1. What is the mechanism of disbursement of funds from the Surplus in Model No. 2 fund settlement on exits from Investments - are the Surplus funds to be paid to investors (Managing Entity, Private Investors and PFR Starter FIZ) in the order indicated in Section 23 p. i)--iii) of the Term Sheet or to be paid in parallel?
According to Section 23 p. i)-iii) of the Term Sheet (Rules for accounting for proceeds from Exits from Investments), the proceeds are paid under the distribution of the relevant part of the Surplus (after Carried Interest) in proportions corresponding to the interest of the individual investors, where such proportions are specified in the above section p. i)-iii) of the Term Sheet and add up to the amount of the Surplus (after Carried Interest). Given the above rule, the funds from the Surplus are disbursed to the investors (after Carried Interest) in parallel.
2. Is a company which operates economic activity X eligible to apply for funding under the Starter programme?
PFR Starter FIZ is a fund of funds, which means that funding will be provided exclusively through selected Financial Intermediaries who will be responsible for project search and investment in innovative projects in accordance with their investment strategy, which may include projects from various industries/sectors, and the choice of projects in specific areas will depend on the investment policy of the Financial Intermediary concerned. The company cannot apply for funding directly from the Starter Fund.
3. Will Tenderers be provided with details of the Tender evaluation criteria?
The areas to be analysed as part of the evaluation of Tenders and any preferences in the evaluation of Tenders are those indicated in Section 9 of the Call Rules. It provides information on the percentage (%) weighting of the various Tender evaluation criteria in the total number of points.
4. Can Follow-on Investments be made in any Group, i.e. A, B or C, where Group C investments would be allowed provided that such an undertaking was in Group A or B at the initial Investment date?
Yes, Follow-on Investments can be made in Group A, B or C Eligible Undertakings, in which the Financial Intermediary has previously Invested (Initial Investment), save that Follow-on Investments in Group C Eligible Undertakings are allowed provided that the initial Investment in such an undertaking was made at its Group A or B stage, subject to the terms and conditions set out in Section 9 of the Term Sheet.
5. Can a Private Investor be a (minority) shareholder in the Managing Entity?
A question about Section 25 of the Term Sheet concerning the definition of independence between a Private Investor and the Managing Entity. The facts:
- The Financial Intermediary is established in the form of a Closed-end Investment Fund (FIZ1), whose Managing Entity (PZ) is a company, one of the shareholders of which is an XYZ Group entity.
- One of the Private Investors who hold the Financial Intermediary's investment certificates is another Closed-end Investment Fund (FIZ2), which is managed by a third party operating in the market as an investment fund company (TFI), other than an XYZ Group investment fund company.
- The external investors attracted by the TFI for FIZ2 include investors affiliated with the XYZ Group.
- Among the current assets of the other Closed-end Investment Funds managed by the TFI are stocks of WSE-listed companies of the XYZ Group.
In the above case, are the Private Investor and the Managing Entity going to remain independent?
The answer is shared between the two above questions and it relates to the Managing Entity’s independence from Investors.
The criterion of a Private Investor's independence from the Managing Entity will be examined in a functional manner and always with reference to a specific factual situation, in which the following factors will be taken into account: (i) the ownership structure of the Managing Entity (ME) and of the Investor, (ii) the investor's corporate authorisations towards the ME, (iii) personal relationships and their nature, (iv) the investment committee structure - its composition and authorisations of its of members, (v) the structure of the rules for the acquisition of the right to Carried Interest. The independence criterion will be examined in terms of independence of the Managing Entity (and its Operating Team and Key Personnel) in the making of investment decisions. This is because the assumption is that the Private Investor, acting independently or jointly with a group of other related Investors, does not have an influence on investment decisions taken by the Managing Entity.
6. Can convertible bonds be a form of financing for a Financial Intermediary?
According to Section 12 of the Term Sheet, a Financial Intermediary will be financed by equity instruments, i.e. by taking and payment for shares, stocks, investment certificates or other equity interests issued by the Financial Intermediaries, with no financing of the Financial Intermediary by issuing convertible bonds envisaged. This is related to the limited scope of deposits that a closed-end investment fund can invest in.
7. Is the tax on civil law transactions (PCC) related to the increase in the Financial Intermediary’s equity charged against the investment budget or the operating budget?
The PCC tax related to the equity increase of the Financial Intermediary should be a component of the Operating Budget.
8. According to Section 8 of the Term Sheet, at least 70% of the value of the initial Investments in Eligible Undertakings will be invested in Group A Eligible Undertakings. Should therefore the remaining 30% of Investment funds be invested in Group B Eligible Undertakings?
According to Section 8 of the Term Sheet, at least 70% of the value of the initial Investments in Eligible Undertakings should be invested in Group A Eligible Undertakings, and therefore the remaining 30% of Investment funds will be earmarked for Group A and/or Group B Investments. The above limit applies to the initial Investments defined as Investments under the first investment agreement with a given Eligible Undertaking under the Starter programme, with the exclusion of Follow-on Investments. In addition, according to Section 8 of the Term Sheet, no more than 60% of the Investment Budget will be invested in Follow-on Investments, and therefore the value of the initial Investments will amount to no less than 40% of the Investment Budget.
9. A question concerning the interpretation of independence between the Managing Entity and a Private Investor. Is “independence” between the Managing Entity and a Private Investor maintained in the event that:
- the Private Investor holds less than 50% of shares in the Managing Entity and
- at the level of the Investment Committee, representatives of such Private Investor have a voting right, but do not have control over the decisions of the Investment Committee implementing the investment policy of the fund (the Financial Intermediary), i.e.: (a) such Private Investor may not block an investment decision taken by simple majority of the Investment Committee and (b) such Private Investor does not have a majority of on the Investment Committee?
In line with the answer above concerning the independence of the Managing Entity and the Private Investor, the criterion of the Private Investor’s independence from the Managing Entity will be examined in a functional manner and always with reference to a specific factual situation, in which the following factors will be taken into account: (i) the ownership structure of the Managing Entity (ME) and of the Investor, (ii) the Investor's corporate authorisations towards the ME, (iii) personal relationships and their nature, (iv) the investment committee structure - its composition and authorisations of its of members, (v) the structure of the rules for the acquisition of the right to Carried Interest. The independence criterion will be examined in terms of independence of the Managing Entity (and its Operating Team and Key Personnel) in the making of investment decisions. The assumption is that a Private Investor, alone or jointly with a group of affiliated Investors, should have no influence on the investment decisions taken by the Managing Entity. Having regard to the above, in the case specified in the question, an analysis will also include other criteria determining the independence of the Managing Entity and the Private Investor, e.g. personal relationships and their character, the structure of the rules for the acquisition of the right to Carried Interest, in order to confirm the independence of those entities.
10. Can the Financial Intermediary have its registered office outside Poland?
The Financial Intermediary should have its registered office within the territory of a Member State of the European Union or the European Free Trade Association (EFTA), or in a Member State of the European Economic Area, and in the case of entities whose registered offices are outside the territory of Poland, such entities should have a legal form similar to the legal structure of a closed-end investment fund, a Company or a Partnership Limited by Shares, respectively.
11. Can Private Investors’ contribution be already paid to the Financial Intermediary at the time of submission of the Tender?
