7^TH AUGUST 2017

SUMMARY

On Tuesday, 1^st August 2017 HM Treasury published its consultation paper ‘Financing growth in innovation’. I submitted my response to this consultation paper on the following Monday 7^th August 2017. This response appears on the following pages.

 

My overall thesis is that now is not the time to experiment with whether our economy might prosper without the EIS and VCT schemes. I was keen to make an early response of this nature, given the short consultation period, before HMT instruct Parliamentary lawyers to commence the drafting of changes to the legislation affecting the venture capital schemes based only on HMT’s own options.

 

I also included some conceptual ideas which are intended to address the intractable problem of how one might multiply the purchasing power of government intervention to scale up the funding of blue sky ‘new to market’ ventures. I made two proposals:

 

• Restricted Loss Guarantee Funding – a key perhaps to unlocking more pension fund money; and

 

• Young Genius Funding.

 

For the benefit of scale-up companies I also urged the government to improve the EIS and VCT tax relief schemes as set out in my formal consultation responses.

 

I hope you find this response of interest.

 

Roger Blears

14 August 2017

 

—

 

7^th August 2017

 

Financing Growth in Innovative Firms

HM Treasury (2 Orange)

1 Horse Guards Road

London

SW1A 2HQ

 

 

Dear Sirs,

 

Financing growth in innovative firms: consultation August 2017: Response by RW Blears LLP

Technological innovation is a spur for economic growth and needs to be encouraged as a key to meeting goals to sustain economic growth and prosperity. The consultation paper provides a timely reminder that there is a pretty compelling case for public involvement in stimulating entrepreneurship. Entrepreneurship and venture capital stimulate innovation. It is a much shakier assumption that governments can effectively promote entrepreneurship and venture capital. Only by designing a programme that reflects an understanding of, and a willingness to listen to, the entrepreneurial process can government efforts be effective.

 

For blue sky or ‘new to market’ investments I would urge the government to consider my proposals for ‘Restricted Loss Guarantee Funds’ and ‘Young Genius Funding’ described below.

 

For scale up companies I would urge the government to improve the EIS and VCT schemes as described in my response to consultation questions 2 and 3 below but now is not the time to experiment with whether our economy might prosper without EIS and VCT funded companies.

 

My response to the consultation overall is in several parts as follows:

 

• My comments on the complimentary roles of a government and its people in venture capital investing;

 

• A proposal: “Restricted Loss Guarantee Funds”;

 

• A proposal: “Young Genius Funding”; and

 

• My formal responses to the Consultation questions.

 

 

I am a solicitor specialising in the provision of corporate, tax and regulatory advice to investment fund managers and fast-growing companies. The views expressed in this response are my own and, in making this response, I do not speak for any other person or organisation other than for my partners and colleagues who have been kind enough to read this response and let me have their comments and thoughts which I have incorporated where I have agreed with them. I hope that my comments, responses and suggestions are of interest. I would be delighted to participate in any and all discussions concerning them and the consultation more generally and would express my thanks to the HM Treasury team for this opportunity to contribute to the consideration of the issues addressed by this consultation.

 

My comments on the complimentary roles of a government and its people in venture capital investing

 

A government, in all its parts, elected members and the civil service, must lead its people.

 

Once a decision has been made on which route to take to a promised land, it is then for the people to dig the road.

 

The value for money decisions on what are the best materials to use and the level of the wages that should be paid to the workmen who will do the digging are matters best determined by the competitive forces of the private sector.

 

In contrast, the factors governing which route the road should take are many and ‘value for money’ is only one of them.

 

Accordingly, decisions on whether to build a road and where it should lead to are decisions which must properly be taken by a government and, in a democracy, by a government which is accountable to the people for the decisions it takes.

 

Akin to road building, a government, with all its resources in research, academia and ‘think tanks’ is in the best position to determine which industrial sectors are most likely to be a hot bed for the next ‘new to market’ companies which can increase and stimulate the industrial productivity of the UK. A government doesn’t have a monopoly of wisdom on what will be the ‘next big thing’ but it will usually be best placed for ‘sight over the horizon’ on which blue sky sectors might benefit from government intervention.

 

So, this means, I suggest, that government directed venture capital investment, through Enterprise Capital Funds or comparable funds, must go hand in hand with national decision taking over which industrial sectors should be our national focus.

 

Private sector investors acting on their own, do not have ‘sight over the horizon’ because they lack the same depth of resource and accordingly, start-up companies in ‘blue sky’ sectors will always struggle to attract private sector EIS or VCT investment. There are other reasons why it is difficult to attract private investment in ‘new to market’ blue sky companies. The private sector makes investments in companies which can be valued which is not often the case with early stage ‘blue sky’ companies and valuations are particularly difficult to make in thin markets where there are only a few private investors.

