INTERNATIONAL BANDWIDTH SEIS 3 INFORMATION MEMORANDUM 2015/16

Transcription

1 INTERNATIONAL BANDWIDTH SEIS 3 INFORMATION MEMORANDUM 2015/16

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3 INFORMATION MEMORANDUM CONTENTS IMPORTANT INFORMATION 5 PARTIES 6 PART 1: SUMMARY 7 PART 2: INVESTMENT OPPORTUNITY 8 1. SUMMARY 8 2. INVESTMENT OBJECTIVE 8 3. INVESTMENT POLICY 9 4. INDUSTRY OVERVIEW 9 5. SECTORS WHY NOW? FINANCIAL ILLUSTRATION THE INVESTMENT ADVISERS MONITORING OF INVESTMENTS TAX RELIEFS LIQUIDITY INVESTMENT SUITABILITY 13 PART 3: THE INVESTMENT ADVISER AND THE MANAGER 14 THE MANAGER 14 THE INVESTMENT ADVISERS 14 PART 4: PORTFOLIO STRUCTURE, OFFER DETAILS AND FEES 15 PORTFOLIO STRUCTURE 15 SUBSCRIPTIONS 15 WITHDRAWALS 15 REALISATION STRATEGY 18 OFFER DETAILS 18 HOW TO APPLY 18 RIGHT OF CANCELLATION 18 CHARGES AND FEES 17 PART 5: RISK FACTORS 18 INVESTMENT RISKS 18 TAXATION RISKS 20 RISKS RELATING TO INVESTMENTS IN TELECOM MARKETS 20 POLITICAL RISKS 20 RISK REGULATION 20 OPERATIONAL RISK 20 NATURAL DISASTERS 20 CREDIT RISK 20 CURRENCY RISK 20 THEFT RISK 21 PRICE/COMPETITION RISK 21 FINANCIAL SERVICES COMPENSATION SCHEME 21 FORWARD LOOKING STATEMENTS 21 PART 6: TAX BENEFITS 22 SEIS RELIEFS 22 INHERITANCE TAX RELIEF 24 SEIS RULES 24 MINIMUM PERIOD CONDITIONS 24 ISSUING CONDITIONS UNQUOTED 24 GROSS ASSETS 24 AMOUNT RAISED 24 NUMBER OF EMPLOYEES 25 FINANCIAL HEALTH 25 CLAIMING SEIS RELIEF 25 PART 7: MECHANICS OF The Fund 26 NOMINEE 26 CUSTODIAN 26 CLIENT ACCOUNTS 26 APPLICATION OF FUNDS 26 REPORTING 26 CONFLICTS OF INTEREST 26 COMPLAINTS 26 PART 8: DEFINITIONS 27

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5 INFORMATION MEMORANDUM IMPORTANT INFORMATION THIS NOTICE IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION If you are in any doubt about the content of this Information Memorandum (Information Memorandum) and/or any action you should take, you are strongly recommended to seek advice immediately from an independent financial adviser authorised under the Financial Services and Markets Act 2000 (FSMA) who specialises in advising on investment opportunities of this type. Nothing in this Information Memorandum constitutes investment, tax, legal or other advice by Daedalus Partners LLP (Daedalus or the Manager) or the Sector Specialists and your attention is drawn to the section headed Risk Factors on page 18. An investment in the International Bandwidth SEIS 3 (the Fund) will not be suitable for all recipients of this Information Memorandum. This Information Memorandum constitutes a financial promotion pursuant to Section 21 of the FSMA and is issued by Daedalus Partners LLP, Hurst House, High Street, Ripley, Surrey GU23 6AZ; registered in England and Wales as a limited liability partnership with the registered number OC and authorised and regulated by the Financial Conduct Authority in the United Kingdom (with firm reference number ). The Manager is unable to give investment or taxation advice or to advise on the suitability and appropriateness of the Fund. This document has been approved by Daedalus for distribution to potential investors who will, prior to completing the Application Form: (1) have been advised by a financial adviser authorised by the Financial Conduct Authority that their proposed investment in the Fund is suitable in light of their personal circumstances; or (2) have provided Daedalus with a certificate attesting to their net worth or investment sophistication or to the restrictions on the amount they will invest in unlisted securities. The promotion of this SEIS fund may only be provided to individuals who meet the criteria for one of the following categories: (a) an existing client of an authorised firm that will confirm whether the investment is suitable for them; (b) a certified high net worth investor within the meaning of COBS 4.7.9(1)R; (c) a certified sophisticated investor within the meaning of COBS 4.7.9(2)R; (d) a self-certified sophisticated investor within the meaning of COBS 4.7.9(3) R; (e) a restricted investor within the meaning of COBS R; or (f) a professional client. The Manager has taken all reasonable care to ensure that the facts stated in this Information Memorandum are true and accurate in all material respects and that there are no material facts in respect of which omission would make any statement, fact or opinion in this Information Memorandum misleading. Delivery of this Information Memorandum shall not give rise to any implication that there has been no change in the facts set out in this Information Memorandum since the date hereof or that the information contained herein is correct as of any time subsequent to such date. The Manager accepts responsibility accordingly. This document is not intended to constitute a recommendation or provide advice of any sort to any prospective investor. Any references to tax laws or rates in this Information Memorandum are subject to change. Past performance is not a guide to the future performance and may not be repeated. The value of your investment can go down as well as up and you may not get back the full amount invested. You should consider an investment in the Fund as a medium to long-term investment. Investments made by the Fund are likely to be illiquid. No person has been authorised to give any information or to make any representation concerning the Fund other than the information contained in this Information Memorandum or in connection with any material or information referred to in it and, if given or made, such information or representation must not be relied upon. This Information Memorandum does not constitute an offer to sell or a solicitation of an offer to purchase securities and, in particular, does not constitute an offering in any state, country or other jurisdiction where, or to any person or entity to which an offer or sale would be prohibited. This Information Memorandum contains information relating to an investment in the Fund. An investment may only be made on the basis of this Information Memorandum and the Fund Management Agreement. All statements of opinion or belief contained in this Information Memorandum and all views expressed and statements made regarding future events represent the Manager s own assessment and interpretation of information available to them as at the date of this Information Memorandum. No representation is made, or assurance given, that such statements or views are correct or that the objectives of the Fund will be achieved. Prospective investors must determine for themselves what reliance (if any) they should place on such statements or views and no responsibility is accepted by the Manager in respect thereof. 5

