financial Intermediary must be a new, separate and independent structure and must finance its operations from management fees. A management fee and amounts budgeted in the Financial Schedule constitute the only source of income for the Managing Entity.

15. The total amount of the Financial Intermediary’s operating expenses must not exceed 20% in the Eligibility Period (till the end of 2023) and an average yearly value of Management Fees must not exceed 2.5% of the Declared Capitalisation. Does this mean that if we sum the management fee receivable from Business Angels, we can exceed the threshold of 20%?

Pursuant to Art. 20 of the Term Sheet, the total amount of the Financial Intermediary’s operating expenses, whatever the source of finance (i.e. Management Fees from PFR Biznest FIZ and the Managing Entity or Business Angel’s funds), must not exceed, in the Eligibility Period, 20% of total contributions of PFR Biznest FIZ, the Managing Entity and Business Angels (for the Financial Intermediary via PFR Biznest FIZ and the Managing Entity and to individual Coinvestments via Business Angels).

16. As regards Art. 21 of the Term Sheet: Does the table present limits of remuneration/costs financed from the Financial Intermediary’s resources or from resources of the Financial Intermediary and Business Angels (both fixed and variable remuneration)?

The table presents limits of remuneration from the Financial Intermediary’s funds (i.e. without Business Angels’ contributions to coinvestments). The costs are also financed on the basis of a variable fee, which will have a significant share in the total Management Fee if the rate of investment set out in Art. 16 of the Term Sheet is maintained. In addition, the costs may be paid with Management Fees from Business Angels.

17. How is the Managing Entity supposed to pay transaction costs in the first year if the Table in Art. 21 of the Term Sheet does not project any cost of variable remuneration? Do you not expect any investments in the first 12 months?

In the first year, the Managing Entity pays 50% of the transaction costs from the fixed Management Fee (2.5% of the Declared Capitalisation) and 50% from funds coming from coinvesting Business Angels.

18. The transaction part of the Operating Budget for individual investments is paid pro rate (50% from the Management Fee and 50% by Business Angels making a coinvestment with the Financial Intermediary, and in the case of continued investments in Eligible Enterprises from Group C respectively 40% and 60%). Does this mean that 50% of the transaction part of the Operating Budget, i.e. the part covered with a variable part of the remuneration, is to be paid by Business Angels?

No, the division into a fixed and variable part for the purpose of the breakdown into the Operating Part of the Operating Budget and the Transaction Part of the Operating Budget, as set out in Art. 20 of the Term Sheet, is not connected with the fixed or variable remuneration of the Managing Entity, as set out in Art. 21 of the Term Sheet. The Management Fees specified in the Table in Art. 21 of the Term Sheet refer only to fees receivable from the Financial Intermediary. Management Fees from Business Angels are not obligatory and are agreed between the Managing Entity and Business Angels. They make the Offer more attractive (however are not required) and the Bidder is to suggest the form they are to be charged.

19. When the Operating Budget and Investment Budget are developed, should we use 20% as the maximum Management Fee or 2.5% on the average per annum in each of 4 years of the basic Investment Period?

To prepare the Offer that complies with the Term Sheet, both limits must be obeyed.

20. As regards basic selection criteria and the level of the Managing Entity’s contribution. Are there any guidelines that define the impact of declaring a share greater than the minimum share of the Managing Entity in the Declared Capitalisation on the assessment?

Selection criteria and weights assigned to specific global criteria are defined in the Filing Rules. We do not publish information on detailed parameters of offer assessment.

21. If the offer is submitted by natural persons that will establish the Managing Entity in future, to which extent should fields concerning a contribution payable to the Financial Intermediary be filled out if the Managing Entity’s own contribution to the Financial Intermediary is planned to be paid via a limited liability company, which is to be the Financial Intermediary’s general partner?

A contribution to the Financial Intermediary will not be payable before the establishment of a Managing Entity which is to be a general partner of the Financial Intermediary. Thus, the contribution can be paid directly by the Managing Entity to pay for shares of the Financial Intermediary.

22. As the documentation can be prepared in Polish or English, is it possible to prepare a part of documentation in Polish and another part in English (in particular in the case of attachments concerning experience of individual team members)?

Yes, of course, the documentation can be prepared in mixed languages.

23. What is the required number of members of the Team if the Declared Capitalisation amounts PLN 15 million? Does 1 person hired for 32 hours/week suffice?

We hereby confirm that in the case of the Financial Intermediary of the Declared Capitalisation of PLN 15 million, it is enough to appoint 1 person who will declare to be involved 32 hours / week.