 

The difficulty is also partly one of distribution. EIS investors tend to subscribe on average around £25,000 to EIS funds. This means that a great many EIS investors are required to kick-start an EIS ‘blue sky’ technology fund with sufficient capital to make a number of investments of different types, sizes and stages of development which, taken together, represent a diverse portfolio from which some winners might emerge. A modest £10 million fund would require approximately 400 investors and an even greater number of potential investors would need to be approached in order to solicit interest from those that might have a genuine interest in investing. On the basis of a 4% ‘strike rate’ one might need to address up to 10,000 potential investors.

 

Accordingly, it is a very expensive marketing exercise to try and raise even a modest amount of capital for ‘new to market’ investments from a large number of individual investors each of whom is only likely to subscribe a relatively modest amount. This is compounded by FCA rules which encourage retail investment fund managers to reach out to individual investors only through Independent Financial Advisers (“IFAs). IFAs are risk averse by nature. This being the case, few IFAs are interested in advising their clients to invest in early stage technology funds.

 

The arithmetic simply doesn’t work. I am not saying that it can’t be done, but it requires either a very long time and a great deal of money or the early involvement of super high net worth investors able to bring in their own entourage; and they may want to follow their own investment interests which may be different to those which are key to the UK’s industrial strategy.

 

This being the case I respectfully suggest that the investment policy of ECF Funds should be adjusted so that they focus primarily on blue sky or ‘new to market’ venture capital investment in target sectors within the UK’s industrial strategy. An ECF fund manager will raise a private sector capital contribution from fewer and more sophisticated institutional and corporate investors which, in contrast to individual EIS investors, may also invest for strategic reasons. The new law on Private Fund Limited Partnerships[1] enabling corporate investors to participate in investment decisions without compromising their limited liability status is potentially very helpful here.

 

I also suggest, returning to my initial analogy of road building, that it is the main role of the EIS and VCT schemes, to attract and subsidise the private capital required to pay for the digging of a chosen road, for the scale-up companies that will tender for the digging contracts. It is not and should not be the predominant role of the venture capital schemes to attract private capital to finance the start-up companies trying to identify the direction of travel[2]

 

A long road needs many different types of small digging companies. Such companies provide very many jobs and pay tax to the government. It is very difficult for small companies without a sufficient track record to attract private capital unless they are also able to offer EIS or VCT reliefs to their investors. In addition, such companies will usually fall within the acknowledged equity gap if they are seeking less than £5 million of capital because investments of this size are of little interest to the large private equity funds.

 

EIS and VCT funded companies also represent a significant number of rungs on the ladder of overall growth and development in the market for private and public companies. Our corporate and employment market would be much the poorer without EIS and VCT financed companies. Now is not the time to experiment with whether our economy might prosper without them. We need the innovation which comes from blue sky companies to help us get ahead, but we also need more the scale up companies. It is not technology alone which drives a new company or an economy to grow and develop. It is the ambition and drive of the entrepreneurial business man who sets out to prove his worth by creating wealth; to create his track record so that he can go on to attract interest from our investment banks and build large companies. If our history teaches us anything, it is that the UK must improve on its ability to support and nurture our scale-up companies, otherwise our blue sky technological discoveries will continue to be lost to overseas competitors.

 

EIS and VCT funds are vital to our nation’s scale-up companies and to the overall prosperity of our future economy.

 

The proper role for the tax-advantaged schemes is investment, not in start-ups, but in scale-up propositions which can’t otherwise attract private sector capital because of the lack of track record and being still too small for the regular LP funds to bother with.

 

Small firms with ambition to grow into large, world-leading businesses also need mentoring. The industry of fund managers, lawyers, accountants and business consultants which has grown up and is experienced in working with qualifying companies provides an invaluable ecosystem for mentoring and determining which companies should go forward. This ecosystem would be difficult to replace.

A proposal: “Restricted Loss Guarantee Funds”

The consultation paper makes three proposals in order to address the problem of the UK’s historically thin market for patient capital. Each suggestion is based on government investment being made through the British Business Bank.

 

I would encourage the Treasury team to consider a fourth alternative which I will refer to as ‘Restricted Loss Guarantee Funds’.

 

Restricted Loss Guarantee Funds would raise all of their capital from private investors but, in order that they attract this private investment, the government would provide a ‘no loss’ guarantee to private investors over a proportion of the capital which they subscribe to the fund.

 

This guarantee would not be made available generally, but would be provided only after a competitive, reverse auction bidding process, to the winning fund manager which can raise the most capital for investment in small innovative companies with the lowest level of guarantee support.

 

Private sector cash would thus be invested from the start.

 

There could be several other advantages.

 

Like the Yozma funds, referred to in Box 5.B, there may never be a need for the private investors to call on the government’s guarantee if, after ten years, it transpires that performance has delivered a return of capital in excess of the guaranteed proportion of the fund’s capital.

