A2D Ventures Pte. Ltd.
GENERAL RISKS FACTORS
The risks of making investments in the investment opportunities introduced by A2D Ventures Pte. Ltd. Or its affiliates (“A2D”) arise both from the more general risks associated with the nature of the A2D‘splatform and the making of investments in early stage technology companies. The more general risksinclude, but are not limited to, those discussed below. For additional information regarding the morespecific risks related to the investment in a specific portfolio company please check our analysis for the specific company.
RISKS RELATING TO VENTURE CAPITAL INVESTMENTS
Prospective Investors in the SPVs Should Make Their Own Investment Decisions. The acquisition of securities in a particular portfolio company (each, a “Portfolio Company”) is expected to occur as soon as reasonably practicable after the closing of the subscription of a special purpose vehicle established by the lead entity (the “Lead”) for the purpose of such acquisition (each such vehicle an “SPV,” and collectively the “SPVs”). Each SPV will invest substantially all of the capital invested in such SPV (other than amounts allocated to the Fee and Expense Amount) in the applicable Portfolio Company as well as certain other investors. A2D or the Lead will not make any independent investment decision, analysis or recommendation on behalf of subscribers with respect to the substantive merits of a potential investment in a Portfolio Company.
By executing a Subscription Agreement to subscribe for subscription in a SPV (each such subscription, an “Investment”), each investor shall acknowledge and agree that (i) the Subscriber is not relying upon any information, representation or warranty by A2D, the Lead, any of their service provider, or any of their respective agents or representatives in determining to subscribe to SPV, to make any such investment decision, analysis or recommendation and (ii) it is making its own independent investment decision regarding whether or not to invest in such SPV with the knowledge and understanding that the SPV will invest substantially all of the capital committed to such SPV (other than amounts allocated to the Fee and Expense Amount) in the Portfolio Company and certain other investors. In the applicable Subscription Agreement, each Subscriber will give representations regarding the foregoing statements and other key considerations related to acquiring. Each acquirer of shares in an SPV is a “Subscriber” to SPV and collectively the “Subscribers”
Prospective Investors Cannot Rely on the A2D or the Lead’s Due Diligence. While A2D or the Lead shall conduct certain due diligence on the Portfolio Companies for purposes of services in the Portfolio Companies, none of A2D or the Lead shall independently verify the accuracy or completeness of the information provided to them, and investors should not rely (i) on A2D or the Lead’s verification of such information or (ii) on the fact that A2D or the Lead, have made or plans to make an investment in a Portfolio Company. Consequently, A2D or the Lead cannot and will not assure the accuracy or completeness of this information. In addition, some of the information provided by a Portfolio Company is based on such Portfolio Company’s own expectations, estimates and projections and cannot be relied upon as a guarantee of future performance, as the future performance of such Portfolio Company could differ materially. A2D does not intend to verify the assumptions on which the information provided by such Portfolio Company is based. It is possible that the A2D and the Lead shall prepare, may gain possession of or may review additional information relating to a Portfolio Company which is not included on this website and which information is not generally being made available to prospective investors in such Portfolio Company (through an SPV), including financial models, investment committee memos, investment analyses and other similar materials thereof.
Nature of Investing in Early-Stage Companies in General. Investing in early-stage companies involves a high degree of business and financial risk and can result in substantial losses. In order for an investor to succeed, it must be able to accurately identify potentially successful business enterprises at an early stage in their development, a process which is difficult even for those with extensive experience with such investments. Investment in seed and early-stage start-up companies is highly speculative, involves a high degree of risk and could result in the loss of part or all of such investor's Investment. In particular, each investment in an SPV is an indirect investment in a single Portfolio Company, and as such there is no diversification of risk. Moreover, there can be no assurance that the SPV’s investment objectives will be achieved. Therefore, investors should not subscribe for shares in any SPV unless they can bear a total loss of their Investment. Consequently, Investments are suitable only for sophisticated investors with substantial other assets who are capable of making an informed independent decision as to the risks involved in making such Investments, including the total loss of their investment in one or more SPVs and are able to bear such loss ultimately an accredited investor.
Nature of Early-Stage Investments. The Portfolio Companies in which the SPVs will invest are likely to face intense competition, including competition from companies with greater financial resources, more extensive development, production, marketing and service capabilities and a larger number of qualified managerial and technical personnel. There can be no assurance that the development or marketing efforts of any particular Portfolio Company will be successful or that its business will be profitable.