We do not rule out the possibility of payment of a private contribution by Private Investors to the Financial Intermediary or to a dedicated escrow account at the time of signing the Investment Agreement (and not at the time of submission of the Tender). In principle, Private Investors’ contribution, together with the contribution of PFR Starter FIZ, should be paid according to the investment demand (for the implementation of an Investment in Eligible Undertaking/s) and in connection with the management fee.
12. How will the possession of the private contribution by Private Investors and the Key Personnel/Team be verified as part of the due diligence process, i.e. at what stage and how should it be duly demonstrated that the funds are available?
The private contribution will be examined as part of the due diligence process for the degree of its liquidity, i.e. the possibility to realise/sell the declared assets for the purpose of making, as soon as possible, the contribution of the required funds to the Financial Intermediary when needed.
The Private Investor, the Operating Team and/or the Key Personnel must demonstrate, at the time of due diligence, their ability to provide an equity contribution, e.g. by holding liquid assets. Liquid assets include, for instance, funds in a bank account, treasury bonds or liquid shares of a company listed on the Warsaw Stock Exchange, according to a statement from a broker’s account.
13. Is it possible to indicate additional persons in the Tender who would not make a financial contribution and who would not participate in Carried Interest, but who would be members of the Operating Team or Key Personnel throughout the stage of the Financial Intermediary’s existence, serving functions such as expert or analyst? How will they be evaluated under the Call procedure?
Not less than 1% of the share in the Declared Capitalisation of the Financial Intermediary must be provided jointly by the Key Personnel and/or the Operating Team, and the Rules do not specify any additional conditions as to the necessity of participation of each member of the Key Personnel and/or the Operating Team in the contribution of private funds, with the proviso that each of the Key Personnel members who declares commitment to the Financial Intermediary’s investing activity of not less than 32 hours a week must make a contribution as part of the Managing Entity’s contribution.
Not every member of the Key Personnel and/or Operating Team must participate in Carried Interest. In such a situation, it must, however, be borne in mind that pursuant to Section 9 (4)(H) of the Rules, one of the parameters of the evaluation of the tender is an effective incentive system, including presentation of the rules for the distribution of Carried Interest among the members of the Operating Team and/or the Key Personnel.
Under the Call procedure, the highest score will be given to the contribution which originates from the Key Personnel, followed by the contribution from other members of the Operating Team, and to a coherent incentive system which ensures the efficient operation of the whole team (that also persons who do not make contributions as part of the Managing Entity’s contribution).
14. Can foreign undertakings or institutions take part in the Call process under the Starter programme and must they, for that purpose, have a branch in Poland?
According to the Rules, foreign undertakings, institutions may take part in the Starter project, and the Financial Intermediary may have a registered office within the territory of a Member State of the European Union or the European Free Trade Association (EFTA) or a state belonging to the European Economic Area (subject to meeting other requirements according to the definition of a Financial Intermediary specified in the Rules), whereas the Private Investor may come from outside the aforementioned states.
15. Are co-investments of two or more Financial Intermediaries in one Eligible Undertaking allowed? If such co-investments are allowed, what are investment limits in a given Eligible Undertaking?
Co-investments of two or more Financial Intermediaries in a given Eligible Undertaking are allowed, with the exception of conflicts of interest.
The Investment limit of PLN 1 million under the initial Investment and up to PLN 3 million jointly for Follow-on Investments in a given Undertaking applies only to one Financial Intermediary.
The Investment limit in a given Eligible Undertaking amounts to EUR 15 million, according to the GBER Regulation. Therefore, a total value of Investments in one Eligible Undertaking under co-investment of a few Financial Intermediaries may not exceed EUR 15 million.
16. Is the schedule of the next calls for PFR Starter FIZ known yet?
Tenders under Call procedure No 4 can be submitted from 20 August 2018 to 7 September 2018. At present, it cannot be specified when the next call will be held, as this depends on when the processing of Tenders under Call 2 and 3 is completed, and on the number of Tenders received under Call procedure No 4.
17. With reference to Section 8 of the Term Sheet, is the following assumption concerning the structure of the investment portfolio correct: (i) no less than 40% of the Investment Budget will be invested in initialInvestments in Eligible Undertakings (and Follow-on Investments may constitute no more than 60% of the Investment Budget); (ii) at least 28% of the Investment Budget may be invested in Group A Eligible Undertakings (at least 70% of the initial Investments)?
The above assumptions concerning the thresholds of the investment portfolio structure are correct.
18. In the situation where the Managing Entity is a limited liability company, can natural persons or legal persons who are not, at the same time, members of the Operating Team or the Managing Entity, be a shareholder of such company?
The structure of the Managing Entity has a direct influence on the method and scope of implementation by the Managing Entity of its task of managing the Financial Intermediary, and therefore it should be clear, transparent and preventing a conflict of interest. The role and scope of rights and responsibilities of the Managing Entity’s shareholders should be clearly and precisely defined and will be subject to verification in the due diligence procedure for the ability of the Operating Team and the Key Personnel to take investment decisions, and to manage the Intermediary and potential risks. If the Managing Entity’s shareholder is to be a person other than a member of the Operating Team or the Key Personnel, his/her role must be clearly and precisely specified, including the reasons why the person is not a team member. If the person’s role in the ownership structure of the Managing Entity is not clear, the Managing Entity may fail the due diligence process.
19. In the case of exit from investments in individual Eligible Undertakings, hen and in what sequence are proceeds from the sale of property rights in an Eligible Undertaking transferred to Private Investors, the Key Personnel, the Operating Team and PFR Starter FIZ? Are proceeds from exits from Investments withheld until the end of the Financial Intermediary’s operation period?
Proceeds from the sale of property rights in an Eligible Undertaking are first transferred to the Financial Intermediary who has made investments in the Eligible Undertaking concerned. Proceeds from exists from Investments are not withheld (e.g. in the Financial Intermediary’s account) until the end of the Financial Intermediary’s operation and they are transferred in parallel (at the same time) to Private Investors, the Key Personnel, the Operating Team and PFR Starter FIZ in line with the selected model of accounting for exits from Investments (specified in Section 23 of the Term Sheet). The method of transferring those funds to investors is described in detail in the Investment Agreement and it depends on the legal form of the Financial Intermediary and the investors’ decision (the most common practice is a return by way of redemption of a part of the Financial Intermediary’s property rights).
20. If it turns out after exit from all investments that the capitalisation of the fund is lower than at the start, how will the contribution will then be returned to Private Investors, the Key Personnel, the Operating Team and PFR Starter FIZ?
Proceeds from exists from Investments are distributed between investors in line with the selected model of accounting for exits from Investments (specified in Section 23 of the Term Sheet).
21. The fund established under the Starter financing can have the form of a Joint Stock Company. In such a case, can PFR Starter FIZ transfer financing by taking non-voting shares in the Financial Intermediary?
PFR Starter FIZ will not take non-voting shares and it will be eligible for corporate rights equivalent to its equity share in the Intermediary.
22. Is a mechanism expected to be introduced enabling the Financial Intermediary/ Managing Entity to recover VAT in connection with the costs incurred as part of the investment activity of the Financial Intermediary/ Managing Entity in cooperation with PFR Starter FIZ?