 

The government could adopt a ‘wait and see’ approach and consider provisioning for such a guarantee only after five or six years into the life of a guaranteed fund. In this way, the purchasing power of public money might be multiplied many times over in stimulating potential ‘new to market’ technologies – particularly if the government’s guarantee obligations are never called.

 

There might also be a social impact dividend if the government were to invite private sector bidders to propose that a proportion of the private money raised will be deployed in investments with a primary societal rather than a commercial benefit; such investments to be excluded from the reckoning of prospective calls on the government’s guarantee.

 

The summary of the 1975 Wagnisfinanzierungsgesellschaft (“WFG”) referred to in Box 4.A is unfairly stated in the Consultation Paper and so is not a reasonable comparator of a government insured or guarantee scheme.

 

The second reference source quoted in respect of the WFG, is a paper entitled ‘Lessons from the America VC Experience’ by Ronald k Gilson. Mr Gilson describes a number of failings of the WFG program, chiefly that entrepreneurs were granted a call option to purchase WFG’s position at cost plus a moderate interest rate. Thus, the WFG had quite muted incentives to make successful investments. Its investments were also structured to be passive and WRG received no control rights at all, even over important decisions. Thus, as the Oxford Handbook of Venture Capital reports, the reason for the poor performance of the WFG was due to the reduction of the managers’ incentives to be actively involved in supporting start-up companies together with a convoluted governance system.

 

A better comparison would be the Yozma funds where the Israeli government set up ten $20 million funds to each of which it contributed $8million (40%) on the basis that private investors in those funds should have the right to buy out the Government’s share at cost plus 5% to 7% interest after 5 years. Thus, whilst Yozma did not offer any direct downside protection to the contribution made by private investors, as private investors were under no obligation to buy out the Yozma stake, the Yozma contribution represented downside protection against 40% of all investments made by the Yozma funds. That nine out of the ten funds exercised this option is sufficient evidence of the success of this scheme.

 

Mr Gilson describes in his paper how the Yozma funds were structured differently to the WFG. The Yozma investments were made in venture capital funds, rather than directly in the portfolio companies (which was the case with the WFG) and so because call options were held by the other investors in the funds rather than by the entrepreneurs (as with WFG) the returns to the fund managers were not capped at all. Rather, the cap on Yozma returns served to leverage the returns of private investors, and therefore the incentives of the fund manager instead of dampening them. Yozma’s subsidy to other investors increased their incentive to ensure that the portfolio companies were carefully monitored. Finally, Yozma did not make investment decisions. The fund managers selected the portfolio companies in which the fund would invest. Thus, while Yozma’s investments were passive like those of WFG, these passive investments were made through funds whose managers and other investors were highly incentivized. The success of the Yozma funds can therefore be attributed to interposing a highly incentivised intermediary between passive investors and the portfolio companies.

 

Whether or not Restricted Loss Guarantee Funds can be replicated under EU State Aid rules should be investigated further, but in any event, post Brexit, compliance with EU State Aid rules may be less of a concern. In any event, it is believed that the EU has sanctioned funds underpinned by government guarantees in the past.

 

Therefore, I would like to suggest that consideration be given to establishing a government scheme for ‘Restricted Loss Guarantee Funds’.

 

 

A proposal: Young Genius Funding

 

It is not clear from the consultation paper how HM Treasury envisage that capital will be deployed to the firms with the highest potential. Who is to decide which firms have the highest potential in advance of them achieving it? The importance of allocating capital effectively is not a function of any one investor but of the market of investors as a whole, a vibrant constantly evolving community of investors and advisers which makes and trades investments which are capable of being valued.

 

The benefit of hindsight, that is whether an output will be ‘new to market’, is not available at the time of investment in an early stage technology company. It follows that one cannot frame intervention measures in legislation which will succeed in only supporting those early stage technology firms whose outputs are ‘new to market’ as many firms will fail in their quest for ‘new to market’ outputs. Any scheme which seeks only to back the winners is as commercially naïve as it is impractical to implement.

 

Why?

 

A ‘wild eyed’ visionary young genius capable of innovating ‘new to market’ outcomes is unlikely to be able to communicate or be specific about the outcome of his work to private investors; that is for the young genius to discover. So, of necessity, the investment must be made in the person of the young genius rather than in a project which is only capable of being ill-defined too widely or too narrowly to be properly valued. The capital required for investment in a person really does need to be patient.

 

So how can we encourage more private money – private ‘patient’ money to invest at an earlier stage?

 

We could adopt a ‘wait and see’ approach.

 

I propose a new investment model for early stage investing which I will refer to as, ‘Young Genius Funding,’ and which is designed to make early stage pathfinder projects more attractive for private investment.