24. In what circumstances may natural persons file their application as Bidders?

The Offer may be submitted by natural persons as an authorised Bidder acting as (i) the Financial Intermediary in the case set out in Art. 7.2.3 of the Filing Rules and acting as (ii) the Managing Entity in the case set out in Art. 7.3.2 of the Filing Rules.

25. Should an own contribution of 4% to the fund amount be secured when an application is filed with PFR? After each investment proportionally? How?

The moment the Offer is submitted, the Bidder represents that it has 4% of the Declared Capitalisation (Appendix 2B), which will be verified at the legal due diligence stage.
The capital is drawn in accordance with the prior agreed fixed proportions from all Investors of the Fund, e.g. 4% from Team Members and 96% from PFR Ventures.

26. Should an own contribution of 4% to the fund amount be provided by key personnel?

The contribution of 4% of the Declared Capitalisation of the Financial Intermediary is paid (via the Managing Entity) by the Team Members. Thus, these should be persons employed with the Managing Entity, e.g. Partners, Managers or Fund Analysts. These may be also persons cooperating with the Fund, e.g. external Members of the Investment Committee.

27. Non-competition clause: potentially, the fund will be also managed by a person that acts for incubators and accelerators. This person advices such institutions and that is why they have experience. Will such a person be forbidden to take such actions during the life of the Biznest fund?

In this case, a potential conflict of interest connected with the Team Member’s activity for acclerators/incubators will be analysed. All conflicts of interest will be reviewed in a business way. At the investment agreement stage, all Team Members will guarantee their declared involvement and will waive other functions if they collide with time they are to spent for the fund.

28. Who is the Key Personnel? How many persons (one for 15 million, two above 15 million)? Is key personnel an otherwise defined body?

These are persons making investment decisions, who declare their time involvement of 32 hours a week and capital engagement (1 person for the Fund of the Declared Capitalisation of up to PLN 15 million inclusive, and 2 persons for the Fund of the Declared Capitalisation from PLN 15 million to 30 million). Members of the Investment Committee of the Financial Intermediary should be also Key Personnel.

29. Art. 27 of the Term Sheet refers to the Team Members’ share of 25% to 75% of Business Angels’ contribution in each coinvestment in the Coinvestment Model. Can Team Members make investments in the Non-coinvestment Model at a smaller scale? Or must the Managing Team always invest at least 12.5% (25% of 50% of Angels’ contribution) in the Coinvestment Model or 0% (in the Non-coinvestment Model)?

In the Non-coinvestment model, Team Members must not coinvest with the Financial Intermediary. In turn, in the Coinvestment Model, in accordance with Art. 27 of the Term Sheet, Team Members must coinvest with the Financial Intermediary at the same level in each Coinvestment, i.e. at least 25% of Business Angels contributions, i.e. at least 12.5% of Coinvestment contributions.

30. Can a person coming within key personnel in the Bridge Alfa programme be a Business Angel in the PFR Biznest programme at the same time?

Yes, as a rule, there are no contraindications.

31. Can the Managing Entity invest in companies that are beneficiaries of national or EU funds? Or can the investment be an own contribution or component of capital made of public funds?

Yes.

32. As regards the establishment of a company. Can we establish a limited liability company? If yes, does the contribution of PLN 1.2 million (4%) mean our share, i.e. we have 4% share and PFR holds 96% share in such a company? Please, describe what does it look like?

A legal form of the Managing Entity or Financial Intermediary is set out in §7 of the Filing Rules (“Terms for offer filing”). The Managing Entity contributes funds gradually and proportionally for the whole time and maintains the 4% contribution. PLN 1.2 million is a target own contribution.

33. What should be the share capital of the company mentioned above?

In accordance with the Code of Commercial Companies.

34. Who holds shares in the intermediary’s company? At what proportions? Is it also a shareholder of PFR? What does it look like?

Detailed principles for contributions are set out in Art. 15 of the Term Sheet (“An amount of the contribution of PFR Biznest FIZ and a private contribution of the Managing Entity in the Financial Intermediary”), which sets out, among others, that the contribution of PFR Biznest FIZ (refundable finance) in the Declared Capitalisation of the Financial Intermediary must not exceed 96%. The Managing Entity’s private contribution in the Declared Capitalisation (i.e. a share in the Operating Budget and Investment Budget) will not be smaller than 4% of the Declared Capitalisation of the Financial Intermediary and the declared share in the private contribution of the Managing Entity in the Declared Capitalisation of the Financial Intermediary is defined by the Bidder in the Offer, including interest in increasing the Declared Capitalisation under Appendix No 1 to the Filing Rules.
For example, contributions to the Financial Intermediary are paid proportionally, e.g. 4% by the Team and 96% by PFR Ventures sp. z o.o. This means that in the Fund with the Capitalisation of PLN 30 million, if the Team contributes PLN 1.2 million, it will hold 4% of the Fund.