6 PARTIES Manager Daedalus Partners LLP Shelton Street London WC2E 9JQ SEIS Tax Advisers Olswang LLP 90 High Holborn London WC1V 6XX Fund Administrator and Custodian Woodside Corporate Services Limited 4th Floor 50 Mark Lane London EC3R 7QR Nominee WCS Nominees Limited 4th Floor 50 Mark Lane London EC3R 7QR 6

7 INFORMATION MEMORANDUM PART 1 SUMMARY The following is a summary of the key points pertaining to the opportunity for subscription to the Fund and should be read in conjunction with the full text of this Information Memorandum. Investment Opportunity The International Bandwidth SEIS 3 ( The Fund ) will invest across a broad selection of high growth, start-up companies operating in the telecommunications and data sector. Investment risk will be diversified through the Fund's investment in a number of investee companies (each a Company). The Fund will be managed by Daedalus Partners LLP (the Manager) with each investor receiving a pro-rata interest in each investee company. The portfolio of investments will be carefully selected to deliver an attractive risk/return profile through a combination of diversified geographic exposure, customer spread and operational risk. Each Company is expected to adopt an established business model that exploits significant capacity constraints and benefits from transacting with a range of well capitalised telecoms operators, while leveraging the expertise of management teams possessing successful track records. All proceeds of the Fund are intended to be deployed into SEIS Qualifying Shares during the 2015/16 tax year, with HMRC advance assurance secured prior to any investment. Key Features of the Fund Balanced investment strategy that carefully mitigates risk through a well-diversified mix of bandwidth related opportunities; Extensive network of relationships and industry knowledge of the Investment Advisers to the Fund. Risks Investment in the Fund involves a high degree of risk. Past performance is not a guide to future performance and may not be repeated. The value of investments can go down as well as up and you could lose part or all of your capital invested. You should consider the Fund to be a medium to long term investment and that the investments made by the Fund are likely to be illiquid. Investors are strongly advised to seek independent legal, financial and tax advice before making a decision to invest. Full details of the risk factors and associated mitigation strategies can be found in Part 5 of this Information Memorandum. Benefits of the SEIS The Seed Enterprise Investment Scheme (SEIS) comprises a variety of tax benefits available to UK tax paying individuals, subject to investments complying with the relevant conditions and requirements. The tax benefits include the following: 50% income tax relief on qualifying investments of up to 100,000 per tax year, with the ability to set off against liabilities in 2014/15 and 2015/16 50% reinvestment relief against capital gains realised in 2014/15 and 2015/16 No CGT payable for gains realised on disposal of the investment if held for 3 years Tax relief on shares disposed at a loss. This means that a 45% taxpayer with sufficient income in the year of disposal may reduce their capital at risk to 27.5p per 1 invested 100% relief from inheritance tax for investments held for more than 2 years or immediately if investment qualifies as replacement property Offer Details Closing Date: 30 June Minimum Investment: 10,000 2 Minimum Fund Size: 900,000 Maximum Fund Size: 2,400,000 3 Charges Charges include: Each Company will pay an initial one-off fee to the Manager equivalent to 2.50% of the capital subscribed plus a fixed annual monitoring charge of 2,250 Annual custodian charges Performance fee to incentivise the Manager equivalent to 10% of any distributions (or amounts realised/payable) to the shareholders of each Company, subject to the investors in the Fund first receiving 125p per 100p invested (ignoring any tax reliefs). The performance fee shall increase to 15% once investors in the Fund have received 200p per 100p invested Shareholders will receive a minimum ongoing equity share in each Investee Company of 50% above the 125p threshold, reducing to a minimum of 25% above the 200p threshold. This participation is uncapped and will be received in perpetuity until disposal. Reasonable third party expenses incurred by, and costs of, the Manager and its affiliates in managing, administrating and providing services to the Fund and its investments may be charged to the Fund or the Companies as appropriate See Page 17 for full details of the costs and fees. How to Apply After reading the Information Memorandum and Fund Management Agreement please complete the Application Form and return to Woodside Corporate Services, 4th Floor, 50 Mark Lane, London, EC3R 7QR. 1 Subject to the Manager s discretion to extend or shorten the Closing Date. 2 Subject to the Manager's discretion to accept lower amounts. 3 Subject to the Manager s discretion to increase. 7