 

Young Genius Funding employs two strategies. First, that any young scientist must be mentored by someone with private sector expertise and experience in businesses operating in the same field of action; and second, that investor risk should be mitigated by the prospect of an investment return through ‘tithe’ payments if the young scientist achieves some measure of success in his or her career, regardless of whether this is attributable to their success in creating valuable intellectual property rights.

 

I enclose, in the Appendix to this response, a copy of an Application Form which sets out my suggested terms and conditions for a Young Genius Funding scheme which I wrote pursuant to a commission from CERN late last year. In a very practical way it describes how a scheme for Young Genius Funding might be implemented by an innovation company (IDEAs) whose role it would be to invest in and monitor investments in the person of a young genius rather than in any specific project.

 

In summary, the scheme is:

 

• First, find a ‘young genius,’ so

 

• An academic institution recommends a potential young genius for consideration;

 

• IDEAs finds a mentor – an experienced director or executive from a network of experienced directors and executives (‘EDEN”) attached to the academic institution. Every university and research institution should have an EDEN network;

 

• IDEAs funds a pathfinder programme with an issue of promissory notes which can be drawn and cashed when required and when approved by the mentor; to

 

• Develop a piece of technology – no expenditure on accountants or business consultants;

 

• IDEAs follows a ‘wait and see’ approach to what ‘new to market’ ideas emerge and then converts the investment it has made on a ‘pick and mix’ basis into those slices of IPR which look good or into a share of the equity acquired by the Young Genius in one or more spin off companies;

 

• Or not…..

 

• If the Young Genius disappoints, but is successful in other ways by becoming, for example, a banker, venture capitalist, or captain of industry then he or she would:

 

 

• pay to IDEAs 10% of earnings above an agreed threshold, and 50% of capital gains;

 

• for 15 years;

 

 

• but with no double dipping – so there would be a cap at the conversion value of the cashed but unconverted promissory notes.

 

I respectfully suggest that consideration be given to establishing a government scheme for ‘Young Genius Funding.

 

  

Formal responses to the Consultation questions

 

Consultation question 1: Do a material number of firms in the UK lack the long-term finance that they need to scale up successfully?

 

Long term finance is more likely to be supportive of ‘new to market’ outputs. A long-term government guarantee of prospective investment returns after, say, ten years, would be the most efficient way of changing investor preferences.

 

Consultation question 2: where is the gap most acute by type of firm, stage of firm development and amount invested?

 

The gap, by stage of firm development, is most acute where the prospect of the ‘new to market output’ is least certain. This prejudices very early stage innovations where the vision is in the mind of the entrepreneur but is the hardest to identify to investors. Such innovations may be equally dreamt of within an old established company as they might from a university environment.

 

This vision gap, by type of firm, is even more acute if the entrepreneur is working in an old established company operating outside the ivory towers of academia, which doesn’t receive attention from the existing ecosystem of support focused on universities.

 

The existing venture capital schemes prohibit the investment of small amounts in companies older than 7-years and so the gap, by the amount invested, is the greatest in such companies. This makes no sense. An older company has established business contacts, accounting, administrative and marketing support systems already in place which a university environment simply cannot offer.

 

What is valued is measured, and the converse is often true. I suggest that Chart 3.A may be based on the false premise that only young companies are capable of innovation.

 

In reality, a much closer co-operation between UK academia and UK industry needs to be fostered. In a digital age this must be possible.

 

Crowd funding is not a productive source of finance for any company seeking to launch a disruptive ‘new to market’ output.

 

Listed investment funds, it is true, do cushion investors against the ups and downs of portfolios of investee companies developing ‘new to market’ outputs but they are not a means by which innovative new fund managers can raise capital for innovative new entrepreneurs and the short- term expectations of public markets for regular dividends induces a short-term preference on making short term investments

 

 

Consultation question 3: have we correctly identified the UK’s current strengths in patient capital?

 

Some of the strengths but not all of the weaknesses.

 

The venture capital schemes are currently blighted by the appallingly slow machinery for the grant of advance assurances from HMRC that prospective investments will qualify for the tax reliefs.

 

The venture capital schemes display a naivety about how the commercial market for investments work in practice in order to redress, not just the asymmetry of information between shareholder managers and passive investors, but also the asymmetry of power between executive management and investors for which the corporate market has long found corporate solutions but which HMRC seem to regard as the removal of desirable risk; as if risk in and of itself, is a factor to be desired and preserved in order to justify government intervention.

 

If I invest in a small private company I ought to be allowed to enjoy a preference as to my return of capital ahead of a return of capital to the management shareholders. Whether or not I enjoy a preference over returns due to management shareholders has no direct bearing on how money will be employed in developing a ‘new to market’ output; no bearing on the risk I take that the company’s business plan may fail. The preference is merely part of the deal between me and the management. An investor preference on distributions should be allowed by the venture capital schemes. By the same token convertible debt investments should also be allowed.