35. Let’s assume that we have invested in the whole fund and we do not have any choice at the end. This means that we do not have any buyers of startups. This is a very negative scenario. Is it possible? What is going on them?

In this case, a settlement set out in Art. 30 of the Term Sheet (“Terms for settling investment exits”) is possible. The Team is not legally liable for achieving a negative rate of return provided that it has not violated the investment agreement with PFR Ventures sp. z o.o.

36. We have found an error in your file (i.e. Appendix No 3, financial schedule, cells from G7 contain cyclical references). Please, check whether the file works correctly.

In accordance with the instruction given in Cell A3, iterative calculation must be enabled:
File –> Options –> Formulas –> Enable iterative calculation
Please, use the above instruction.

37. Must the Managing Team pay the whole contribution (4%)? If no, who may pay the remaining part of the contribution? Can an entity that pays the remaining part of the contribution invest in startups?

The contribution should be paid by persons taking part in managing the Financial Intermediary in the Managing Entity. Thus, these should be Team Members (including members of Key Personnel) or Members of the Investment Committee, experts and advisors of the fund. Please, see the definition of the Managing Entity in § 1 of the Filing Rules (“List of abbreviations and definitions”). Team Members must not make additional investments together with the fund (it is only possible in the coinvestment model when such an option and fixed level are declared in advance).
Please, not that in accordance with Art. 12 of the Term Sheet (“Financial Intermediary”), the Managing Entity and PFR Biznest FIZ are sole shareholders/members of the Financial Intermediary during the operation of the Financial Intermediary.

38. What guarantees does the fund agreement provide for? For example, if the fund does not achieve the expected results (e.g. a rate of investment) for any reason and the situation is bad even if the size of the fund is reduced. How do you protect money in the agreement?

The investment agreement provides, among others, for the rate of investment between the Managing Entity and PFR Ventures sp. z o.o. (so called milestones in the Term Sheet). If major investment KPIs are not achieved, PFR Ventures sp. z o.o. will have, for example, the right to dismiss the Managing Entity or impose other sanctions, which are defined in detail during negotiations concerning the investment agreement between the Managing Entity and PFR Ventures sp. z o.o.

39. Must members of the Managing Entity have a track record of exiting companies? Is it sufficient that partners cooperating with the Managing Entity/Business Angels have such a track record?

The experience of members of the Team of the Managing Team is assessed in
a comprehensive way. Investment experience, including track record in existing companies, is precious and has a great impact on the assessment of the Team that is to manage an investment fund. Incomplete investment experience may be supplemented with transaction, corporate, business and other experience which may improve the quality of the investment process. Experienced partners and Business Angels that closely cooperate with the Managing Team may supplement the experience of Team members.

40. Must the Financial Intermediary be chosen at the application filing stage?

At the application filing stage, the Financial Intermediary or Managing Entity must be chosen/established. The Financial Intermediary or Managing Entity is established when the investment agreement with PFR Biznest is signed.

41. Is the contribution of 4% of the PFR investment to the Operating Budget paid by the Managing Entity to the Financial Intermediary in cash? Can the agreement provide for the payment of the contribution by the Managing Entity at the level of the Managing Entity otherwise than via the Financial Intermediary? I.e. the Financial Intermediary would pay 96% of the agreed management fee?

All flows go through the Financial Intermediary in the form of capital increase.

42. Is the Carried Interest from Business Angels paid on a deal-by-deal basis?

The negotiable additional fee from Business Angels will be cumulated upon each transaction in the special escrow account and will be transferred to Team Members when contributions to the Fund are refunded (i.e. when the return on the portfolio is 1x).

43. Must all Angels accepts the preference treatment of one of Angels at the same time? (Lead Carry, which is a cost of the Financial Intermediary and not of other Angels)

a. In the Non-coinvestment method, there must be one Leading Business Angel, which will cooperate closely with the portfolio company, in each Coinvestment. For their work, the Leading Business Angel will receive at least 5% of the Investment Surplus.
b. The Leading Business Angel may more than one 1 Business Angel taking part in the Coinvestment.
c. All relations between Angels and the Managing Entity are governed by the Coinvestment Agreement, which is negotiated between Business Angels and the Managing Entity.

44. Can transaction costs of transactions that are closed be included in the Investment Budget (i.e. not come in 50% from the management fee)?

All transactions costs of the Managing Entity are payable from the Management Fee.