Management of an early stage asymmetric co-investment fund.
City of Oulu, BusinessOulu | Published March 1, 2012 - Deadline April 10, 2012
1. The City of Oulu (the "Investor") requests your quotation to select a party (the "Management Company") suitable for the establishment and management of the early stage, asymmetric, closed end, co-investment fund (the "Fund"), defined in more detail (i) in the RFQ, Appendix 1 (ii) and in the Proposed Term Sheet (the "Terms") Appendix 2;
2. The Fund will be a public-private partnership with the target size of 35 000 000 EUR and operating period of 10+2 years. The Fund may invest into early stage companies in any industry sector and the focus area of the Fund will be agreed in joint and structured strategy work by and between the Management Company and the investor, as agreed in detail in the agreement (the "Strategy Work"). The Fund shall be in the form of a limited partnership and may consist of several separate limited partnerships, as deemed appropriate by the Management Company and investors of the Fund. The Investor has the right to nominate 2 members to the supervisory board, or equivalent, of the Fund and 2 members to the investment committee, or equivalent, of the Fund;
3. The Investor has made a decision to invest 5 000 000 EUR to the Fund. EU notification that is required for the use of the funds from European Union sources, namely, European Regional Development Fund ("ERDF"), is in process. Funds received from the ERDF during the current program period (2007 – 2013), if any, shall be invested by the end of 2015 and funds received during the following program period (2014 – 2020), if any, may be invested thereafter;
4. With respect to the (i) investment of the Investor, the required ratio of public and private investments is 50/50 and (ii) funding from European Union sources, the required ratio of public and private investments is 70/30. Practicalities due to above requirements are agreed in the agreement;
5. Private investors can make investments to the Fund or directly to the target companies and they will benefit from liquidation preference defined in the terms. Target is to leverage individual business angels as well as business angel networks in the investments and operations of the Fund. Investor has already had negotiations with the private investors and possible feeder funds but the Management Company shall be responsible for closing of commenced negotiations;
6. Management Company is expected to make at least 10 new first time investments into seed and startup stage entities per year during the first time investment period of the Fund. The first time investment period is defined in the agreement. Approximately 20-40 % of the amount invested may be first time investments in seed and startup stage entities with the investment amount per investment approximately up to 500 000 EUR and approximately 60-80 % of the amount invested may be follow up investments in startup and expansion stage companies with the investment amount per investment up to 2 500 000 EUR. The investment policy of the Fund is decided and amended through the strategy work;
7. The Fund shall be located in the City of Oulu and from the beginning at least one manager of the nominated Management Company shall be permanently placed in the Oulu area and nominated management company shall commit to increase the number of local managers when the size of the Fund exceeds 15 000 000 EUR, at the latest. The managers of the Fund may be changed during the management period of the Fund, only as agreed in the agreement;
8. The annual management fee payable to the Management Company by the investor or from the investment made by the Investor shall be:
(I) 300 000 EUR per year for the first two years or 2.5 % of the capital commitments given by the Investor, whichever is higher and
(II) Thereafter for three following years 2.5 % of the capital commitments given by the Investor and
(III) Thereafter 2.5 % of the investments made using the Investor’s capital.
Management fee is agreed in detail in the agreement and may vary between separate limited partnerships and investors of the Fund but, however, may not be more than 5 % of the capital commitments given by the investors of the Fund. In addition, the Management Company is entitled to the carried interest that is subject to so called Claw Back mechanism, as defined in more detail in the terms and finally agreed in the agreement;
9. The Management Company, Investor and other investors of the Fund shall enter into the management agreement and other required agreements (the "Agreement") that are based on the terms, the RFQ and standard market requirements. Requirements set forth in this RFQ and the terms are the minimum level and may be tightened up and detailed in the agreement. The agreement will define the tasks of the Management Company. The contract period starts from the signing of the agreement and stays in force for the term of the respective limited partnership.
Art. 2 activities related to the incorporation and management of the Fund.