 

If I invest in equity on the basis of a prospectus which places too high a value on the business at the time of investment, I ought to be allowed to benefit from anti-dilution rights on the next funding round so that the dilution in value is suffered by the management shareholders responsible for the over optimistic or false prospectus. Again, anti-dilution rights have no bearing on the prospect that the company’s business plan may fail; they are merely a means by which an initial over-valuation is redressed.

 

Consultation question 4: In what order would you prioritise the UK’s weaknesses in patient capital?

 

The amount of available patient capital may be increased by identifying and providing incentives to support, alone or in collaboration, private or publicly funded investors to take the long-term view but this is not the only or the best way of doing so.

 

The investment community is a market like any other in which investments are bought and sold according to investor preference. The lack of patient capital for early stage ventures is as much a reflection of the lack of opportunities for early stage investors to exit as it is of the lack of early stage investors – the two are intertwined. The recycling of capital amongst different investors in the market is a vital ingredient for an efficient market but this is currently prohibited by the venture capital schemes. Therefore, VCTs should be allowed to make second hand ‘non-qualifying’ purchases of investments from early stage investors so that those very same early stage investors can go on to make further early stage investments. Both VCT and EIS investments should be able to be employed in financing the opportunity cost of the change of management which so often accompanies the transition of a start-up business to a scale-up business where the entrepreneurial requirements themselves change from that of the wild-eyed visionary to the capable manager able to roll out the commercialisation of a ‘new to market’ output.

 

 

Consultation question 5: what are the main root causes holding back effective deployment of and demand for patient capital?

 

An inability to value the investment opportunity.

 

The costs of distributing investment opportunities to prospective investors.

 

 

Consultation question 6: what are the main barriers holding back effective supply of patient capital by major investors?

 

As 5 above.

 

The investment opportunities are too small to warrant the attention of highly paid fund managers focussed on larger investment opportunities.

 

Consultation question 7: Which programmes (investment programmes, tax reliefs and tax incentivized investment schemes) have most effectively supported the investment of patient capital to date?

 

The EIS and Venture Capital Schemes

 

Consultation question 8: Are there any areas where the cost effectiveness of current tax reliefs could be improved, for example reducing lower risk ‘capital preservation’ investments in the venture capital schemes?

 

It is not easy to define risk by some all-embracing description of when it is appropriate for ambitious companies to receive subsidised investment and when not for the purposes of targeting government intervention, but companies unworthy of government support can be identified by proxy; that is by whether their assets and revenues are capable of supporting the sort of leveraged investment which does not fit the definition of patient capital; if they are capable of supporting leveraged investment then they can be excluded from intervention measures. Traditionally such companies are excluded by reference to a list of excluded activities which is common to all of the venture capital schemes[3].

 

 

Consultation question 9: Are there other ways the venture capital schemes could support investment in patient capital, in the context of State aid restrictions and evidence on cost effectiveness?

 

EIS relief for investment in innovation companies undertaking Young Genius Funding as described above.

 

 

Consultation question 10: When is it more appropriate for government to support patient capital through investment rather than a tax relief?

 

When investing in start-ups.

Consultation question 11: Is there an optimum minimum length of time of investment for entrepreneurs and investors to focus on the long-term growth of their company and, if so, what is it

 

There is no optimum length of time which is true for all companies.

 

Consultation question 12: What other steps could government take to make current tax reliefs more efficient and effective, to provide the best support in line with their policy objectives

 

See 2, 3 and 4 above.

 

Consultation question 13: What scale of new investment should the government seek to unlock and over what time frame

 

The ATTRACT consortium of European research laboratories de facto led by CERN propose an initial venture capital fund for investment in blue sky companies – mini ATTRACT – of €60 million to be followed by a much larger venture capital fund – maxi ATTRACT – of over €1 billion but greater numbers have been discussed. The proposal is currently under consideration by the commission.

 

Time waits for no man.

 

 

 

Consultation question 14: Should resources be focussed on one intervention (e.g. a single fund of significant scale) or spread over a number of different programmes

 

Spread over a number of different programmes in order to benefit from a diverse range of different investment fund managers.

 

Consultation question 15: When considering how to replace EIF investment if the EIF were no longer an investor in the UK, to what extent should the government seek to replicate the EIF’s current activities in (a) venture capital and (b) private equity?

 

See my proposal for Restricted Loss Guarantee Funds described above.

 

A reverse auction process for the award of government guarantees for such funds will determine the level of investment confidence in prevailing markets and accordingly will identify those markets where a higher level of guarantee is appropriate in order to secure investment in strategically important industrial sectors.

 

Consultation question 16: Beyond replicating existing EIF investment if required, what areas should government focus on to increase investment in patient capital?

