CatapultCrown | Risk Factors to Consider

Risk Factors to Consider

Investments offered by Catapult Crown involve a high degree of risk and may result in partial or total loss of your investment. Alternative investments, such as venture capital investments, are complex, speculative investment vehicles and are not suitable for all investors. Catapult Crown products are restricted to qualified investors who meet certain eligibility criteria and who have sufficient knowledge and experience to understand the risks of investing.

Investing in unlisted companies (start-ups, early stage and established) should be done as part of a diversified investment portfolio. Not every type of investment will be appropriate for every investor. Investing in unlisted companies, particularly start-ups and early stage, is a high risk/high reward investment strategy. The rate of return on such investments can vary widely over time, especially for long term investments. Investment losses are possible, including the potential loss of all amounts invested.

The risks of investing through Catapult Crown derive from the various risks associated with the nature of the Catapult Crown investment platform and investing in early-stage companies, and from more specific risks related to Catapult Crown’s investment in a particular portfolio company.

The acquisition of securities in a specific portfolio company (“Portfolio Company”) through Catapult Crown is expected to take place as soon as possible after the closing of a special purpose vehicle (“SPV(s)”) created for the purpose of such acquisition. Each SPV will significantly invest all the capital invested in such SPV (other than amounts allocated to any fees or expenses incurred and to be paid to Catapult Crown or third-party services providers engaged by Catapult Crown in establishing the SPVs and making and managing the investment) in the applicable Portfolio Company. When processing a Subscription Agreement to purchase (“Investment”) limited partnership interests (“LP Interest”) in an SPV, each investor accepts and agrees that (i) it is not looking to, or relying upon, Catapult Crown, including the general partner of an SPV, its general partner and leading up to the ultimate general partner of the SPVs (“General Partner”) or the Management Company, to make any such investment decision, analysis or recommendation and (ii) it is making its own independent investment decision concerning whether or not to invest in such SPV. Each Limited Partner will give representations regarding the foregoing statements and other key considerations related to acquiring LP Interest, in the relevant Subscription Agreement. Each acquirer of an LP Interest in an SPV is a “Limited Partner” and collectively the “Limited Partners.”

Risk Factors

The following are certain important Risk Factors to consider. Prospective investors should carefully consider the risks involved in an Investment, including, but not limited to, those discussed below. For a complete explanation of all associated risks of an Investment, prospective investors should review the applicable offering documents, which will contain additional investment risks and material information not included below regarding, among other things, information with respect to fees and expenses and potential conflicts of interest.

Securities Law Matters. The LP Interests are not and will not be registered under the Securities Act, or any other securities laws. This includes state securities or blue-sky laws. The LP Interests will be provided without registration based on the Securities Act, and any other applicable securities law's exemption for transactions not requiring a public offering. Limited Partners will need to make certain representations to Catapult Crown and to the General Partner and each SPV, including that they are acquiring LP Interest in each SPV for their own account, for investment purposes only and not with a view to its distribution.

Taxation Matters. Investment in the SPVs and the actualization of Investments may lead to tax repercussions depending on the jurisdiction, tax status and other circumstances of each potential investor. Each potential investor is encouraged to consult its tax advisors regarding the US federal tax consequences, and any other potential tax consequences under the laws of any State, locality or other relevant taxing jurisdiction occurring from the holding or disposal of an LP interest.

Legal, Tax and Regulatory Risks. Legal, tax and regulatory changes could take place during the term of an SPV that may negatively affect such SPV or the underlying Portfolio Company and its investment results, or some or all the Limited Partners. This may result in an SPV to be adversely affected because of new or revised legislation, or regulations imposed by the SEC, U.S. Department of Treasury, other U.S. or non-U.S. governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. An SPV or some or all its Limited Partners also may be negatively affected by alterations in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations. It is difficult to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become law. Cooperation with any new laws or regulations could prove to be more difficult and expensive and may affect the way an SPV conducts its business. New laws or regulations may cause an SPV or some or all its Limited Partners to increase taxes or other costs.