8 PART 2 INVESTMENT OPPORTUNITY 1. Summary The International Bandwidth SEIS 3 (the Fund) offers Investors a blended risk and return profile through access to a portfolio of high-growth start-up companies operating within the telecommunications and bandwidth sector. Each Investor will receive a pro-rata interest in each investee company (each a Company and together Companies) into which the Fund invests. Daedalus Partners LLP (the Manager) specialises in the design, implementation and management of alternative investment opportunities, principally across the telecoms, entertainment and renewable energy sectors. The Manager currently manages in excess of 22.5 million of investments which qualify for the benefits of SEIS and 43 million qualifying for the benefits of the Enterprise Investment Scheme (EIS). The Fund will benefit from the extensive knowledge and professional network of the Manager s specialist investment adviser team in identifying a diverse suite of start-up SEIS Qualifying Companies each operating within the vibrant telecommunications sector. The Manager is seeking to raise up to 2.4 million of capital for the Fund, which will close on 30 June Investment Objective The Fund aims to invest across a portfolio of high-growth, start-up companies operating in the telecommunications and bandwidth sectors. It is very difficult for these types of ventures to access fundraising due to the lack of understanding and knowledge of financial institutions in both the type of business and geographies targeted. At the same time, the characteristics of the destination countries mean that there is, locally, a paucity of capital. The Fund will offer invaluable financing for the development of the communications infrastructure in the selected emerging countries. These will stimulate economic development, facilitate trade and support social cohesion. The Fund should provide Investors with access to the types of returns accepted in and for these geographies in tandem with the downside protection afforded through the avoidance of credit risk, geographic diversification and the attractive tax benefits of the SEIS. The Investment Advisers are experienced in analysing the risks of investing in this type of project and will accordingly leverage their substantial industry knowledge and network of relationships to identify opportunities with a strong prospect of succeeding. Using the in-depth experience and skills of their teams, the Investment Advisers will provide the strategic and commercial support necessary to give the Companies the best possible start and a robust platform from which to maximise the potential for success. The Investment Advisers have identified an important set of unfulfilled telecoms bandwidth requirements across multiple regions. They are confident that they can source suitable investment opportunities into businesses that can satisfy these requirements, and in doing so will deliver substantial returns to Investors. Based on its wide-ranging industry knowledge, the Investment Advisers have assessed each opportunity as offering a unique return profile. Thus, subject to the capital raised by the Fund, portfolio diversification will be delivered through investing in multiple standalone businesses, each of which operate in one or more of the identified sectors. Two common features of all the targeted investments will be the strong mitigation of credit and foreign exchange risk. Investments will involve a mix of emerging markets and telecom sub-sectors. This dual-asset investment strategy is intended to ensure that the Fund is able to achieve a base level of returns for Investors, while also offering scope for significant, uncapped capital growth. The Sectors targeted by the Fund will comprise: Provision of International Fibre Optic cables Connecting Data Centres Internationally Delivery of Voice over Internet Protocol (VoiP) calls between points Delivery of International calls via traditional copper between points Outsourcing of international network requirements As a more general description, these sectors and services involve the provision of international bandwidth. 8

9 INFORMATION MEMORANDUM The Manager, based on advice received by the Investment Advisers, will invest into businesses that will work with telecoms carriers and corporates to either supply or supplement supply of international bandwidth, which will enable many valuable services to be run using this connectivity. The countries identified as having the appropriate characteristics are spread globally, including Europe (central and western), South America, Asia and Africa. The Investment Advisers will continue to review opportunities on a global basis. In all instances, the Fund will only invest in a Company once it has received assurance from HM Revenue and Customs (HMRC) that it should be carrying on a qualifying trade for the purposes of SEIS relief. In order to qualify for SEIS relief, shares will need to be held by Investors for a minimum of three years from the date shares are issued by the Company (the Minimum Period). Once this period has elapsed, the Manager will consider all commercial options for realising value from these investments. 3. Investment Policy The Manager intends to work closely with the Investment Advisers, who will be responsible for identifying and evaluating prospective projects and Companies for recommendation to the Manager, and for overseeing Companies once the Fund has invested in them. The Manager will exercise its discretion in deploying the Fund s capital, and in doing so will consider the recommendations and analysis provided by the Investment Advisers in relation to each Company. The Fund intends to deploy its capital across a diverse selection of small, start-up or high-growth businesses within the Sectors identified by the team of Investment Advisers. Each Company will have its own individual business plan and independent management team, including at least one independent director (each a Director) thereby assisting in diversification of risk. Seed capital will be deployed into start-up ventures primarily in equipment and associated required services in the destination countries. A small amount of capital will be deployed in network set-up and testing and working capital. Each Company will contract with a team in the destination country. These will normally be Mobile Operators or Internet Service Providers with the necessary technical knowledge to manage the network. The maximum investment by the Fund in any one Company will be 150,000 and all Companies will operate from within the UK. Investment will only be made into Companies which have received assurance from HMRC that they qualify for SEIS relief. 4. The Industry Context Telecommunications is a trillion dollar industry accustomed to double digit growth driven by the combination of innovation, economic growth and, more recently, the convergence of different technologies. A significant, very profitable and growing sector within Telecoms is the provision of international bandwidth. Strong growth continues, especially to and from emerging economies, stimulated by economic growth, population migration and improved telecom infrastructure. In many developing countries, the mobile handset is arguably the single most important discretionary possession. Indeed some would argue that it is not discretionary, with the number of handsets in use world-wide now exceeding the global population at over 7bn. International Telecoms operators continue to move to new Internet Protocol (IP) technology which requires ever increasing levels of International bandwidth to connect customers globally: Global Telecoms operators like Telefonica, BT, TATA, Deutsche Telecom have all invested in IP exchange platforms (IPX) for their future network requirements. The GSMA, which represents mobile operators and Mobile Virtual Network Operators (MVNOs), has publicly stated that future connectivity to mobile operators will be via IP and ever increasing demands for bandwidth, driven by the rollout of 4G mobile networks and LTE build out. New products that are now seen as standard for consumers all require more bandwidth such as mobile money transfer in Africa and internet speeds increasing in previously restricted geographies such as Iran and Pakistan. Due to the growth in IP, new Points of Presence (POPs) are appearing in different parts of the world month after month, all requiring connectivity. For example BT in Singapore and Miami, and Orange in the Ivory Coast. Spectrum licences, common in Western Europe and the US are now frequently auctioned off and awarded in developing markets as more broadband spectrum is opened up to mobile networks to cope with consumer demand. For example Hungary has awarded licences to the Hungarian subsidiaries of Vodafone and Telenor Global as well as Deutsche Telekom owned subsidiary Magyar Telecom on 29th September 2014, whilst Cameroon Telecom s mobile subsidiary was awarded the fourth mobile licence in Cameroon on 29th September