 

See 2, 3 and 4 above and my proposal for Yong Genius Funding also described above

 

Consultation question 17: When considering how to support increased investment, should the government consider supporting one or more of the setup of public private partnership, a new incubated fund in the BBB to be sold in part or full to private investors once it has established a successful track record and a series of private sector fund of funds to invest in patient capital

 

None of the above.

 

For blue sky or ‘new to market’ investments the government should consider Restricted Loss Guarantee Funds and schemes for Young Genius Funding.

 

For scale up companies the government should improve the EIS and VCT schemes. See 2, 3 and 4 above. Now is not the time to experiment with whether our economy might prosper without EIS and VCT funded companies.

 

 

Consultation question 18: If desirable, what steps should government take to encourage investors to form a new public private partnership to increase investment in patient capital

 

See 17 above

 

Consultation question 19: What steps should the government take to support greater retail investment in listed patient capital vehicles

 

The VCT rules should be amended so that the barrier to the formation of new VCTs is removed. This would allow new VCT fund managers to emerge.

 

Currently a VCT is prohibited from deploying capital raised in funding dividends to investors for a period of three years. A new VCT trying to raise starting capital is thus prevented from competing with an established VCT which can fund a dividend to new investors from old capital. This barrier was introduced to prevent enhanced buy backs, but it goes beyond what is needed for this purpose. Accordingly, it is recommended that a VCT should be allowed to use new capital to fund an annual dividend not exceeding 5%. This would not open the new loophole for enhanced buybacks and would allow new VCTs and new fund managers to come forward with innovative new investment policies.

 

 

Consultation question 20: Will focussing resources on increasing investment provide better value for money than changes to the tax environment?

 

No. Scale-ups are best financed in a diverse market of competing fund managers.

 

Consultation question 22: How can individual DC pension savers be best supported to invest in illiquid assets such as patient capital?

 

I believe through my proposal for Restricted Loss Guarantee Funds, as described above.

 

Consultation question 23: Are there any barriers to investment in patient capital for other investors that the government should look to remove?

 

See 2, 3, 4 and 19 above.

 

Consultation question 24: What steps should government take to support the next generation of high potential fund managers to develop their knowledge and skills and to raise their first or next fund?

 

See 19 above.

 

Consultation question 25: What further steps, if any, should government take to increase investment into university spin-outs specifically:

 

I respectfully suggest that the investment policy of ECF Funds should be adjusted so that they focus primarily on blue sky or ‘new to market’ venture capital investment in target sectors within the UK’s industrial strategy. An ECF fund manager will raise a private sector capital contribution from fewer and more sophisticated institutional and corporate investors which, in contrast to individual EIS investors, may also invest for strategic reasons. The new law on Private Fund Limited Partnerships[4] enabling corporate investors to participate in investment decisions without compromising their limited liability status is potentially very helpful here.

 

I would also urge the government to consider my proposal for Young Genius Funding.

 

Consultation question 26: What further steps should be taken to increase investor capability in the public markets to invest effectively in firms requiring patient capital to grow to scale?

 

Remove the anti-competitive UKLA requirement that a firm may only become a UK listing sponsor if it has signed a sponsor declaration within the preceding three years. This has created a closed shop effectively barring the entry of new sponsors able to promote the entry to the markets of VCTs managed by new fund managers. See also 19 above.

 

 

To reiterate, I hope that my comments, responses and suggestions are of interest. I would be delighted to participate in any and all discussions concerning them and the consultation more generally and would express my thanks to the HM Treasury team for this opportunity to contribute to the consideration of the issues addressed by this consultation, but, above all else, I wish to stress that in this post BREXIT world now is not the time to experiment with whether our economy might prosper without EIS and VCT funded companies.

 

 

Yours faithfully

Roger Blears | Senior Partner | RW Blears LLP

 

 

 

APPENDIX

 

APPLICATION FORM FOR USE IN APPLYING FOR YOUNG GENIUS FUNDING.

 

 

If you need funding for the development of a new idea which may lead to the creation of a breakthrough scientific and technological advancement capable of revolutionising the way we lead our lives and of driving prosperity and social well-being then read on.

 

Funding is available on the terms and conditions set out in this Application Form (“Young Genius Funding” or “YGF”) from IDEAs where the primary field of action will concern the so-called “Internet of Things”, sensors, imaging, big data and related disciplines is supported by your university or research institute.

 

To apply you will need:

 

• a qualification which is at level 7, or a higher level, of the framework for higher education in the UK or of the European Qualifications Framework;

 

• complete this Application Form providing details of the Pathfinder Field of Action for which you require funding in section 2;

 

• sign section 6 agreeing to the Terms and Conditions set out in section 8;

 

• the support of your primary university or research institution which must sign section 3 of this Application Form;

 

• the sponsorship of three individuals, one of whom should be from the Institution and in a position to comment on the merits of the Pathfinder Field of Action and the other two should be individuals who know you well for over ten years, one of whom should not be a member of your family; and

 

• write a cheque for £250 to cover IDEAs administration costs.