The PFR Starter FIZ programme does not provide for the introduction of above-mentioned mechanisms.
23. In order to demonstrate the possession of funds for a private contribution, the Private Investor or the Operating Team/Key Personnel may use a credit/loan agreement concluded with a legal entity or a natural person, under which the Private Investor or the Operating Team/Key Personnel will have access to a credit facility/loan with a value corresponding to the amount of private contribution at any time?
The Private Investor and the Managing Entity should demonstrate the availability and “liquidity” of the financing declared to by contributed by the Financial Intermediary, which is a part of the due diligence process. Where funds come from a loan, the nature of such a loan will be examined, the degree of its collateralisation, the lender’s rights, as well as the repayment system presented by the Tenderer. None of the above circumstances may affect the continuity and effectiveness of management of the Financial Intermediary.
24. In the situation where the Financial Intermediary is a limited liability company, can natural persons or legal persons who are not simultaneously Private Investors, be a shareholder of such company? Will such persons always be treated as Private Investors?
The only entities appearing in the ownership structure of the Financial Intermediary are PFR Starter FIZ, Private Investors and the Managing Entity with regard to its contribution to the Financial Intermediary. No other entities are allowed to participate in the Managing Entity’s shareholding structure. The share in the Managing Entity’s shareholding structure is always related to the contribution made and each entity can act in only one of the above roles - Private Investor, Managing Entity or PFR Starter FIZ.
25. Is it acceptable for a Private Investor to be a member of the management board (and/or have a controlling vote on the board) in a company or a partnership limited by shares which is the Financial Intermediary?
A Private Investor must not be a member of the Financial Intermediary’s management board, as this would be directly in breach of the principle of independence of Private Investors from the Managing Entity.
26. Can the Financial Intermediary financed by PFR Starter FIZ co-invest with a fund from the NCBR Bridge Alfa programme? In this case, can the Financial Intermediary invest the maximum amount in a given Eligible Undertaking (up to PLN 1 million under the initial Investment and up to PLN 3 million under the initial Investment and Follow-on Investments jointly)?
The Financial Intermediary financed by PFR Starter FIZ may co-invest with a fund from the NCBR Bridge Alfa programme (implementing Investments in an Eligible Undertaking according to the above investment limits), subject to the limit of state aid for SME at the level of EUR 15 million and subject to other rules concerning state aid (prohibition of double funding of the same expenditure, rules of accumulation of state aid).
27. Please explain what authority to perform the tasks of the Financial Intermediary is referred to in Section 31 of the Term Sheet. What authority, if any, should a general partner and/or a partnership limited by shares have in the event that such company is the Financial Intermediary?
The Financial Intermediary should have and maintain all the authority required by law in order to conduct an investment activity of the Financial Intermediary where such activity requires the obtainment of the relevant authorisation, e.g. an entry in the National Court Register (KRS), the permit of the Financial Supervision Authority (KNF) in the case of Closed-end Investment Funds or the permit of the Office of Competition and Consumer Protection (UOKiK) for concentration, having a manager registered by the KNF as a manager an Alternative Investment Company, etc.
28. Is the financing offered to the Financial Intermediary refundable or non-refundable? From the point of view of the Eligible Undertaking (i.e. startup which obtains financing from the VC fund), is this refundable or non-refundable money?
In principle, the financing under the Starter programme is refundable at each level. The Financial Intermediary is obliged to return, as part of exit from Investments, the money obtained from Private Investors, members of the Operating Team / Key Personnel and PFR Starter FIZ. However, investments in an Eligible Undertaking should also provide the Intermediary with return of the invested capital and possible profits.
In the case of quasi-equity financing of Eligible Undertakings, they are obliged to return the borrowed capital, and in the case of capital financing of Eligible Undertakings, the financial settlement takes place in the event of exits from Investments, i.e. the sale of property rights to the Eligible Undertaking by the Financial Intermediary.
29. Can the Board of Investors be constituted by the Investment Committee or the Supervisory Board of the Financial Intermediary organised in the form of a partnership limited by shares?
The Investment Committee may not serve the function of the Board of Investors because, in principle, the Investment Committee should not have investors as its members, it is only permitted to appoint 1 member of the Investment Committee with a right of vote on investment decisions, as long as the members of the Investment Committee appointed by Private Investors do not have a majority of votes with regard to investment decisions.
30. Can we also assume, based on Section 16 of the Term Sheet, i.e. “The private Contribution to the Declared Capitalisation (i.e. the share in the Operating Budget and the Investment Budget) shall not be less than 20% of the Financial Intermediary’s Declared Capitalisation, with not less than 1% and not more than 20% (but in each case not more than the contribution of the Private Investor(s)) of the Declared Capitalisation to be provided by members of the Key Personnel and/or the Team as part of the Managing Entity’s contribution”, that the Managing Entity may be the identical with the Private Investor(s)?
No, according to the definition contained in the Private Investor Rules, this must be an entity which is independent from the Managing Entity. The contribution of the Managing Entity will be provided by members of the Management Team and/or the Key Personnel.
31. If the funds are paid to the Financial Intermediary in the proportion of 20/80 (Private Investor / PFR Starter FIZ), is it possible to take the shares in the respective proportion, e.g. 80/20, with a share premium? In this case, we refer only to the shares, and not the distribution of funds covered by one of the models described in the Term Sheet.
If the funds are to be contributed with a share premium, this must be done in the same proportions by PFR Starter FIZ and Private Investors. The ownership share of PFR Starter FIZ should reflect the capital commitment of PFR Starter FIZ.
32. At what level should the Private Investor’s independence be considered as at the initial Investment date – in relation to the Managing Entity or the Eligible Undertaking?
It is the intention of PFR Starter FIZ to ensure the independence of the Private Investor/ Managing Entity from the Eligible Undertaking as at the initial Investment date, whereas the independence of the Private Investor from the Managing Entity is to be ensured during the whole period of the business activity conducted by the Managing Entity for the Financial Intermediary.
33. Can a limited partnership be the Financial Intermediary?
No. According to the definition of Financial Intermediary, a Financial Intermediary is a closed-end investment fund company, a Company, a Partnership Limited by Shares or a collective investment institution established abroad (or in the case of entities established outside the Republic of Poland, an entity whose legal form is similar to that of the respective closed-end investment fund, Company or Partnership Limited by Shares); therefore, a limited partnership cannot be the Financial Intermediary (which follows from the investment restrictions under the Investment Funds Act).
34. In connection with the information in Section 16 of the Term Sheet (Amount of the private Contribution (contribution of the Private Investor(s) and the Managing Entity) to the Financial Intermediary), can the contribution from members of the Operating Team and/or the Key Personnel be invested directly in the Financial Intermediary (e.g. the taking of shares of a specific issue in the increased share capital of the Financial Intermediary being, for example, a partnership limited by shares directly by the Key Personnel (members of the Operating Team)) or only directly by the Managing Entity (i.e. first the taking of shares in the increased share capital of the Managing Entity by the Key Personnel (members of the Operating Team), and then the taking of shares of a specific issue in the increased share capital of the Financial Intermediary by the Managing Entity)? Is it therefore allowed to apply a mixed formula to the contribution made by the Key Personnel and/or the Management Team?