10 New data from TeleGeography s Global Bandwidth Research Service reveals that demand for international bandwidth grew 39% in 2012, the latest available data, and at a compounded annual rate of 53% between 2007 and International bandwidth demand growth has been robust on all five of the world s major submarine cable routes, but has been particularly rapid on key routes to emerging markets in Asia, Africa, the Middle East, and Latin America. While bandwidth demand on the trans-atlantic route which has long been the world s highest-capacity route increased at a healthy rate of 36% annually between 2007 and 2012, demand for bandwidth from the US to Latin America grew 70% per year over the same period, and demand for capacity on the Europe-Asia route via Egypt grew a staggering 87% per year. Telcos have kept up with increasing bandwidth demand by building new cables and upgrading existing systems, deploying a total of 54Tbps of new capacity between 2007 and Carriers new capacity deployments reflect the changing patterns of international bandwidth demand. Between 1997 and 2002, the amount of new capacity deployed across the Atlantic was greater than the amount deployed on the trans-pacific, US-Latin America, Intra-Asia and Europe-Asia routes combined. Similarly, between 2002 and 2007, nearly half of all new capacity was deployed on the trans-atlantic route. Over the past five years, however, new capacity deployments have become remarkably balanced, with each of the world s major routes gaining between 10Tbps and 12Tbps. While the total amount of lit bandwidth on routes to developing markets remains smaller than on routes between mature markets, demand on emerging market routes is growing much faster, said TeleGeography analyst Paul Brodsky. Consequently, as telcos upgrade submarine cable networks to meet bandwidth demand, new capacity deployments are being distributed ever more evenly around the world. The management of international traffic is stratified depending on the size of operators, volume of traffic on individual routes and the quality of the delivery infrastructure. Thus, the likes of Vodafone in the UK will have direct agreements with Deutsche Telekom for delivery of its services across the high volume network between the UK and Germany. Where volumes are smaller, traffic is managed by wholesalers. The above creates an opportunity for smaller operators as cost conscious corporates and countries with less developed infrastructures have a dependence on entrepreneurial players to provide cost effective infrastructure solutions as the capital expenditure budgets do not exist to self-build. The Fund will focus on countries where the Investment Advisors have pre-qualified that existing demand outstrips current supply and where existing supply does not meet the quality and service levels demanded by consumers and customers such as mobile operators. An important aspect of this entrepreneurial activity is the ambition of local ISPs to extend their activities to provide voice based services to their customers using the internet i.e. Voice over IP (VoIP). They have broadband connections but lack the capital to expand their activities. 5. Sectors As noted above and through its enviable network within the international telecom industry, the Investment Advisers intend to identify and evaluate prospective investments across the following Sectors: International Fibre Optic Cables The Investment Advisers are aware of increasing demand for the provision of cost effective data circuits between countries to cope with increased demand for international bandwidth. Data Centres There is increasing governmental and corporate interest in the provision of international data circuits to connect data centres that are used as hubs locally by telephone operators and ISPs. Voice over Internet Protocol Telecoms carriers continue to move to new IP technology as a cheaper alternative to traditional copper networks with a higher quality of service. International Calls over TDM The majority of telecoms traffic for emerging markets continues to be carried over traditional copper networks; whilst this traffic will migrate to internet based call systems, demand still exists. 10