 

On receipt of your completed Application Form (and cheque) IDEAs will carry out a preliminary assessment of your proposal. This will probably require an interview with an IDEAs representative. If your proposal is considered potentially suitable then IDEAs will seek to pair you up with a member of its Experienced Directors and Executives Network (EDEN) with a view to an EDEN member acting as your mentor and guide in the development and commercialisation of the intellectual property rights (if any) which you create pursuant to your Pathfinder Field of Action. If the Mentor approves your Pathfinder Field of Action and signs section 4 of this Application Form, then Young Genius Funding will be made available in accordance with the Terms and Conditions.

 

Young Genius Funding is unusual. It is not a grant, it is not a loan and nor is it a conventional venture capital investment. It is an investment which takes the form of a direct payment of expenditure for your Pathfinder Field of Action whenever you raise, or jointly with your Host Institution, raise a Payment Order requesting such payment by IDEAs. Notes can only be raised to the extent that, in aggregate, they do not exceed the limit of funding agreed with IDEAs and only if the expenditure is approved by your Mentor.

 

You will pay this investment back only if you are successful, but, for these purposes, success may come in a number of ways which are explained further below. if you are not successful then you will not have any obligation to repay the moneys which IDEAs spends on your Pathfinder Field of Action.

 

If you successfully create, alone or with others, some new scientific and technological advance and own or are entitled to ownership of a share of the Intellectual Property Rights or of shares in a Spin Out Company then IDEAs may require you to assign to IDEAs up to fifty percent of your share of those Rights and Shares up to the Conversion Value as defined in Section 8. IDEAs will only require such an assignment if it believes that the Rights or Shares represent an attractive investment and IDEAs is not under any obligation to convert its rights into IPR Rights or Spin Off Shares.

 

If IDEAs does not convert its rights and you are successful in other ways than by the creation of valuable Rights or the acquisition of Shares – for example, if you become a high earning investment banker, captain of industry, lawyer or accountant – then, in return for its procurement of a mentor and its administration and monitoring generally of your Pathfinder Field of Action, for the next fifteen years you will be obliged to make deferred tithe payments to IDEAs equal to 10% of your earnings above an agreed threshold of earnings, typically £35,000 per annum and 50% of any capital gains that you make, excluding gains on your primary residence or within any recognised pension scheme, up to the aggregate Conversion Value of Notes held by IDEAs which have not been Converted into Rights or Shares.

 

If you would like to discuss any aspect of this Application Form, please contact [         ] at IDEAs on telephone number [].

 

Completed Application Forms should be submitted to [ ] together with a cheque for £250 made payable to [ ].

 

Joint Applications may be submitted. A separate Application Form should be submitted by each of the Joint Applicants and linked by appropriate cross referencing in section 1.

 

Words and phrases used in this Application Form with a capitalised first letter have special meanings which are defined in the Terms and Conditions in section 8.

 

 

 

 

SECTION 1 – ABOUT YOU

 

NAME:

 

ADDRESS:

 

PHONE:

 

EMAIL:

 

PASSPORT NUMBER, DATE OF ISSUE AND EXPIRY

 

FACEBOOK NAME

 

LINKED IN NAME

 

QUALIFICATIONS:

 

SCHOOL:

 

UNIVERSITY:

 

POST GRADUATE

 

UCAS PERSONAL IDENTIFICATION NUMBER

 

CURRENT COURSE DETAILS

 

AWARDS/PRIZES/COMMENDATIONS

 

 

RESIDENCE STATUS

 

UK NATIONAL

 

EU NATIONAL

 

SWISS NATIONAL

 

 

RELATIONSHIP STATUS

 

 

 

DEPENDENTS

 

 

 

 

PAPERS:

 

 

 

 

 

INTERESTS:

 

 

 

 

 

 

 

 

CURRENT FIELD OF research

 

 

 

 

 

 

 

 

 

IS THIS PART OF A JOINT APPLICATION?

Please name all Applicants of linked applications

 

 

 

SECTION 2 – YOUR PATHFINDER FIELD OF ACTION

 

TITLE:

 

UNDERLYING SCIENCE:

Describe the underlying science, highlighting the innovative features. Include an explanation of how your research has been funded, what questions remain to be answered. Are other research groups working on the subject area or are there other competing technologies that give the same outcome.

 

 

 

 

 

 

 

 

 

 

INTELLECTUAL PROPERTY:

Explain the intellectual property situation and include whether any intellectual property rights (including patens, copyright etc.) exist or will be developed. Detail whether a patent search has been undertaken. Do any third parties have any rights over present or future intellectual property?