Pursuant to Section 16 of the Term Sheet, the contribution of members of the Key Personnel and the Management Team is made through the Managing Entity. This means that the members of the Key Personnel and the Operating Team make their contributions to the Managing Entity (e.g. by taking shares in the increased share capital of the Managing Entity), and only subsequently the Managing Entity makes its contribution to the Financial Intermediary.
35. In connection with the information in Section 12 of the Term Sheet (Form of financing of the Financial Intermediaries by PFR Starter FIZ), will PFR Starter FIZ and Private Investors be able to take shares in the Financial Intermediary within the authorised capital (in accordance with the rules defined in Article 444 of the Commercial Companies Code)?
Yes, they will, subject to the rules defined in Article 444 of the Commercial Companies Code.
36. A question about a different form of financing of the Financial Intermediary. Pursuant to Section 12 of the Term Sheet, the financing of the Financial Intermediary represents repayable financing by way of taking and paying for shares, stocks, investment certificates or other equity interests earmarked for the financing of the Investment Budget and the Operational Budget. Can the term “other equity interests” be construed as the issue of bonds convertible for shares/stocks of the Financial Intermediary? Does the tax on civil law transactions (PCC) decrease the investment budget or the operational budget?
The Financial Intermediary will be financed only in the equity form; hence, no financing is expected by way of taking bonds, including bonds convertible for shares. The term “other equity interests” is understood as equity interests that are foreign equivalents of shares, stocks and investment certificates, subject to the requirements for the domicile of the Financial Intermediary, defined in the Call Rules.
The tax on civil law transactions (PCC) on increases of the Financial Intermediary’s share capital is a component of the operational budget.
37. May the funds that constitute the private contribution of the Private Investor originate from exits from Investments which were financed through funds from Measure 3.1 of the Innovative Economy Operational Programme?
Beneficiaries who were implementing projects under Measure 3.1 of the Innovative Economy Operational Programme are required to further invest the funds originating from returns and these funds will still represent the provision of the de minimis aid to undertakings in the next “cycles” of their investments. Therefore, they may not be regarded as private funds and may not constitute a private contribution to the Financial Intermediary.
38. Does the average annual amount of Management Fees for each of the 4 years of the core Investment Period at 2.5% of the Financial Intermediary’s Declared Capitalisation (in accordance with Section 21 of the Term Sheet) include VAT?
Yes, the limit refers to the gross costs of the Financial Intermediary, including VAT.
39. Will certain legal forms of the Managing Entity/Financial Intermediary be preferred when selecting Financial Intermediaries? What requirements must be met by this entity in terms of permits and authorisations obtained?
No preference for the legal form of the Managing Entity/Financial Intermediary is planned; however, the Managing Entity/Financial Intermediary should have all required permits to carry out their activity, in accordance with the Tender under the Call (e.g. permit issued by the Financial Supervision Authority - KNF) or the necessary corporate approvals (not necessary at the time of signing the investment agreement with PFR Ventures).
40. A question concerning Sections 8 and 17 of Appendix 7 to the Term Sheet – do the above sections not stand in contradiction with each other? Is the minimum threshold for private contributions as part of the Investment in Group A Eligible Undertakings set at 10%?
Section 8 of the Term Sheet refers to the minimum share of Private Investors in the Financial Intermediary’s Declared Capitalisation and means that PFR Starter FIZ is not allowed to have a share bigger than 80% of the Financial Intermediary’s Declared Capitalisation.
Section 17 of the Term Sheet is a duplication of the provisions of Commission Regulation (EEC) No 651/2014 concerning the obligation to provide a minimum private contribution in each Investment, differentiated by the stage of development of the Eligible Undertaking. First, it must be noted that the limits under Commission Regulation (EEC) No 651/2014 are set out in the form of minimum limits, which means that they may be increased but not decreased. In addition, if the private contribution is provided at the level of the Financial Intermediary, the limits are not examined at the level of each Investment, but the Intermediary must achieve the private share ratio equal to the weighted average based on the investment size and the phase of development of the Eligible Undertaking. As Private Investors will in each case contribute funds in the same amount as their declared participation in the Declared Capitalisation, both for the Operating Budget and the Investment Budget, the actual private contribution for each Investment must amount at least to 20% of the value of the Investment.
41. A question concerning Section 8 of Appendix 7 to the Rules: Term Sheet: “Form of financing: (…) redemption possible only up to the limit of 10% of Investment value.” Does the definition of redemption mean purchasing shares from an existing shareholder/shareholders up to 10% of the Investment value?
Yes, it does. The rules of investing in Eligible Undertakings provide for the possibility of redeeming the equity interests from an existing shareholder/shareholders up to 10% of the Investment value, however an assumption has been made that the redemptions will apply to special situations of the Eligible Undertaking, e.g. a situation where minority shareholders do not plan to continue their co-operation with the Eligible Undertaking, and if the minority shareholding held by these shareholders is not redeemed, they will block the further growth of the company.
42. A question concerning Section 15 of Appendix 7 to the Rules: Term Sheet: “PFR Starter FIZ allows for the possibility to increase the Declared Capitalisation of the Financial Intermediary on condition that a significant part of the Investment Budget is invested as part of the original PFR Starter FIZ Contribution.” What is the meaning of “a significant part of the Investment Budget” and over what timescale will it be analysed?
The possibility to increase the Declared Capitalisation of the Financial Intermediary can be analysed from the moment the Financial Intermediary invests at least 50% of the Investment Budget in Eligible Undertakings, investing being understood as the transfer of funds to Eligible Undertakings. The levels of implementation of the Investment Budget that PFR Starter FIZ will refer to when making decisions to increase the level of the Declared Capitalisation will be the levels of implementation of the Investment Budget after 2, 3 and 4 years from the beginning of the Investment Period, amounting to 25%, 40% and 60%, respectively, which levels are set out in Section 15 of the Term Sheet.
43. A question concerning Section 21 of Appendix 7 to the Rules: Term Sheet: “Management Fees until the end of the Eligibility Period (irrespective of the duration of the Investment Period, i.e. also in a situation where the Investment Period ends before the end of the Eligible Period) may not exceed in aggregate 20% of the total contribution amount (i.e. the sum of the Management Fee and Investment contributions) paid to the Financial Intermediary.” Do Management Fees not exceeding 20% of the total contribution amount refer to the Eligibility Period of 4 years? If the Eligibility Period is extended, will the maximum fees be proportionally increased?
The limit refers to the Eligibility Period, i.e. the period until the end of 2023, and not to the Investment Period (4 years to be optionally extended). Depending on the date of signing of the Investment Agreement with the Financial Intermediary, and on whether or not the original (4-year) Investment Period will be extended, the Eligibility Period may: (i) include only the (6-year) Investment Period, (ii) include the (4-year) Investment Period and partly the Investment Exit Period.
44. A question concerning Section 22 of Appendix 8 to the Rules: Term Sheet: “After the Eligibility Period, the annual management fee shall not exceed 1.5% of the funds transferred as part of Investments by the Financial Intermediary to Eligible Undertakings (…)”. Assuming that 80% of the Investment Budget is used before the end of the Eligibility period, what will be the basis for calculating the management fee after the Eligibility Period?