11 INFORMATION MEMORANDUM Outsourcing Telecom operators, particularly mobile operators, are focusing more on their customer products and service so are increasingly willing to outsource non-core functions such as network build and maintenance whilst also avoiding high capital expenditure. 6. Why Now? During the last few years of recession in the developed world, a lot of attention was paid to the BRIC countries (Brazil, Russia, India and China) as well as countries like South Africa as the engines of growth. Less attention was paid to other smaller emerging markets, many of whom also witnessed strong growth over the last 5 years. While some of the lustre has fallen from the BRIC's, emerging markets are still maintaining their growth trajectory. Telecommunications is a fundamental infrastructure for these countries. However, many are heavily capital constrained. Thus many suffer from severe bottlenecks in satisfying demand. At the same time the global telecommunications majors have re-oriented their investments to fixed and mobile broadband, not least as data/content have become the prime drivers of profit growth in developed countries. This represents an excellent time for entrepreneurial businesses to exploit the growth opportunities in these countries. 7. Financial Illustration It is anticipated that Investors returns from the Fund will be derived predominantly through a realisation of shares in the SEIS Qualifying Companies. Following the expiry of a period of three years from the date of issuing the SEIS Qualifying Shares by the SEIS Qualifying Companies (the Minimum Period), the Manager will consider all options available to maximise the value of the Fund s portfolio. Investors should be aware that the Fund will be invested in small, unquoted companies and consequently, the shares are likely to be highly illiquid, since there will be no active market in such securities. Furthermore, the Manager may determine that the optimum time for realising value in the SEIS Qualifying Shares is later than the end of the Minimum Period. For illustrative purposes, it has been assumed that a disposal of the shares occurs three years and six months after the deployment of the Fund into the investee company. The Financial Illustration assumes that the Fund is fully subscribed and has invested proceeds equally across 16 Companies. Summary Financial Illustrations Base Case ( ) Target Case ( ) Cost of Investment 100, ,000 Less Income Tax Relief at 50% (50,000) (50,000) Less Capital Gains Relief at 14% (14,000) (14,000) Net Investment 36,000 36,000 Share Loss Relief at 45% 6,923 - Investment Proceeds 118, ,675 Total Return inc. Reliefs 125, ,675 Total Return on Net Investment 249% 457% Average Annual Return (3.5 years) 71% 131% Average Gross Equivalent Annual Return, assuming a 45% tax payer 129% 238% The above returns are set out for illustrative purposes only and are not a reliable indicator of future performance. The Fund will be invested in small, high risk ventures and therefore an Investor may not receive any Investment Proceeds, and may lose the entirety of their investment. The calculations shown above are net of all related fees, charges, expenses and taxes. No warranty as to future outcome is implied or should be inferred. Investors attention is drawn to the information set out at the front of this Information Memorandum and the specific risk factors referred to in Part 5 of this Information Memorandum. 11

12 8. The Investment Advisers The Investment Advisers to the Manager will leverage over 50 years of experience in the telecom industry and in emerging markets to identify and evaluate opportunities with tangible potential for success. The Investment Advisers will provide strategic advice and administrative support to each Company, where required, leaving the appointed management teams to focus on maximising long term value for Investors through operational and commercial trading activities. Further detail concerning the Investment Advisers can be found in Part 3 of this document. Through the Fund, entrepreneurs not only gain access to vital risk capital but also to a range of commercial and professional skills to assist in the establishment and growth of their businesses. This frees up each of the entrepreneurs to focus on precisely those areas where they can add most value utilising their expertise to successfully operate their businesses. 9. Monitoring of Investments The Manager and Investment Advisers will play an active role in monitoring and managing the performance of the Companies and in ensuring that the rights and interests of the Fund are appropriately preserved. To achieve this, one or more representatives of the Investment Advisers will be appointed to the board of each of the Companies prior to investment being made by the Fund. This will enable the Manager, via the Investment Advisers, to directly influence the principal operating and strategic decisions of the business to ensure that they accord with the mandate of the Fund. Through the Fund, each of the Companies will gain access to a team of qualified individuals experienced in strategy, marketing, finance and operations all of which are essential inputs for new ventures, but which entrepreneurs can little afford to pay for full time, this support is thus provided for a lot less than paying external consultants or hiring equivalent staff. This frees up each of the Directors and entrepreneurs to focus precisely on where they add the most value. 10. Tax Reliefs An investment in the Fund is expected to benefit from the tax advantages offered by the SEIS. Investors should obtain income tax relief (by way of a tax reducer) in respect of their proportionate share of each investment made by the Fund at 50% against their 2014/15 and or 2015/16 income tax liabilities. While the Fund expects to make investments in SEIS Qualifying Companies during the 2015/16 tax year, there is a carry-back facility under SEIS, which permits an investor to elect to also claim income tax relief against their 2014/15 liability. This means, for example, that if an investor has taxable income of 10,000 in each of 2014/15 and 2015/16, an investment of 20,000 in the Fund would enable the investor to reclaim income tax of 5,000 against each of their 2014/15 and 2015/16 income tax liabilities by electing for 10,000 to be treated as if subscribed for SEIS Qualifying Shares in each of 2014/15 and 2015/16. The claim may be made in respect of each investment made by the Fund once the Manager has been authorised to issue a compliance certificate by HMRC and SEIS 3 claim forms have been supplied to each Investor. This relief is limited to investments of up to 100,000 in total in SEIS Qualifying Companies in any one tax year. Gains realised on the first disposal of such investments are not chargeable to capital gains tax (CGT) providing they are held for at least three years from the date of share issue. 50% of capital gains realised by Investors on the disposal of other assets during the 2014/15 tax year will be exempt from CGT provided the investments made by the Fund during the 2015/16 tax year on behalf of the Investor are at least equal to the amount of such capital gains. CGT relief can be claimed by an Investor who elects to treat the investment in SEIS Qualifying Shares as if subscribed for during the 2014/15 tax year. The Investor must also have claimed the available income tax relief. 50% of capital gains realised by investors on the disposal of other assets during the 2015/16 tax year will be exempt from CGT provided the investments made by the Fund during the 2015/16 tax year on behalf of the Investor are at least equal to the amount of such capital gains. The investor must have also claimed the available income tax relief in full in that same tax year. Capital losses on investments can be offset against income in the year in which the loss is crystallised (and/or the preceding year), after taking account of the initial 50% income tax relief claimed (at the applicable rate). The above section provides only a brief summary of the tax reliefs available under the SEIS. A more detailed explanation of the tax advantages and conditions pertaining to the SEIS is set out in Part 6. The value of the tax benefits will be contingent on each Investor s personal circumstances and may be subject to changes in those circumstances or to changes in tax law. The Manager and the Investment Advisers do not provide tax advice and potential investors are strongly recommended to seek independent tax advice. 12

