The following chapter describes our investment process. The Board, advisors and management team are involved in-depth in each process to ensure that our investments are in line with our investment objectives and strategies.
Sourcing of Investment Opportunities
The Company has a stable deal flow and often has access to proprietary deals based on our successes and the relationship with strategic partners, and advisors. We will continue to seek out and create proprietary deals, and, with our experience and networks, will have the opportunity to invest more significantly in such deals.
Evaluation of Investment Opportunities
A typical investment will be focused on companies seeking expansion round financing. The Company can best contribute to its portfolio companies during this period. In addition, this investment stage offers the best leverage for investment return and enables a larger number of smaller investments providing optimal risk diversification. A typical investment at this stage will be in companies with valuations under A$ 15 million. This valuation stage vastly improves the leverage for companies that achieve successful exit strategies.
Once an investment opportunity is identified, the due diligence process commences. The objective of the due diligence process is to identify attractive investment opportunities based upon the facts and circumstances surrounding an investment and to prepare a framework that may be used from the date of an acquisition to drive operational achievement and value creation. In general, the Manager will focus on the following applicable factors with respect to each proposed investment:
- Depth at executive and operating levels
- Incentive structure
- Experience and references
- Size and projected growth rates
- Competitive landscape
- Product cycles
- Regulatory climate
- Product and customer base
- Distribution channels
- Capital structure
- Supplier relationships
- Financial controls and systems
- Historical financial performance
- Growth plans, cost of growth and potential stress points
- Competitive positioning
- Likely Exit Strategy
Development of Investment Memorandum
After completing the due diligence process, the Manager will prepare an investment memorandum that will present a summary of the proposed investment. The investment memorandum will describe the target business, its management and financial performance, the transaction structure, proposed exit strategies, projected returns and investment risks, as well as include the sensitivity analyses undertaken by the Company.
This memorandum will provide the basis for a preliminary dialogue with investment committee. If the investment committee responds favourably, we will proceed to the negotiation phase of the process.
Negotiation of Investment Terms
We will actively negotiate the terms of a proposed investment. We will identify the key drivers of investment returns and risks in evaluating the attractiveness of an investment and will negotiate the terms of a proposed investment by the Company in an attempt to mitigate these risks.
The management team will submit a final investment memorandum summarizing the opportunity in the proposed company to the investment committee. The investment committee will then conduct a review and discussion of the transaction with the management team and decide if the proposed investment should be recommended to the board of directors. If the board of directors approves the transaction, the Company will proceed to close on the transaction.
Monitoring of Investments
We believe that significant value can be realized for the portfolio companies from active involvement in the Company’s investments. This involvement may include regular consultations with management, participating in corporate governance, assisting management in the development of its business and strategic plans, reviewing budgets and monitoring performance against goals. In addition, the Company may assist portfolio companies with capital raising and acquisition and divestiture activities.
Monitoring and Building Value
We will actively monitor each portfolio investment. Portfolio companies are expected to provide an annual business plan including 5 years financial projections and an annual budget, quarterly financial statements and audited annual financial statements. Through the Directors’ network of relationships and accumulated years of experience, the Manager plans to assist portfolio companies in value creation. Where appropriate, we will help develop business plans and operating strategies. We actively introduce potential strategic corporate partners for licensing, financing, distribution and collaboration opportunities to portfolio companies where beneficial.
Exit from Investments
When making an investment, we will evaluate multiple exit options. Exit strategies may include a public offering, a private sale to a strategic or financial buyer or a recapitalization. An analysis of the exit or the liquidity strategies for each investment will be made as part of the initial evaluation and will be monitored on an ongoing basis throughout the life of the investment.