The calculation will be made on the basis of funds contributed as part of the Investment by the Financial Intermediary to the Eligible Undertakings (e.g. in line with the example of 80% of the Investment Budget), but the funds contributed to the Eligible Undertaking will not count if the Financial Intermediary has made an exit or partial exit from such Investment), calculated pro rata temporis (i.e. taking into account appropriate periods of time) from the expiry date of the Eligibility Period until the earlier of 31 December 2029 or the end of the Period of Exit from Investment.
45. A question concerning Section 28 of Appendix 8 to the Rules: Term Sheet with regard to the participation of PFR Starter FIZ in making investment decisions as part of Investment in Eligible Undertakings. Will PFR Starter FIZ not be able to appoint a member of the Investment Committee in view of the foregoing?
Pursuant to Section 28 of the Term Sheet, PFR Starter FIZ reserves the right to appoint 1 observer of the Investment Committee of the Financial Intermediary without a voting right, whose role will be limited to examining the Investments being implemented for compliance with the Investment Policy, with the provisions of the Investment Agreement and the provisions of the EU and national laws. The observer of PFR Starter FIZ will not have a voting right, subject to the right of veto (limited right of veto) regarding investment decisions only where a given investment decision is contrary to legal provisions applicable to Investments made by Financial Intermediaries. In the case of a veto by the observer of PFR Starter, the Financial Intermediary will not be able to perform the Investment planned. The detailed rules for the exercise of the right of veto by PFR Starter FIZ will be set out in the Investment Agreement.
46. Total annual fee for management (the management fee) may constitute, on annual average, a maximum of 2.5% of the Declared Capitalisation of the Financial Intermediary and up to 20% of contributions made to the Financial Intermediary during the Eligibility Period (until the end of 2023). In the file “Appendix 7 Exhibit 1 Management Fee Model”, presenting the model of management fees, it is assumed that during the Investment Period the Financial Intermediary will use 60% of the Investment Budget - then the limits of management fees are not exceeded. The question concerns a situation in which the Financial Intermediary uses 100% of the value of the Investment Budget during the Investment Period (4 years), and the percentage of utilisation of the Investment Budget in individual years is higher than assumed in the aforementioned file and there are no exits from the Investment during that period – does it mean that the value of the management fee for a given year may exceed, on annual average, 2.5% of the Declared Capitalisation of the Financial Intermediary? What will then be a relation between both limits of the basic and variable fee? What is the correct way to prepare “Appendix 3 – Exhibit A – Financial Schedule” in such a situation and what management fees should be adopted as correct in the context of completing the form?
In the above case and in any other case during the Investment Period, lasting 4 years under the base option, the average annual management fee may not exceed 2.5% of the Declared Capitalisation of the Financial Intermediary, even though hypothetically it could be higher. In the event that the Investment is implemented at a high pace, there is a possibility of increasing the Declared Capitalisation of the Financial Intermediary, which will translate to an increase of the management fee amount, but the above fee limit must not be exceeded.
In the file “Appendix 3 – Exhibit A – Financial Schedule” it is necessary to enter in each case, i.e. irrespective of the pace of implementation of the Investment Budget and the pace of exits from investments, in the Investment Period concerned, the management fees in the amount not exceeding the annual average of 2.5% of the Declared Capitalisation of the Financial Intermediary.
47. Can the contribution of a member of the Key Personnel or the Operating Team come from the company in which such member is President of the Management Board and a majority shareholder with full decision-making powers? If so, how should then Exhibit B to Appendix 2 “Statement by Member of the Tenderer’s Team making a contribution to the Financial Intermediary as part of the Managing Entity’s contribution” be completed?
We assume that, in principle, the contribution to the Managing Entity will be made directly by members of the Key Personnel owing to their involvement in the structures of the Managing Entity and the relation between the provision of a contribution and the corporate rights in the Managing Entity and the entitlement to Carried Interest. While the provision of a contribution by a third party (a company controlled by the contributor) is not ruled out, it may complicate the Managing Entity’s structure and give rise to doubts as to the purposefulness of such a solution. In each case, the transparency of the ownership structure of the Managing Entity and the structure of contributions made, the acquisition of corporate rights and the right to Carried Interest will be subject to evaluation by PFR Ventures.
48. Where is the binding investment decision taken regarding the Financial Intermediary’s Investment in a given Eligible Undertaking – does it take place within the Team or the Investment Committee?
The Investment decision is taken by the Investment Committee. The task of the Investment Committee will be to take binding investment decisions concerning the Investments of the Financial Intermediary. The Investment Committee is composed, in particular, of members of the Team and it may also be composed of external experts and advisors, members appointed by Investors, and additionally a PFR Ventures observer serving as observer on the Investment Committee on the terms set forth in Section 28 of the Term Sheet.
49. Can the Financial Intermediary / Managing Entity conduct a commercial activity supplementary to the investment activity, closely connected to it (e.g. by serving a function of financial director for the portfolio companies, in-depth monitoring apart from owner’s monitoring, sale of analysis results to the authors of ideas in the situation when the investment is not implemented, etc.)?
The sole object of the Financial Intermediary’s activity is to source funds from investors in order to invest them in line with the Investment Policy adopted, so it may not conduct any other supplementary activity. In addition the Team members/Financial Intermediary/Managing Entity may not provide any paid services to Eligible Undertakings without the Public Investor’s consent.
All “supplementary” transactions between the Managing Entity/Team members and the Eligible Undertaking will be subject to monitoring and require consent from PFR Ventures based on rules relevant to the management of the conflict of interest.
50. Is it possible for a follow-on investment to be implemented as the second tranche of the initial investment that will be disbursed when the portfolio company achieves its preset targets? In such a case, all follow-on rounds would be set at the start of the initial investment, and the follow-on round would be launched automatically when the startup achieves specific targets?
No, both the initial Investment and the Follow-on Investment should be implemented as separate investment processes, in particular they should have separate Investment Agreements.
51. We are planning to apply for a fund structure which will be based on German law (German Fund GMBH and German Management Company GmbH, regulated by the German BaFin) and has its permanent office in Poland with two or three Polish employees. Will this be acceptable to PFR Ventures?
Yes, the Financial Intermediary may have a registered office within the territory of a Member State of the European Union or the European Free Trade Association (EFTA), or in a Member State of the European Economic Area, and in the case of entities whose registered offices are outside the territory of Poland, such entities should have a legal form similar to the legal structure of a closed-end investment fund, a Company or a Partnership Limited by Shares, respectively. Nevertheless, it is the intention of PFR Ventures to establish funds in as few different jurisdictions as possible in order to ensure efficient corporate governance of the activities of the Fund of Funds.
52. May two funds under the PFR Starter FIZ programme invest in a project within the same round of financing? Do any restrictions apply in this case?
Yes, funds under the PFR Starter FIZ programme may co-invest within the same rounds of investment. Co-investments of two or more Financial Intermediaries in a given Eligible Undertaking are allowed, with the exception of conflicts of interest. The Investment limit of PLN 1 million under the initial Investment and up to PLN 3 million including a Follow-on Investment in a given Undertaking applies to one Financial Intermediary. According to the GBER Regulation, the total limit of investment in an Eligible Undertaking is EUR 15 million, which can include amounts of Investment in the Eligible Undertaking from several Financial Intermediaries.