13 INFORMATION MEMORANDUM 11. Liquidity Each Investor will have an interest in the Fund that is pro-rata to the investment they make. The Fund will use the investment proceeds to subscribe for SEIS Qualifying Shares in unquoted companies, where there will be no active market. As such, Investors will most likely be dependent upon a realisation of the Fund investments by the Manager to redeem their investments. The Manager will consider options for realising value from the Fund portfolio, and returning funds to Investors, from the end of the Minimum Period onwards. The investment into the Companies is not expected to be readily marketable or realisable. 12. Investment Suitability This opportunity is likely to be suitable for individuals looking for a medium to long term investment and whose personal circumstances allow them to access the SEIS Reliefs, such that they are able to exempt capital gains (realised in 2014/15 or 2015/16) and/or access the income tax relief, for example: an investor who has sufficient income tax liability to claim 50% income tax relief under the SEIS; an investor wishing to claim reinvestment relief in respect of a year in which they also possess an income tax liability sufficient to use the 50% income tax relief available under SEIS. The minimum investment in the Fund is 10,000. Investors should note that the assets to be held by the Fund will be shares in small, unquoted companies (often very high risk) and that they may not have access to their capital for at least four years. 13

14 PART 3 THE INVESTMENT ADVISERS AND THE MANAGER The Manager will work closely with the Investment Advisers to implement the investment objectives of the Fund. The Investment Advisers have an in-depth appreciation of the telecoms and broadband industry and a wide network of contacts and experience which it will use for benefit of the Fund. Specialist industry advisers and management teams will be utilised where necessary to identify, analyse, transact and manage the Fund investments. The Manager The Manager is Daedalus Partners LLP, an investment manager authorised and regulated by the Financial Conduct Authority in the United Kingdom, which specialises in the creation, promotion and management of alternative investment funds across the fields of entertainment, real estate, telecoms and renewable energy. Stephen Norton - is a founder of Daedalus and is responsible for the sourcing and financial evaluation of investment opportunities. Prior to forming Daedalus, Stephen was the Chief Operating Officer of a leading alternative investment firm, structuring opportunities in the entertainment, real estate and renewable energy sectors. He has also worked as the Head of Finance at FilmFour and held a number of senior posts with Channel 4 Television. Stephen is a qualified accountant and holds an MBA from CASS Business School and is a member of the Chartered Institute of Securities and Investment. Gavin Harrison - As a founder of Daedalus, Gavin is responsible for the implementation and management of investments. He commenced his career at Arthur Andersen advising financial services clients, before moving into the entertainment sector where he worked as the Finance Controller for various film and music companies. More recently, Gavin was extensively involved in originating and structuring a wide range of media, real estate and renewable energy investments, including EIS-qualifying investments. Gavin is a qualified chartered accountant. The Investment Advisers The Manager will work with team of Investment Advisers to implement the investment objectives of the Fund. The Investment Advisers will negotiate separate remuneration arrangements with the relevant Company management teams. An Investment Adviser will be appointed to the board of each Company, to represent the interests of the Investors. The Investment Advisers are: Darryl Tishler is a partner in EV Capital, an early stage private equity boutique and investor. Currently Darryl is focussed on the fin-tech space and the creation of a digital lending platform, which includes Telecom Capital. Darryl was previously a Director at Montrose Global LLP, a private asset finance and leasing business founded and spun off by Bank of America. Prior to Montrose, Darryl was a Principal at Bank of America in its Leasing and Asset Finance Division. Darryl has an MBA from UCLA and a Bachelor s degree in Economics from UC Berkeley Mark Amoss - qualified as an accountant in 1997 before entering the telecom s sector where he has over 20 years of experience and has held a number of senior positions at Cable and Wireless and Colt as well as running his own telecoms consultancy business. Most recently Mark was at BT where he created and managed a margin development, program, he was GM of International Voice Products before ultimately becoming GM of International Voice Sales, BT Global Telecoms Markets. Mark left BT in June 2013 to join Telecom Capital where he is responsible for product and business development. Paul Meyer - is a vastly experienced programme manager within the Telecoms and IT sectors having worked with industry giants such as BT, Fujitsu and Energis /Cable & Wireless. Paul has a proven track record of building and motivating teams to successfully implement high value and strategically important business, driving revenue and cost controls that are clearly seen in the successful implementation of programmes. 14