Many, if not most of the Portfolio Companies in which the SPVs will invest shall be unseasoned, unprofitable or have no established operating history or earnings and shall lack technical, marketing, financial and other resources. These companies may be dependent upon the success of one product or service, a unique distribution channel, or the effectiveness of a manager or management team. The failure of this one product, service or distribution channel, or the loss or ineffectiveness of a key executive or executives within the management team may have a materially adverse impact on such companies. Furthermore, these companies may be more vulnerable to competition and to overall economic conditions than larger, more established entities.
A2D's Investments opportunity will include companies at early-stages of development, including the seed and start-up-stage. Particularly in seed and early-stage enterprises, a major risk exists that a proposed service or product cannot be developed successfully with the resources available to the Portfolio Company. There is no assurance that the development efforts of any Portfolio Company will be successful or, if successful, will be completed within the budget or time period originally estimated.
Long-Term Investment. The Investments are long-term investments. The inherent nature of seed and early-stage investing dictates a significant length of time between the initial investment and realization of gains, if any. Early-stage investments, if successful, typically take five years or more from the date of investment to reach a state of maturity where disposition is possible. Investors must be able to bear the economic risks of an investment for an indefinite period of time.
Lack of Diversification. Each SPV will invest in a single Portfolio Company, generally, in the field of high technology or other industries and will be dependent upon such Portfolio Company’s performance. The performance of each SPV will be directly linked to the performance of the Portfolio Company in which it invests and the SPV could be severely impacted by adverse developments affecting such Portfolio Company and/or the industry within which such Portfolio Company operates.
Reliance upon Portfolio Company’s management. Although the Lead may generally seek to secure representation on the board of directors of Portfolio Companies and hopes to develop a good working relationship with the management of such companies, each SPV is not expected to have an active role in the day-to-day management of the company in which it invests. To the extent that the senior management of a Portfolio Company performs poorly, or if a key manager terminates employment, the SPV invested in such Portfolio Company could be adversely affected.
Lack of Control. the Lead generally may seek to locate and structure investments so that it will have some level of control over Portfolio Companies, at least as to major corporate decisions. However, A2D and the Lead expects that the SPVs will hold minority interests in most companies and, therefore, may have limited ability to protect their position and investment in the applicable Portfolio Company. Generally, as a condition to any investment, the Lead may seek to obtain special rights and protective provisions, which will be negotiated at the time of the acquisition of securities in the Portfolio Company. There can be no assurance that the Lead will be able to obtain such protective provisions, or that such provisions, if obtained, will be effective.
Subscribers Will Not Have any Direct Interest in the Portfolio Company. Investing in various SPVs does not constitute a direct or indirect offering of interests in the Portfolio Companies. Subscribers will not be equity holders of a Portfolio Company, will have no direct interest in a Portfolio Company and will have no voting rights in a Portfolio Company or standing or recourse against a Portfolio Company. Moreover, none of Subscribers will have the right to participate in the control, management or operations of a Portfolio Company, or have any discretion over the management of a Portfolio Company by reason of their Investment.
Illiquid Investments. The Portfolio Companies in which A2D expects to make investments will initially be privately held. As a result there will be no readily available secondary market for the SPVs’ interests in such Portfolio Companies, and those interests will be subject to legal restrictions on transfer. Therefore, there is no assurance that A2D will be able to realize liquidity for such investments in a timely manner, if at all. Unless a Portfolio Company subsequently succeeds in obtaining approval from the relevant authorities to list its shares on a recognized exchange, this avenue to liquidity will not be available, which must then rely on other means to achieve liquidity, such as acquisition of the Portfolio Company. In addition, if a Portfolio Company goes public, the SPVs may be precluded from selling their shares in the public Portfolio Company for some time after such Portfolio Company’s initial public offering. It may be difficult to value the interests of the SPVs in privately held Portfolio Companies.
Limited Operating History. Information contained on this website relating to the performance of prior investments made and managed by certain of the shareholders of the Lead is not necessarily indicative of the future performance of the SPVs and Portfolio Companies.
Risks of Certain Dispositions of Assets. In connection with the disposition of securities in Portfolio Companies, the Lead, on behalf of an SPV, may be required to make representations about the business and financial affairs of such Portfolio Company typical of those made in connection with the sale of any business. It may also be required to indemnify the purchasers of such securities to the extent that any such representations turn out to be inaccurate. These arrangements may result in contingent liabilities, which might ultimately have to be funded by Subscribers based on their pro rata Investment in the applicable SPV.