Potential Investors shall not Rely on the General Partner’s or the Management Company’s Due Diligence. Although the General Partner, the Management Company or affiliates thereof will oversee certain due diligence on the Portfolio Companies for purposes of their own investment in the Portfolio Companies, none of the General Partner, the Management Company or their affiliates shall independently authenticate the accuracy or completeness of the information given to them, and investors should not rely (i) on the General Partner, the Management Company or their affiliates having authenticated such information or (ii) in the case of when the General Partner or any of their affiliated entities, has made or plans to make an investment in a Portfolio Company. Therefore, the General Partner and the Management Company cannot and will not guarantee the accuracy or completeness of this information. Additionally, certain information provided by a Portfolio Company is based on such Portfolio Company’s own expectations, estimates and projections and cannot be depended on as a guarantee of future performance, as the future performance of such Portfolio Company could differ materially. Catapult Crown does not guarantee the assumptions on which the information provided by such Portfolio Company is based. There is a possibility that the General Partner, the Management Company or their affiliates may prepare, gain possession of or 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 potential investors in such Portfolio Company (through an SPV), including financial models, investment committee memos, investment analyses and other similar materials prepared by the General Partner, the Management Company or affiliates thereof in connection with their investment in a Portfolio Company.

The General Partner, the Management Company or affiliates will be solely responsible for managing the SPVs’ activities. The Limited Partners will be unable to make decisions in the management of the SPVs. Additional partners may be admitted to the General Partner in the future, existing partners may withdraw, and the Limited Partners will be unable to prevent any specific person from being admitted to, or withdrawing from, the General Partner or affiliate thereof. The General Partner, and Catapult Crown, will rely solely on the efforts and expertise of the General Partner, the Management Company, and their affiliates. If the current shareholders of the General Partner are no longer engaged in the active day-to-day management of the General Partner or its affiliates or otherwise, there is no guarantee that Catapult Crown will be able to locate further investments or successfully actualize any existing investments. The loss of one or more of the shareholders of the General Partner could have a material disadvantageous effect on the operation of Catapult Crown and the SPVs.

Investing in Early-Stage Companies in General. There is a high degree of business and financial risk in investing in early-stage companies and it can result in substantial losses. An investor must be able to accurately identify potentially successful business enterprises at an early stage in their development to succeed. This is a process which is difficult even for those with extensive experience with such investments. It is highly speculative, and it involves a high degree of risk which could result in the loss of part or all an investor's investment to invest in seed and early-stage start-up companies. Each investment in an SPV is an indirect investment in a single Portfolio Company, and as such there is no diversification of risk. Furthermore, there is no guarantee that the SPV’s investment objectives will be achieved. Consequently, investors should not subscribe for an LP Interest in any SPV unless they can bear a total loss of their investment. Investments are suitable only for sophisticated investors with substantial other assets who can make 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.

Catapult Crown Early-Stage Investments. The Portfolio Companies in which the SPVs will invest are prone 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 is no guarantee that the development or marketing efforts of any Portfolio Company will be successful or that its business will be profitable.

Many Portfolio Companies in which the SPVs will invest may be unseasoned, unprofitable or have no established operating history or earnings and may 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 unfavorable impact on such companies. Moreover, these companies may be more vulnerable to competition and to overall economic conditions than larger, more established entities.

Catapult Crown's Investments will include companies at early stages of development, including the seed and start-up-stage. A major risk exists particularly in seed and early-stage enterprises when a proposed service or product cannot be developed successfully with the resources available to the Portfolio Company. There is no guarantee that the development efforts of any Portfolio Company will be successful or, if successful, will be completed within the budget or time originally estimated.

Dilution. Any investment you make through the Catapult Crown platform may be subject to dilution. This means that if the company raises additional equity funding in the future, it will issue new shares to new investors and the percentage of the business you own will decline. Any new shares may also allow for certain preferential rights to dividends, sale proceeds and other matters. If such rights are exercised by new investors this may work to your disadvantage. If the investee company grants options (or similar rights to acquire shares) to connected employees, service providers or certain other parties/individuals then your investment may be diluted as a result.