15 INFORMATION MEMORANDUM PART 4 PORTFOLIO STRUCTURE, OFFER DETAILS AND FEES Portfolio Structure The Fund has been structured as an unapproved investment fund for the purposes of the SEIS legislation, but is not a separate legal entity in its own right. Rather, each Investor adheres to the Fund Management Agreement attached to this Information Memorandum. The proceeds of the funds will be aggregated for the purposes of making investments and the Manager will use these monies to subscribe for shares in Companies on their behalf. Consequently, Investors will hold, and be the beneficial owners of, SEIS Qualifying Shares in each Company pro-rata to their subscriptions to the Fund. The Manager, on the other hand, will be responsible for discretionary decisions in relation to the selection of, and exercising the rights in relation to, such investments. An Investor will not be able to require of the Manager to dispose of his or her interest in a Company prior to realisation of the Fund's overall holding. However, the Manager may, at its absolute discretion have regard to any requests made to it by Investors to liquidate any individual shareholdings in the Fund (but such termination may result in a loss of income tax and capital gains re-investment tax relief). Subscriptions The minimum individual subscription in the Fund is 10,000. While there is no limit on the maximum investment into the Fund, it should be noted that an investor may only claim income tax relief and capital gains re-investment tax relief on investments of up to 100,000 in any single tax year. Each spouse has his or her own annual limit of 100,000 and they are not aggregated. The limit applies to the aggregate SEIS investments made by an Investor within the tax year. The Fund intends to make investments in SEIS Qualifying Companies during 2015/16. An Investor should be entitled to elect to treat part or all of their investment as if made in the 2014/15 tax year, and therefore to claim income tax relief on subscriptions to the Fund of up to 200,000 in total. CGT reinvestment relief is available against gains arising in 2014/15 and or 2015/16 at a rate of 50% provided an income tax relief claim is also made in respect of the same tax year. If the amount of an Investor s subscription is such that his pro-rata beneficial interest in a Company amounts to more than 30% of the capital, voting rights or assets on a winding up, he will be connected with the Company and will, therefore, not be entitled to income tax relief or capital gains re-investment tax relief in respect of that investment. There is no limit on the value of assets qualifying for Inheritance Tax Relief. The minimum Fund size necessary to proceed is 900,000. The maximum Fund size is 2,400,000, subject to the discretion of the Manager to increase this amount. Withdrawals An Investor is not permitted to make a partial withdrawal of his investment from the Fund. At the sole discretion of the Manager, an Investor may be permitted to make an early withdrawal of his investment from the Fund, provided that he does so in full. Early withdrawal will result in termination of the Fund Management Agreement, in which case the relevant Investor s investments (whether SEIS Qualifying Shares and/or cash), will be transferred into the Investor s name. However, if a disposal of SEIS Qualifying Shares occurs before the end of the Minimum Period, that Investor would have to repay the initial income tax relief and any capital gains re-investment tax relief (if either or both has been claimed). The Manager s entitlement to the Performance Fee will survive any withdrawal. The Manager will have a lien on all assets being withdrawn by an Investor and will be entitled to dispose of some or all of the same and apply the proceeds in discharging such Investor s liability to the Manager in respect of damages or accrued but unpaid fees. The balance of any sale proceeds and control of any remaining investments will then be passed to the investor. 15

16 Realisation Strategy To qualify for SEIS Reliefs, Investors must hold the SEIS Qualifying Shares acquired by the Manager for the Minimum Period. The Manager anticipates that all subscription proceeds will be deployed, and SEIS Qualifying Shares issued during the 2015/16 tax year. Assuming that all investments can be realised, the Fund has a target life of between three and four years, but there can be no guarantee of this and so Investors should consider the Fund a medium to long term investment. The Manager will pursue a strategy of maximising returns for Investors when considering the value and timing of SEIS Qualifying Share disposals. Post realisation of the SEIS Qualifying Shares in each Company, the net proceeds will be paid to Investors. Consequently, it is possible that Investors will receive distributions from the Fund over a period of time. Offer Details Launch Date 7 April 2015 Closing Date* 30 June 2015 Minimum Fund Size 900,000 Maximum Fund Size* 2,400,000 *Subject to the Manager s discretion to extend the Closing Date and subject to the Manager s discretion to extend the Fund size. How to Apply Once you have read the Information Memorandum and Fund Management Agreement, please complete the Application Form which accompanies this Information Memorandum and return it to John Rowe, Woodside Corporate Services Limited, 4th Floor, 50 Mark Lane, London, EC3R 7QR. You will need to include as part of your application (i) the supporting documentation as requested therein; and (ii) a cheque made out to Woodside Corporate Services Ltd IBSEIS3, to arrive no later than 22 June 2015 or, in the case of payment by bank transfer, to clear no later than 30 June 2015 in the Custodian s client bank account. Right of Cancellation An Investor may exercise a right to cancel his or her Fund Management Agreement by notification to the Manager within 14 days of the Manager receiving the Investor s Application Form. This should be done by a cancellation notice sent to John Rowe as set out in this document. For convenience, a cancellation notice form is provided at the end of this Information Memorandum. On exercise of the Investor s right to cancel, the Manager shall refund any monies paid to the Fund by the Investor, less any charges the Manager has already incurred for any services undertaken in accordance with the Fund Management Agreement (but not any initial fees paid to the Manager). The Custodian is obliged to hold investment monies until satisfactory completion of checks under the Money Laundering Regulations 2007 (as amended from time to time). The Investor will not be entitled to interest on monies refunded following cancellation. The right to cancel under the FCA rules does not give an Investor the right to cancel, terminate or reverse any particular investment transaction executed for their account before cancellation takes effect. The Manager reserves the right to treat as valid and binding any application not complying fully with the terms and conditions set out in this Information Memorandum. In particular, but without limitation, the Manager may accept 16