53. May the fund invest under the PFR Starter FIZ programme in a project in which an investment has previously been made directly or indirectly (e.g. through funds under the Bridge Alfa programme) by one of the Private Investors (if this is demonstrated in the due diligence process)?
Having regard to the fact that the Private Investor must meet the condition of independence (at the date of initial Investment) from the Eligible Undertaking, i.e. it is not related to the Eligible Undertaking concerned personally or by virtue of holding property instruments and/or any property relationships and/or by way of drawing any other financial benefits from them unless the Board of Investors gives its prior consent, investment in such a company or partnership is not possible owing to the dependence existing in this case between the Private Investor and the Eligible Undertaking.
54. What is meant by “The amount of Carried Interest set on an arm’s length basis”? Under the PFR Starter FIZ Programme Call procedure No 2, the Carried Interest level was set at 20% - 30%; can we consider this a market standard?
The difference between Call No 2 and Call No 4 is that in Call No 2 the Carried Interest level was specified by PFR Ventures, whereas in Call No 4 the Carried Interest level should be proposed by the Tenderer depending on the rate of return on the fund. The Carried Interest level of 20% - 30% is just an example value and can be considered as an example of an arm’s-length or market level.
55. What is the preferred value of the Team’s contribution to the Financial Intermediary? No expected amounts or percentage share in the Declared Capitalisation of the Fund have been specified.
The level of the Team’s investment in the Managing Entity/ Financial Intermediary should lend credibility to the Team’s motivation and commitment to activities of the VC fund, through the Team’s investments corresponding to a relatively significant proportion of the personal assets of each of the Team members (i.e. having “skin in the game”). The minimum total amount of the Key Personnel/Team members’ contribution as part of the contribution of the Managing Entity (General Partner, GP) is 1% of the Financial Intermediary's Declared Capitalisation and not more than the declared contribution of the Private Investor (Limited Partner, LP).
56. Can compliance with the formal criteria of investment projects under the PFR Starter FIZ programme be consulted before the due diligence process for particular projects?
Yes, owing to the intention to develop an effective cooperative relationship with Financial Intermediaries, preliminary consultations on a particular investment project’s compliance with the formal criteria of the PFR Starter FIZ programme can be undertaken before the formal Investment Committee.
57. A question concerning the Private Investor - natural person. Is it possible to reuse documents used for the previous Starter Call or are investors required to complete the documents again?
This is not possible, Private Investors are required to complete the documents again based on the forms of document provided for the purposes of PFR Starter FIZ Call No 4.
58. I have a question concerning the Key Personnel form. Will it be possible to submit a separate Key Personnel form for each member or is a single combined file required?
Both of the above options are acceptable, but for the sake of better clarity of information we recommend the submission of a single combined file.
59. The question concerns Section F of the Key Personnel form - Summary - if individual forms can be submitted for each member, can Section F also be submitted separately, because, as we understand it, the section is the end of the combined document?
Where separate Verification Forms for Key Personnel (Appendix 2) are submitted for each Team member, we will accept the separate submission of the summary Section F for all Team members.
60. Should the Carried Interest amount be accounted for in relation to the amount of the financial contribution made by Private Investors and the Managing Entity or in relation to their time commitment to the Fund?
The distribution of Carried Interest between the Team members can depend on many factors, including the declared time commitment, the declared financial contribution, investment/sectoral/entrepreneurial/other experience or potential with regard to smart money. Owing to a large number of factors, distribution of Carried Interest should be set individually and specified in the Tender.
The amount of Carried Interest for members entitled to Carried Interest should be determined on an arm’s length basis depending on the rate of return on the fund.
61. In the case the Managing Entity is a legal person, can a legal person linked to Key Personnel members by capital or personal relations be a shareholder of the Managing Entity, apart from the Key Personnel and other Team members? Owing to the activity pursued, such party may support the Managing Entity and the Financial Intermediary in sourcing prospective transactions, and provide expert support. In addition, in the team’s opinion, the participation of such party and hence its interest in the Financial Intermediary’s success will be conducive to the elimination of a potential conflict of interest.
We assume that, in principle, the contribution to the Managing Entity will be made directly by members of the Key Personnel owing to their involvement in the structures of the Managing Entity and the relation between the provision of a contribution and the corporate rights in the Managing Entity and the entitlement to Carried Interest. While the provision of a contribution by a third party is not ruled out, it may complicate the structure of the Managing Entity’s equity or corporate rights and give rise to doubts as to the purposefulness of such a solution. In each case, the transparency of the ownership structure of the Managing Entity and the structure of contributions made, the acquisition of corporate rights and the right to Carried Interest will be subject to evaluation by PFR Ventures. In the case of planned allocation of Carried Interest to a designated legal person, in evaluating a Tender we will take into account the share of potential other shareholders of the designated legal person in Carried Interest in relation to the scope of cooperation within the framework of the fund and the potential in the implementation of the fund’s investment strategy, including especially the area of sourcing investment projects and smart money.
62. In the case a legal person linked to the Key Personnel by capital or personal relations is a shareholder of the Managing Entity, apart from the Key Personnel and other Team members, how should the contribution of such a legal person be treated? Section 23 of the Term Sheet on accounting for proceeds from exits, reference is made to the contribution of the Managing Entity, whereas in the forms the contribution of individual natural persons composing the Key Personnel and other team members is required to be stated - thus, there is no place for stating the possible contribution of a legal person. Should it be treated e.g. as contribution of the Key Personnel member who controls such legal person? If this is the case, is such contribution calculated as part of the required contribution of the Key Personnel, or such Key Personnel member must make his/her contribution separately from his/her fully private funds? Can such legal person participate in the distribution of Carried Interest?
Such legal person can participate in the distribution of Carried Interest, but each case will be considered individually, and in evaluating a Tender of this type we will take into account the share of potential other shareholders of the designated legal person in Carried Interest in relation to the scope of cooperation within the framework of the fund and the potential in the implementation of the Fund’s investment strategy, including especially the area of sourcing investment projects and smart money. If a legal person is designated as a party entitled to participate in the distribution of Carried Interest in the Tender, please name the final beneficiaries of Carried Interest within the legal person concerned.
63. If the Initial Investment is made in a type B undertaking and the first sale is made within e.g. 1 year by the undertaking, will it automatically become a type B undertaking? Will then a follow-on investment be accounted for taking into account the private investor’s share of at least 40%?
According to the Term Sheet, Group B Eligible Undertakings have been operating in any market for less than 7 years following their first commercial sale, provided that commercial sale can be defined as sale conducted on a regular basis, with the exception of sale related to market testing.
In the case of a follow-on investment in an entity that has already started commercial sale, it will be accounted for taking into account the Private Investor’s share of at least 40% in accordance with the provisions of the Term Sheet.
64. What will be the procedure for possible changes in the Key Personnel? Given a long Investment Horizon of the fund, it is necessary to be prepared for possible changes, such as those resulting from contingency or family reasons. How will PFR Starter FIZ give opinions on and approve proposed new persons? Will specific formal requirements be defined for a new Key Personnel member?
The procedure governing possible changes of the Key Personnel members will be agreed at the stage of negotiating the Investment Agreement with the Tenderer, but one of the key areas of evaluation of the Tenderers taking part in each Call is the investment team’s potential to continue unchanged over the Investment Period and Investment Exits.