Distributions In-Kind. Although unlikely, the Lead may cause an SPV to distribute its securities in a Portfolio Company or other non-cash property. Any such distribution could put downward pressure on the price of a Portfolio Company’s securities and could reduce or eliminate such SPV’s influence in the Portfolio Company’s affairs. Further, distributions in-kind upon dissolution of an SPV may result in the receipt by investors of highly illiquid unregistered securities. An investor that receives assets other than cash from an SPV may incur substantial costs and delays in converting those assets to cash.
Reliance on the Lead. A2D or the Lead will have exclusive responsibility for managing the SPVs’ activities, and Subscribers, in their capacity as such, will not be able to make decisions in the management of the SPVs. Additional partners may be admitted to become the Lead in the future, existing partners may withdraw, and Subscribers will have no power to prevent any specific person from being admitted to, or withdrawing from, the Lead thereof. In the event that no one is no longer engaged in the active day-to-day management of SPVs or otherwise, there is no assurance that A2D will be able to locate further investments or successfully realize any existing investments which could have a material adverse effect on the operation of the SPVs.
Absence of Effective Remedies Against the Lead. There can be no assurance that adequate remedies will be available to any Subscribers if the Lead fails to perform its duties, and the applicable governing documents of an SPV affords such Subscribers with limited rights to remove the Lead. The governing documents of the SPVs include provisions for exculpation and indemnification of the Lead and its respective partners, members, managers, officers, directors, shareholders, employees and affiliates. Therefore, Subscribers may have more limited rights of action than they would have absent such limitation.
Restrictions on Transfer and Withdrawal. There will be no public market for the share in SPV. In addition, share in SPV are not transferable except with the consent of the Lead. Subscribers may not withdraw capital from the SPVs. Consequently, Subscribers may not be able to liquidate their investments prior to the end of an SPV’s term.
Certain Litigation Risks. The Lead and affiliates thereof will be subject to a variety of litigation risks, particularly if one or more of the Portfolio Companies in which the SPVs invest, face financial or other difficulties during the term of such SPVs. Legal disputes, involving any, or all of the Lead, its partners or its affiliates, may arise from the foregoing activities (or any other activities relating to the operation of the SPVs or the Lead and/or any affiliate thereof) and could have a significant adverse effect on the SPVs. For example, it is anticipated that the Lead, its affiliates or other representatives may actively assist Portfolio Companies in differing capacities (including by serving as officers, directors, or advisors). While this provides the SPVs with more opportunity to positively influence a Portfolio Company’s success, it can also lead to greater exposure of the SPV’s assets. In the event of a dispute arising from any of the foregoing activities (or other activities relating to the operation of the Lead and/or any affiliate thereof), it is possible that the Lead or any of its affiliates may be named as defendants. Portfolio Companies may have insurance to protect directors and officers, but this insurance may be inadequate. Under most circumstances, the applicable SPV will indemnify the Lead and its affiliates for any costs they incur in connection with such disputes to the extent such SPV is able. Beyond direct costs, such disputes may adversely affect the SPV in a variety of ways, including by distracting the Lead and harming relationships between certain SPVs and their Portfolio Companies or other investors in such Portfolio Companies.
Service on the Board Of Directors. Representatives, affiliates of the Lead or other investors may serve as directors of certain of the Portfolio Companies in which the SPVs invest. Such service, especially in light of the law (depending on jurisdiction) relating to corporate governance and scrutiny of corporate boards, could expose the Lead and its partners and affiliates to regulatory action and/or claims by Portfolio Companies, their security holders and their creditors. While the Lead intends to manage the SPVs in a way that will minimize exposure to these risks, the possibility of successful claims or adverse regulatory actions cannot be eliminated, and such events may have a significant adverse effect on specific SPVs.
In their capacity as directors of Portfolio Companies, such persons will be subject to fiduciary and other duties to the Portfolio Company on whose board they serve, which duties may on occasion conflict with the best interests of the investors.
Compensation Arrangements. the Lead or its affiliates may receive interest from the SPVs. Although the Lead and its affiliates may also be investing in the SPVs, this compensation arrangement may create an incentive for the Lead to make decisions regarding the investment in a Portfolio Company that are riskier or more speculative than would be the case if this arrangement were not in effect. In addition, the compensation arrangement may create an incentive to overvalue the Investment, including in the unlikely event of a distribution in-kind, for purposes of calculating the carried interest.
By investing in an SPV or several SPVs as Subscribers, Subscribers acknowledge that the Lead’s entitlement to carried interest shall be based on the performance of each SPV (without taking into account the performance of any other SPV); i.e., the Lead’s entitlement to carried interest shall be calculated on a non-cumulative “deal-by-deal” basis.