Long-Term Investment. The Investments are long-term investments. The innate nature of seed and early-stage investing orders a significant length of time between the initial investment and realization of gains, if any. When successful, early-stage investments 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 in the LP Interest for an indefinite period.

Lack of Diversification. Each SPV will invest in a single Portfolio Company, generally, in the field of Dental related products and technology or other industries and will be dependent upon such Portfolio Company’s performance. Each SPV’s performance will be directly connected to the performance of the Portfolio Company in which it invests and the SPV could be severely impacted by unfortunate developments affecting such Portfolio Company and/or the industry within which such Portfolio Company operates.

Reliance upon Portfolio Company Management. Even though the General Partner will secure representation on the board of directors of Portfolio Companies and aims to develop a good working relationship with the management of such companies, each SPV is not expected to have an active role in the daily 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 negatively affected.

Control. Catapult Crown will seek to locate and structure investments so that it will have some level of control over Portfolio Companies, at least on major corporate decisions. Nonetheless, Catapult Crown expects that the SPVs will hold minority interests in most companies and, accordingly, may have limited ability to protect their position and investment in the applicable Portfolio Company. Usually, as a condition to any investment, Catapult Crown will obtain special rights and protective provisions, which will be negotiated at the time of the acquisition of securities in the Portfolio Company. There is no guarantee that Catapult Crown will be able to obtain such protective provisions, or that such provisions, if obtained, will be successful.

Direct Interest in the Portfolio Company. The offering of LP Interests in numerous SPVs does not represent a direct or indirect offering of interests in the Portfolio Companies. Limited Partners (I) will not be equity holders of a Portfolio Company, (II) will have no direct interest in a Portfolio Company and (III) will have no voting rights in a Portfolio Company or standing or recourse against a Portfolio Company. Additionally, none of the Limited Partners 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 Catapult Crown will make investments will be privately held at first. Consequently, there will be no easily accessible secondary market for the SPVs’ interests in such Portfolio Companies, and those interests will be subject to legal restrictions on transfer. Hence, there is no guarantee that Catapult Crown will be able to realize liquidity for such investments on time, if at all. The method to liquidity will not be available to Catapult Crown unless a Portfolio Company subsequently succeeds in obtaining approval from the relevant authorities to list its shares on a recognized exchange. It must then rely on other methods to achieve liquidity, such as the acquisition of the Portfolio Company. Additionally, 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 prove to be difficult for Catapult Crown to value the interests of the SPVs in privately held Portfolio Companies.

History. Information contained on this website pertaining to the performance of earlier investments made and managed by certain of the shareholders of the General Partner is not necessarily indicative of the future performance of the SPVs and Portfolio Companies.

Dispositions of Assets. Regarding the disposition of securities in Portfolio Companies, the General Partner, 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. Additionally, it may be required to indemnify the purchasers of such securities to the extent that any such representations transpire to be inaccurate. These arrangements may lead to contingent liabilities, which ultimately may have to be funded by the Limited Partners based on their pro rata Investment in the applicable SPV.

Distributions. In the unlikely event that the General Partner may cause an SPV to distribute its securities in a Portfolio Company or other non-cash property, downward pressure could be put on the price of a Portfolio Company’s securities and could reduce or eliminate such SPV’s influence in the Portfolio Company’s affairs. Additionally, 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.

Absence of Effective Remedies Against the General Partner. It is not guaranteed that there will be sufficient solutions available to any Limited Partners if the General Partner falls short in fulfilling its duties, and the relevant governing documents of an SPV affords such Limited Partners with limited rights to remove the General Partner. The governing documents of the SPVs include provisions for exculpation and indemnification of the General Partner and its respective partners, members, managers, officers, directors, shareholders, employees, and affiliates. Consequently, the Limited Partners may have more limited rights of action than they would have had absent such limitation.