The requirements for a new Key Personnel member will be the same as for the existing members of the Key Personnel, but his/her experience should be not worse than the experience of a Key Personnel member to be replaced, so as to ensure that the Financial Intermediary’s potential to implement the investment policy does not deteriorate.
65. What is the possible annual level of the management fee in the case the investment period is extended by 1 or 2 years? In this case, do you still allow for the possibility of applying a fixed fee/ fee dependent on the Declared Capitalisation?
In case the Investment Period is extended by 1 or 2 years in accordance with the terms and conditions of the Term Sheet, the annual value of the Management Fee in the extended Investment Period will have to be agreed with PFR Starter FIZ, where in determining its amount PFR Starter FIZ will take into account (i) the level of the Investment Budget performance (the level of funds invested in Eligible Undertakings) at the end of the 4-year Investment Period, and (ii) the applicable annual limit of the Management Fee of a maximum of 20% of the total contribution amount paid to the Financial Intermediary in the Eligibility Period.
66. Upon the establishment of the partnership limited by shares the tax on civil law transactions (PCC) will become payable. Do you allow for a solution where the nominal value of stocks and consequently the value of common equity is set at e.g. 10% of the contributions, so as to minimise the PCC? Owing to the fact that the fund management fee does not allow much freedom in shaping the operating budget, we find it reasonable to reduce the establishment costs of the partnership so that the as large a part of the budget ad possible could be allocated to cover the cost of transaction sourcing and preparation, and remuneration of the team.
We understand the need to reduce the operating costs of the Financial Intermediary’s activities, but do not allow for arrangements that may involve tax optimisation mechanisms leading to potential tax risks. The nominal and issue value of stock and the share premium will be agreed at the stage of negotiating the investment agreement with the Financial Intermediary. In addition, at the time the partnership is established, the contribution declared as part of the Declared Capitalisation will not be paid in whole, and contributions will be made over time as the investment progresses and payments are made towards the Management Fee.
67. If the minimum thresholds of private funds as part of investment were to exceed the Private Investors’ share in the Financial Intermediary’s Declared Capitalisation specified in the Tender and the Investment Agreement, the Financial Intermediary may make further Investments in Group B and Group C Eligible Undertakings provided that additional private financing is acquired from Private Investors directly at the Eligible Undertaking level. How will the necessary private contribution be calculated in the case of an investment provided directly at the Undertaking level? If the declared contribution of Private Investors is 20% and the Financial Intermediary intends to make a follow-on investment in a type B undertaking acting under private contribution Model B, what amount of additional funds have to be invested by a third-party private investor at the Eligible Undertaking level - at 20% of the value of the proposed investment (given that the required private contribution for type B investments is 40%)?
The Financial Intermediary is required to choose in advance one of the Weighted Average Models (A or B) in accordance with Section 17 of the Term Sheet.
The necessary private equity of the level of the particular Investment in an Eligible Undertaking will be calculated from the Private Investors’ shares in each investment round and, in the case Model B of private contribution is selected, additional private financing and classification of the Eligible Undertakings targeted in those rounds under the specific Groups, i.e. A, B and C.
In the analysed case of a follow-on investment in a Group B Eligible Undertaking, if the Financial Intermediary selects Model B of private contribution and the declared contribution of Private Investors is 20%, then additional private financing at the Eligible Undertaking level must be 20%.
68. Are the costs of tax on civil law transactions (PCC) relating to an increase of the share capital in the Partnership Limited by Shares to be covered from contributions or from the operating budget/management fee?
The PCC tax related to the increase of the share capital in the Financial Intermediary’s Partnership Limited by Shares should be a component of the Operating Budget.
69. What is the typical level of the operating budget expected by PFR Ventures in the first year of the fund’s operation? Based on the experience of PFR Ventures, which budget items are usually underestimated and which are overestimated, if any.
The operating budget should be prepared by the Tenderer on the basis of the planned fund structure and it will be evaluated individually depending on the feasibility of the budget assumptions. Each of the budget items will depend on the Investment Policy adopted by the Tenderer, the Team’s structure proposed by the Tenderer and the related cost level.
70. Can you describe the due diligence process, including its duration, documents expected by PFR Ventures and the types of the studies involved?
The length of the due diligence process depends on the complexity of the structure and experience of the Team as well as the structure of the Managing Entity/Financial Intermediary and their relations, and of the Private Investors of the planned fund. The process consists of business, legal and reputational due diligence, and it may take about 1 month. The exact scope of the documents expected by PFR Ventures and the independent law office supporting the due diligence process will depend on the specific characteristics of the Tenderer and it will be communicated directly to the Tenderers who have been qualified for due diligence.
71. One of our Private Investors is another VC fund. Should the Fund Managers name all the shareholders of the VC fund in Appendix A to Appendix b(ii)?
It will be sufficient for the manager / managing team of the fund concerned, depending on its structure, to complete the data in Appendix A.
72. Can each Private Investor delegate its observer to the Investment Committee with no voting right?
No, according to the provisions of the Term Sheet, Private Investors can, in principle: (1) delegate one common observer to the Investment Committee with no voting right or (ii) appoint one common member of the Investment Committee with a voting right in taking investment decisions, unless members of the Investment Committee appointed by Private Investors have a majority of votes in taking investment decisions or the power to block investment decisions.
73. Private Investors have the right to appoint 1 observer on the Investment Committee with a voting right in taking investment decisions. Does this mean that a group of Private Investors (if there are several) delegates one common representative to the IC with a voting right?
Yes, according to the provisions of the Term Sheet, Private Investors may delegate one common member of the Investment Committee with a voting right in taking investment decisions, unless members of the Investment Committee appointed by Private Investors have a majority of votes in taking investment decisions or the power to block investment decisions.
74. Are proceeds from exits from investments distributed only after the last exit, when it is possible to calculate and charge Carried Interest, or after each exit, based on relevant assumptions (ruling out the risk that on final settlement a party would be entitled to less than it has already been paid)?
Proceeds from exits from investments are accounted for individually after each exit from investment at the level of return of Investors’ contributions under a given Investment throughout the operation period of the Financial Intermediary, whereas the payment of Carried Interest will take place after the return of the Financial Intermediary’s Declared Capitalisation (for a payment made before the end of the Eligibility Period) or after the return of the Financial Intermediary’s Capitalisation amount, increased by the amount deposited in the Escrow Account for the Management Fee (in the case of a payment made after the Eligibility Period, with the payment of Carried Interest in the due amount to be additionally secured by a legal mechanism (claw-back clause).
75. “The capitalised amount of management fees due after the Eligibility Period shall be paid to a dedicated escrow account...” How will the value be determined? Will this be the part of the Operating Budget undisbursed in the Eligibility Period, i.e. if e.g. a management fee is charged in the Eligibility Period representing a total of 13% of the amounts paid to the Financial Intermediary, the funds transferred will equal 7% of the amounts paid to the Financial Intermediary?