1. The activities to be carried out by the management company will consist of incorporation and management of the Fund;
2. Costs incurred by the management company due to incorporation of the Fund (administrative fees, legal fees etc.) up to 100 000 EUR at most, may be covered from the investments made to the Fund or other financing provided by the investors for such purposes. incorporation costs in excess of 100 000 EUR shall be covered from the management fee payable to the management company. In case the nominated Management Company is a manager of one or more other funds, the Management Company shall keep the Fund and other funds separate and have a separate accounting for the Fund;
3. Fund may make investments to the target companies as follows:
1. Seed financing: is the investment in the study, assessment and development phase of an innovative idea, when the technical validity of the product/service is still to be demonstrated;
2. Start up financing: is the investment aiming for starting up a company, when the commercial validity of the product/service is not yet known, but a prototype already exists;
3. Expansion financing: is the investment provided for the growth and expansion of an existing company, which may or may not break even or trade profitably, for the purposes of increasing production capacity, market or product development, or the provision of additional working capital;
4. Target companies of the Fund shall have operation in the Northern Ostrobothnia area. Target companies shall be knowledge intensive companies aiming and having potential to fast growth on international markets. Target companies may operate in any industry sector;
5. Investments of the Fund will be made in the form of subscription of shares or other equity securities or quasi-equity (mezzanine) securities (the "Shares") of new or existing, non listed and knowledge intensive companies. Investments shall be made in accordance with applicable Finnish and European Community laws, the agreement and the investment criteria of the Fund. Investment of the funds received from public sources requires that also an investment of the funds received from private sources will be made at the same conditions. A quantity of funds received from private sources is 50 % when investing the funds received from the Investor and 30 % when investing funds received from European Union sources with the pre-notified Terms. The shares subscribed within one or more investment tranches cannot exceed 49 % of the of the aggregate and fully diluted share capital of the target company and investments to one target company may not be more than 20 % of the entire capital assets of the Fund;
6. Purchases of the shares will be carried out on the basis of an evaluation carried out by the Management Company in accordance with the investment criteria of the Fund. Purchases of the shares will be executed by the Management Company, in complete autonomy, operating in strictly private terms as independent operator and in accordance with traditional market economy principles. Investment Committee shall be consulted when making the investment decisions, as agreed in the agreement. The Management Company will be also responsible for finding and selecting one or more private investors for each target company that will agree on investing into the single target company at the same conditions of the public resources of the Fund: according to this principle, private co-investors will acquire and dismiss their shares simultaneously and at the same economic conditions the public investors;
7. The Fund cannot invest in companies in difficulty in accordance with EU Directives regarding State Aid assistance for the rescue and turnaround of companies in difficulty.
Art. 3 public resources.
1. Current public funds of the Fund are provided by the Investor and the investment period of such funds and related private funds shall be agreed in the agreement;
2. Additional public funds can be provided by the respective managing authority managing the ERDF or other funds from European Union sources (the "Managing Authority") and investment period of such funds and related private funds depends from the requirements applicable to such additional public funds;
3. EFRD funds received from European Union sources during the current program period (2007 - 2013), if any, shall be invested by the end of 2015;
4. The public funds indicated in paragraph 1 and the funds eventually made available in accordance with paragraph 2 must be divested within the expiring date of the agreement or in accordance with the requirements set for using the funds from European Union sources. Distributions in kind are not acceptable without separate agreement between the parties;
5. Transfer of the public funds from the investors to the Fund will be agreed in the agreement.
Art. 4 private resources.
1. In order to invest the public funds mentioned above in Art. 3, the Management Company shall guarantee, deal by deal, an additional amount of funds from private investors. Funds from private investors can be:
(I) Collected to the Fund and thereto invested to the target companies or
(II) Directly invested to the target companies.
With respect to the:
(I) funds received from the Investor, the ratio of public and private funds is 50/50 and
(II) ERDF funds received in accordance with the terms, the ratio of public and private funds is 70/30.
2. The ratio / percentage of the funds contributed by private investors as stipulated in the preceding paragraph shall be maintained by the Management Company even in the case of further increases in the amount of public funds invested to the Fund.
Art. 5 responsibilities of the Management Company.
1. In order to execute the transfer of the funds, defined above in articles 3 and 4, the Management Company must:
— Enter into the agreement with the Investor,
— Accept the amendment of the agreement in case the investment of the funds from European Union sources so requires; and
— Inform the Investor and the Managing Authority of any events affecting to the agreement, as amended.
2. Management Company shall send to the Investor, the Managing Authority and other investors of the Fund an annual report, which must include:
— The annual accounts of the Fund,
— A detailed list of the investments and exits carried out by the Fund,
— Amount of employees hired by the target companies before and after the investment,
— An analysis of the earnings and losses with regard to the divestment of the shares with an account of the managing expenses sustained,
— Problems faced and the solutions eventually proposed and adopted; and
— Any information required due to use of the funds from European Union sources or by the other investors of the Fund.
3. The Management Company must, in addition, provide the budget for the following year well in advance and keep available all documentation relative to the operations carried out in the six years following the last divestment of shares or termination of the Fund;
4. The Management Company is responsible for negotiating with private investors and target companies the terms and conditions of the investment that shall be identical for both the public and private investors and specified in the written transaction agreement.