Restrictions on Transfer and Withdrawal. There will be no public market for the LP Interests. Additionally, the LP Interests are not transferable unless the General Partner authorizes it. Limited Partners may not withdraw capital from the SPVs. Therefore, Limited Partners may be unable to liquidate their investments before the end of an SPV’s term. Moreover, the LP Interest shall not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”) or any other applicable securities laws, and such laws will further restrict a Limited Partner’s ability to transfer Interests in the SPVs.

Certain Litigation Risks. Numerous 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 may affect the General Partner and affiliates thereof. Legal disputes, involving any, or all the General Partner, the Management Company, their partners, or its affiliates, may occur from the foregoing activities (or any other activities relating to the operation of the SPVs or the General Partner and/or any affiliate thereof) and could have a significant disadvantageous effect on the SPVs. For example, the General Partner, the Management Company, their affiliates, or other representatives may actively help Portfolio Companies in differing capacities (including by serving as officers, directors, or advisors). Although this provides the SPVs with more opportunity to positively influence a Portfolio Company’s success, it may also lead to greater exposure of the SPV’s assets. If a dispute arises from any of the foregoing activities (or other activities relating to the operation of the General Partner and/or any affiliate thereof), it is feasible that the General Partner, the Management Company, or any of their affiliates may be named as defendants. Portfolio Companies may have insurance to protect directors and officers, but this insurance may be insufficient. Usually, the applicable SPV will indemnify the General Partner 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 negatively affect the SPV in numerous ways, including by distracting the General Partner and the Management Company 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 General Partner or other investors may serve as directors for specific Portfolio Companies in which the SPVs invest. This service could expose the General Partner and its partners and affiliates to regulatory action and/or claims by Portfolio Companies, their security holders, and their creditors, particularly considering the law (depending on jurisdiction) relating to corporate governance and scrutiny of corporate boards. Although the General Partner aims to manage the SPVs in a way that will reduce exposure to these risks, the possibility of successful claims or adverse regulatory actions cannot be removed, and such occurrences may have a significant negative effect on specific SPVs.

As directors of Portfolio Companies, such persons will be responsible for fiduciary and other duties to the Portfolio Company on whose board they serve, whose duties may occasionally conflict with the best interests of the investors investing through Catapult Crown. For instance, Catapult Crown may be limited to sell the publicly traded securities of a Portfolio Company if any of such persons are holding material nonpublic information relating to such Portfolio Company.

Industry Specific Terminology. Potential Limited Partners are advised that certain frequently used terms and phrases within the venture capital and private equity industry may be confusing as they may be new to such terms and phrases. Particularly, individuals who are involved in the management of a fund may be referred to, colloquially, as “general partners” although they are not actually general partners of any partnership. Potential Limited Partners are advised that the SPVs will be limited partnerships, that the General Partner of the SPVs will be limited partnerships, that their general partner and its general partner will also be entities, and that the individuals directing the management of Catapult Crown through the General Partner of affiliates thereof will be members or shareholders of such entity or entities. Potential Limited Partners are recommended to consult with their own legal and other advisors regarding all matters involving industry specific terminology.

Compensation. An affiliate of the General Partner and the Management Company will receive carried interest from the SPVs. Even though the General Partner and its affiliates will also be investing in the SPVs, this arrangement may create an incentive for the General Partner and the Management Company to make decisions regarding the investment in a riskier or more speculative Portfolio Company than would be the case if this arrangement were not in effect. Additionally, this 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.

Therefore, when investing in an SPV or several SPVs as Limited Partners, the Limited Partners accepts that the General Partner’s entitlement to carried interest shall be based on the performance of each SPV (without considering the performance of any other SPV); i.e., the General Partner’s entitlement to carried interest shall be calculated on a non-cumulative “deal-by-deal” basis.

The foregoing list of risk factors does not purport to be a complete enumeration or explanation of the risks involved in an Investment. Prospective investors are recommended to review the applicable offering documents of each SPV for a more complete discussion of the risk factors associated with an investment, and consult with their own advisors before deciding whether to invest.