The capitalised value of Management Fees due after the Eligibility Period until the earlier of 31 December 2029 or the termination date of the investment agreement, will be paid to a dedicated escrow account before the end of the Eligibility Period. The total value of Management Fees due after the Eligibility Period will be calculated based on the assumption that Management Fees will be calculated as a product of the applicable percentage rate (fee due for one year) declared by the Tenderer, save that the rate will not be greater than 1.5% annually, and the value of forecasted Net Investment levels in the particular periods within the above period after the Eligibility Period, i.e. excluding funds obtained from exits from Investments (and then adjusted to semi-annual settlement periods).
76. The total level of the Management Fee must not exceed 20% of the total contributions made to the Financial Intermediary in the Eligibility Period Can the part of the management fee undisbursed in the Eligibility Period up to the above 20% be earmarked for investing activity?
The total level of the Management Fee must not exceed 20% of the total contributions made to the Financial Intermediary in the Eligibility Period However, the Financial Schedule under the Tender can provide that in the case the total management fee requested in the Eligibility Period is less than 20%, the investment part of the budget may then be more than 80% of the capitalisation.
77. Do you envisage an extension of the Eligibility Period? Currently, the Eligibility Period ends on 31/12/2023. This means that even assuming that the period of selecting Intermediaries and concluding Investment Agreements is completed by 31/12/2018, the management fee payment model presented by you in Sections 21 and 22 of Appendix 7 to the Call Rules is internally inconsistent. It assumes that in accordance with Section 21, in the 5th year of operation the variable fee will equal 2.5% of the amount of invested net funds, and according to Section 22 only 1.5%, as in January 2024 (after the 5th year) the Eligibility Period will already be over. If you do not envisage an extension of the Eligibility Period, should it be assumed in the budget that from the 1st half of 2024 the fee will already amount to 1.5% annually as a maximum?
The end of the Eligibility Period does not depend on the date the Financial Intermediary signs the Investment Agreement and it is 31 December 2023.
The Eligibility Period results from the provisions of Regulation (EU) No 1303/2013 of the European Parliament and of the Council, and it is changed automatically in case it is changed under the Common Provisions Regulation. At present, we are unable to say whether the Eligibility Period can be extended. If the Regulation does not change, it should be assumed that from the 1st half of 2024 the fee will already amount to 1.5% annually as a maximum, i.e. in line with the management fee levels after the Eligibility Period.
78. How should the provisions on Carried Interest thresholds be understood (Section 24 of the Term Sheet)? Does the percentage level of Carried Interest changing together with the Surplus (defined as proceeds from exists from investments remaining after all contributions are returned to Investors) refer to the whole Surplus or to the part of the Surplus in excess of a given threshold?
In such a case, the change of the Carried Interest threshold applies only to the Surplus in excess of a given threshold. For example, with the Carried Interest thresholds of 20%/25%/30%, if a return of 2.5x Capitalisation is achieved (i.e. Surplus of 1.5x Capitalisation), then Carried Interest will amount to 1 x 20% x Capitalisation + 0.5 x 25% x Capitalisation.
79. Are exits from investments expected to cover the total contributions to the Financial Intermediary or only the contributions to the Investment Budget?
Proceeds from exits from investments in Eligible Undertakings will be first earmarked for the return of Investors’ contributions, both contributions to Investments and contributions to the Management Fee, i.e. the return of total contributions.
80. Do Private Investors / the Managing Entity/ PFR Ventures obtain equity interests in the Financial Intermediary? If so, then on what terms?
Yes, the Team members, through the Managing Entity, Private Investors and Public Investor acquire (depending on the legal form of the Financial Intermediary) shares, stocks or investment certificates in the Financial Intermediary in proportion to the contributions made to the Financial Intermediary.
81. Who acquires equity interests in Eligible Undertakings at the time of the investment - the Financial Intermediary / Private Investors / Management Team?
Equity interests as part of Investment in an Eligible Undertaking are acquired by the Financial Intermediary in whom, in turn, equity interests are acquired by Investors.
82. When accounting for an exit from investment, die the Financial Intermediary simultaneously dispose of its shares in the project? Can more shares be acquired in the Investment Period than under the first investment agreement (e.g. through follow-on investments)?
As part of Investments in a given Eligible Undertaking, Follow-on Investments can be made, but an Investment exit is accounted for after the exit from the Investment which includes both the initial Investment and the Follow-on Investment .
83. What happens in the end with an unconsumed Investment and Operating Budget? (we assume their values at the onset but do not consume them in their entirety)
Payments of contributions by Investors take place as part of collection of the Management Fee for a given period and under specific Investments, i.e. Investors’ commitment is not paid in advance at the beginning of the Financial Intermediary’s existence, and therefore, in principle, the problem of unconsumed proceeds from Investors’ payments will not occur.
84. Does the Financial Intermediary have to hold in its bank account all funds from the Declared Capitalisation at the start of operations, or many can be paid in under the Investment Budget in line with the schedule for the financing of undertakings? How does it relate to the Operating Budget (does money have to be there at the start, or is it injected periodically)?
See the answer to Question 11.
85. What are the requirements (if any) for the submission of a business plan / SWOT / due diligence, etc. for eligible undertakings to PFR?
The requirements for the issues related to those mentioned in the question are specified in Appendix 3 to the Call Rules, i.e. Tenderer’s Investment Strategy Detailed rules will be set out in the Investment Agreement.
86. Do exits from investments take place gradually, separately for each undertaking, or there has to be one collective exit from all of them (relevant to NPV, cashflow)?
Exits from investments in individual Eligible Undertakings can take place gradually during the existence of the Financial Intermediary.
87. Can a Private Investor choose to finance only certain undertakings be held to account for them only, or it has to equally enter all undertakings (and be held to account for all of them)?
A Private Investor declares the commitment of contributions in a specific proportion to the sum of contributions of the Financial Intermediary’s Investors, where the Investors are required to make contributions at the declared percentage level within each Investment of the Financial Intermediary, i.e. it is not possible to select the Investments that the Private Investor wants to enter.
88. Can exits from investments take place before the end of the Investment Period (4 years)?
Exits from Investments can take place both in the Investment Period and in the Investment Exit Period.
89. At the end of the Financial Intermediary’s operation period, is the institution closed, dissolved, or it continues in perpetuity?
At the end of the Financial Intermediary’s operating period under the PFR Starter programme, in principle, such Financial Intermediary is liquidated after the prior accounting for the Investors’ contributions.
90. What happens to eligible undertakings that have failed? What is the path of exit from unsuccessful investments?
One of the ways of exiting unsuccessful investments from which a market-based exit is not possible, is to write-off such Investments.
91. What is the position of PFR Ventures on applications to the Polish Financial Supervision Authority (KNF) for an entry in the AIC register?
The position of PFR Ventures on this issue is available at:
https://www.pfrventures.pl/pl/aktualnosci/46/pfr-starter-fiz-informacja-dla-oferentow/
92. Is it acceptable that the Eligible Undertaking is listed on the New Connect market at the time of the investment?
Yes, the Eligible Undertaking may be listed on the New Connect market at the time of the investment.
93. Can funds from Financial Intermediary (PFR Ventures funds or funds from private investors) constitute own contribution for subsidies/grants?
The whole financing from VC fund granted to the portfolio company (both, funds from public investor and from private investors) cannot be presented as “contribution from own sources”/”private contribution” by the portfolio company for the purpose of getting grant.
