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SIS Ventures Impact First Fund - Risk factors

Risk factors

All investment and commercial activities carry risk, and you should consider whether the SIS Ventures Impact First Fund is a suitable investment for you in light of your personal circumstances.

Investment risk

Investors will be investing in unquoted, unlisted enterprises. The Investments may not be repaid in full. The enterprises in which the Fund will be investing are likely to have a higher risk profile than larger or more established companies and may not produce the anticipated returns, which could affect an Investor’s ability to realise their Investment. In addition, it may be difficult to dispose of such investments at a reasonable price or indeed at any price at all.

The performance of the Fund is contingent on the Manager identifying suitable Investee Enterprises that deliver social impact while providing an attractive return. There is no guarantee that the objectives of the Fund will be met.

Whilst the Manager intends to invest the Fund across a portfolio of Investee Enterprises, the Fund may still be relatively concentrated, which may result in the Fund’s performance being adversely affected by a small number of Investee Enterprises. This could be further exacerbated by the maximum size of the Fund not being raised.

Investors may not withdraw their funds once committed, and an Investor may not assign his or her investment to another person. The term of an Investor’s commitment in respect of each transaction is a minimum of three years and could be up to ten years. Therefore, an Investor must think carefully whether he or she can afford it and whether it is right for them.

An Investor may not get back the full amount invested. Investors should not consider investing unless they can afford a total loss of their investment and/or a future loss of SITR or EIS relief in relation to any Investment activity. Investors should also continue to note that the low SIS historic default rates are for debt investments only and do not include equity investments, which will be undertaken by the Fund.

If the minimum size of the Fund is not reached, the Manager may decide to terminate the Fund and Investors’ monies may be returned without interest.

Social impact investment of the type offered by the Fund is a relatively new concept. Investees will often be relatively small and highly dependent on the skills of a small group of key executives. They may be early stage and/or taking on investment for the first time. All of these factors could increase the risk that Investors could lose their Investment and/or could lose SITR or EIS relief in relation to the Investments.

Investee Enterprises may require additional funding after investment by the Fund. This may lead to dilution of the Fund’s equity shareholding in the Investee Enterprise. Investee Enterprises may accept other equity or debt capital which ranks ahead of the Fund’s investments in an insolvency situation.

The Fund is only obliged to pass on to Investors any capital or interest payments which it receives in cleared funds from an Investee Enterprise. If an Investee Enterprise fails to make such a payment, the Fund is under no obligation to reimburse an Investor up to an equivalent amount.

In the event of default or administration, where the Manager chooses to take enforcement action for the recovery of unpaid sums, any sums received for and on behalf of the Investors, net of any expenses of recovery, will be distributed prorate among the Investors.

Tax risks

There is no guarantee that tax relief status can be maintained throughout the life of each Investment, although it is the intention that Investments will be offered to enterprises which qualify under the requisite legislation.

Both Investees Enterprises and Investors need to comply with the requirements of the relevant legislation in order to maintain SITR and EIS relief. Non-compliance may result in the loss or partial claw-back of tax relief for the Investors concerned. The tax reliefs referred to in this Information Memorandum are those currently applying or expected to apply. However, Investors should be aware that tax reliefs can change. Their applicability and value will depend upon the individual circumstances of a given Investor from time to time, and Investors should seek their own independent professional advice on their particular tax situation and the application of such tax reliefs prior to submitting an application to participate in the Fund.

The availability of tax relief can be limited or clawed back if an Investor becomes connected to an Investee Enterprise. This can occur when, for example, an Investor is or becomes an employee or director of the Investee Enterprise and also extends the restrictions to certain people who are related to the Investor. Similar limitations on tax relief can occur where an Investor (or associate) assumes control of or holds more than 30 per cent of the ordinary share capital, voting rights or loan capital of an Investee Enterprise.