17 INFORMATION MEMORANDUM applications made otherwise than by completion of an Application Form where the Investor has agreed in some other manner acceptable to the Manager to apply in accordance with this Information Memorandum and the Fund Management Agreement. Charges and Fees The following fees will be chargeable to each Company by the Manager (or Associate thereof) in respect of the Fund: Evaluation Fee Monitoring Fee Custodian Fee Performance Fee A one off fee of up to 2.5% of the amount invested in each Company by the Fund (charged by the Manager on the date of subscription to each investee Company) An annual fixed fee of 2,250 (charged by the Manager to each Company quarterly in advance from the date of subscription for SEIS Qualifying Shares) Annual Custodian fees will be charged by the Manager to each Company monthly in arrears. The Custodian Fee will be the greater of 10,000 per annum or 0.35% of the total subscriptions to the Fund. An amount economically equivalent to 10% share of any distributions (or amounts payable or realised) to holders of all share classes in each Company, subject to the investors in the Fund first receiving back 125p per 100p invested. The performance fee shall increase to a level of 15% once each investor in the Fund has received an amount equal to 200p per 100p subscribed. Such performance fees shall either be payable from proceeds realised by Fund or alternatively, through an economically equivalent holding of ordinary shares in the relevant Companies. All fees and costs are exclusive of VAT, which will be charged where applicable. The Manager or any affiliated entity shall be entitled to recover reasonable third-party expenses incurred in managing, administering and servicing the Fund and its Investee Companies. The reasonable costs of the Manager and any affiliated entity providing services to the Fund or the Investee Companies may be charged to the Investee Companies or the Fund (as appropriate), including legal, accounting, company secretarial, taxation, audit, insurance, administration, directors fees, transaction and all other associated costs. As a result of the fee structure, the Manager and Investment Adviser believe that their interests and those of the Companies wider management teams are fully aligned with those of the Investors. For the Manager or Investment Adviser to financially benefit to a significant degree from the envisaged arrangements, a Company must first, in priority, have yielded distributions or value for Investors of 125p per 100p invested (ignoring any tax reliefs). Shareholders will receive a minimum ongoing equity share in each Investee Company of 50% above the 125p threshold, reducing to a minimum of 25% above the 200p threshold. This participation is uncapped and will be received in perpetuity until disposal. 17

18 PART 5 RISK FACTORS Investors must carefully consider all of the information contained in this Information Memorandum and whether an investment in the Fund constitutes a suitable investment for them in light of their personal circumstances, tax position and the financial resources available to them. The Fund will be investing in unquoted, high risk companies and may not be suitable for all types of investor. Potential Investors are, therefore, strongly recommended to seek independent financial and tax advice from a suitably qualified professional adviser before undertaking an investment in the Fund. If in any doubt whatsoever, an Investor should not proceed. This section details the material risk factors that the Manager and Investment Advisers believe could adversely impact an investment in the Fund or the availability of tax reliefs to Investors. If any of the following circumstances or events arises, the financial position and/or results of the Fund could be materially and adversely affected; as could the availability of tax reliefs to Investors. In such circumstances, Investors could lose all or part of their investment. Additional risks and uncertainties not presently known, or that are deemed to be immaterial, may also have an adverse effect on the Fund and the risks described below do not represent an exhaustive list of risks factors. Investment Risks The value of SEIS Qualifying Shares and income from them can go down as well as up. An Investor may not get back the full amount invested and may, therefore, lose some or all of their investment. Assumptions, projections, intentions, illustrations or targets included within this Information Memorandum cannot and do not constitute a definitive forecast of how the Fund and/or its investments will perform, but have been prepared on assumptions that the Manager and Investment Adviser consider to be commercially reasonable. All investments of the Fund will be in small, unquoted start-up trading companies. Such companies generally have a very high risk profile and may not produce the anticipated returns, which could affect an Investor s ability to realise his or her initial investment. There may be difficulty in disposing of such investments at a reasonable price and, in some circumstances it may be difficult to sell them at any price even after holding the SEIS Qualifying Shares for the Minimum Period. Investments made by the Fund are unlikely to be readily realisable. Investor returns will be reliant on the commercial performance of the Companies, the contractual terms entered into with transaction counterparties and advisers, the financial health and performance of such contractual parties, fluctuations in currency rates applicable to counterparty jurisdictions, changes in technology and, to a lesser extent, the level of bank base rates from time to time. The performance of the Fund is contingent on the Investment Advisers being able to identify suitable Companies which carry on, and continue to carry on, an SEIS Qualifying Trade for the Minimum Period. There is no guarantee that the objectives of the Fund will be met. The Manager intends to invest the Fund across a portfolio of Companies following consultation with the Investment Advisers. However, there is a risk that the Fund s investments may still be relatively concentrated and the total return to Investors may therefore be adversely affected by the unfavourable performance of a small number of Companies. The Companies will typically have small management teams and therefore will be dependent to a large degree on the abilities and experience of a small number of people. In the event that the maximum size of the Fund is not raised, there will be less opportunity to diversify investments across a range of different projects, which may increase the volatility of returns. If the 900,000 minimum size of the Fund is not reached by the Target Closing Date, the Fund may not proceed and Investors monies may be returned without interest. Each Investor should note that it is possible that other taxes or costs arise for the Investor in connection with its investment in the Fund that are not paid via, or imposed by, the Manager. It may not be possible to meet the investment timetable, which would delay the availability of SEIS Relief, or could result in funds being returned to Investors, such that SEIS Relief would not be obtained in respect of this part of the Investor s 18