It is the responsibility of the Investor to notify the Manager of any such connection, and the Manager will put processes in place to seek this confirmation from Investors. Should an Investor fail to respond to a request to confirm he or she is not connected for these purposes, the Manager will assume there is no connection and cannot be held responsible or liable for any subsequent withdrawal of SITR or EIS relief. The availability of SITR or EIS can be limited or clawed back where an Investee Enterprise has accepted some forms of aid as defined in legislation.

There could be circumstances in which a demand for repayment is made where an Investee defaults on making repayments of a Loan within its first three years. This could also result in loss of SITR. An Investee Enterprise’s compliance with SITR or EIS requirements cannot be guaranteed, although the Manager will use reasonable endeavours to monitor the Investee Enterprises activities to ensure compliance with requirements.

Future Government action and legislation, including taxation policy, may affect Investee Enterprise performance.

Investors must retain their interest in an Investee Enterprise for a minimum of three years in order to avoid any claw-back of tax relief.

Although investing a capital gain in the Fund defers payment of capital gains tax, when the gain comes back into charge, it will be taxed at the rate prevailing in that tax year. This rate could be higher or lower than current capital gains tax rates.

Tax law is complex and Investors should therefore seek independent professional advice to determine the suitability of an investment in the Fund in relation to their own personal circumstances.

Risks in relation to the Manager

The Manager does not have an operating history. While the parent company SIS has a robust track record for default rates, no representation is or can be made as to the future performance of the Fund or SIS Ventures, or that the level of returns assumed in this Information Memorandum can be achieved. The assumptions are assumptions only and these may or may not be realised. Any projections made are intended for illustration only.

Under the terms of the Application Form and Investor Agreement, the Company has complete discretion to act on an Investor’s behalf in relation to the enforcement of his or her Investment. This means the Investor does not have any direct influence over the action which may or may not be taken in the event of default. It is therefore possible that the Investor may not agree with the course of action the Manager takes.

Risks associated with debt investments

A loan (and any interest) may not be paid in full by the end of the fixed term of that loan. Under such circumstances, where the Manager considers there is a reasonable prospect of the Investors receiving repayment if the terms of the loan were to be extended, the Application Form and Investor Agreement provide that the Manager will have sole discretion to extend up to a period of 24 months on the Investors’ behalf.

An Investee Enterprise may have existing debt at the point at which the offer of monies is made. Existing lenders may require debt to be subordinated to their debt. This means that the extent to which Investors (via the Nominee) are able to enforce their rights as unsecured lenders will be limited.

Risks in relation to qualifying investments

Before an Investment is made, advance assurance will be obtained from HMRC that a proposed Investee Enterprise is SITR or EIS qualified. However, this does not guarantee that an Investee Enterprise will continue to remain qualifying in the future. If the Investee Enterprise no longer meets the conditions to be eligible, this could result in withdrawal of the tax reliefs claimed by the Investor. In the event that this should happen, the Investor will be required to repay the amount of tax relief previously claimed plus interest to HMRC. The Manager will not accept liability for any such loss suffered by an Investor.

The Company aims to invest monies in Investee Enterprises promptly in order to obtain compliance certificates for Investors on a timely basis. However, following due diligence, proposed Investee Enterprises may not be suitable, and no guarantee can be given that Investors will be able to obtain tax relief in the current year. It should be noted that Investors may carry back their investment to the previous tax year starting from the date on which an investment is made.

Investors may lose their tax benefits if they fail to comply with the appropriate legislation, for example if an Investor becomes an employee of the Investee Enterprise or receives value from the Investee Enterprise. The Investor is advised to take his or her own tax advice and the Manager does not take responsibility for an Investor failing tomeet the conditions.

Forward looking statements

The Information Memorandum includes statements that are forward-looking statements. Forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward-looking statements contained in the Information Memorandum may be based on past trends or activities. However,they should not be taken as a representation that those trends or activities will continue in the future. The Manager is not required to update or revise any forward-looking statements contained in this Information Memorandum after the date it is published. Accordingly, Investors should not place undue reliance on forward-looking statements.

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