 

 

 

 

 

 

 

 

 

 

 

COMMERCIAL OPPORTUNITY:

Summarise why the innovative features of the idea/product/service have commercial potential. Include comment on the existing or potential market, competition (both existing and potential) and what needs to be done to bring the idea/product/service to market. Will it be developed through a licensing route, a joint venture or a spin out company?

 

 

 

 

 

 

 

 

 

RESEARCH TEAM

Briefly describe the background and experience of the research team.

 

 

 

 

 

 

 

OTHER FACTORS:

Are there any other factors of which we should be aware?

 

 

 

 

 

 

 

 

 

ADDITIONAL INFORMATION REQUIRED FOR INVESTMENTS ENHANCING THE VALUE OF INTELLECTUAL PROPERTY

 

Investment required – describe how much you need, what it is for and what you expect to achieve. Have you got commitments from elsewhere?

 

Purpose	When?	Milestone to be achieved	Amount (£)
		TOTAL

 

 

 

 

 

 

 

 

 

SECTION 3 – YOUR PRIMARY UNIVERSITY OR RESEARCH INSTITUTION (“INSTITUTION”)

 

 

NAME:

 

 

ADDRESS:

 

 

CONTACT:

 

 

TELEPHONE:

 

 

EMAIL:

 

 

We, the Institution named above, agree to the following provisions, if this Application is accepted by IDEAs.

 

Agreement as to a division of intellectual property rights:

 

1. We agree that Intellectual Property Rights created by the Applicant pursuant to the Pathfinder Field of Action and the proceeds of exploitation, net of all costs incurred pursuant to paragraph 2 and below shall be shared in the following proportions:

 

• Institution: [] %

 

• Applicant: [] %

 

• [Others]: [] %

 

and we agree to the Applicant assigning up to [50] % its share of those Intellectual Property Rights to IDEAs in accordance with the Terms and Conditions and up to [10] % of its share of those Intellectual Property Rights to the Mentor.

 

2. We agree that IDEAs shall have exclusive full power and authority to all do such acts and transactions as it may think are necessary or desirable for the administration, protection and exploitation of those Intellectual Property Rights and the collection of all royalties and other fees which may be derived therefrom in what it regards to be the best commercial interests of all owners of those Intellectual Property Rights.

 

3. A monitoring fee shall be payable to IDEAs monthly in advance at the rate of £ [] plus VAT per annum commencing and accruing due from [] such fee to be increased annually in line with the consumer price index or such equivalent index as IDEAs may deem appropriate.

 

Agreement as to a division of shares in spin out companies

 

4. If, after consultation with the Mentor, IDEAs decides that Intellectual Property Rights created by the Applicant pursuant to the Pathfinder Field of Action should be commercialised by the development of a business then we agree:

 

• to join with the Applicant in assigning its share of those Intellectual Property Rights on an exclusive worldwide basis to one or more new companies formed for these purposes (each a “Newco”) in return for the shareholding in Newco as shown in paragraph 5 below;

 

• to the Applicant receiving a shareholding in Newco as shown below and to the assignment of up to 50% of that shareholding to IDEAs in accordance with the Terms and Conditions and up to [10] % of that shareholding to the Mentor.

 

5. The shareholdings in Newco shall be as follows:

 

 

• Institution: [] %

 

• Applicant: [] %

 

• [Others]: [] %

 

 

6. We agree that IDEAs shall have exclusive full power and authority to all do such acts and transactions as it may think are necessary or desirable for the establishment of Newco and, in consultation with the Mentor and us, the appointment of an appropriate board of directors of Newco subject to paragraphs 9 and 10 below.

 

7. A monitoring fee shall be payable by Newco to IDEAs monthly in advance at the rate of £ [] plus VAT per annum commencing and accruing due from [] such fee to be increased annually in line with the consumer price index or such equivalent index as IDEAs may deem appropriate.

 

8. We shall be entitled to receive monthly management accounts within 4 weeks of the month-end and Audited accounts within 5 months of the financial year-end.

 

9. We shall be entitled to appoint a non-executive director of Newco whose reasonable fees and expenses shall be met by Newco. We shall also be able to appoint an observer (the Observer”) who can attend and speak at Board meetings but shall be unable to vote.   Fees and costs attributable to the Observer shall be our responsibility.

 

10. So long as we retain a shareholding of at least [5] %, Newco shall not without our written consent:

 

• invest in any other company or partnership or dispose of any such investment     with a value equal to 20% or more of the net asset value of the Company;

 

10.2          * give any financial guarantee or provide any credit (other than normal trade credit);

• outside the ordinary course of business, acquire or dispose of or grant any licence of any patent, trademark, registered design, know-how or other intellectual property right;
• * enter into any material contract which is not on an arm’s length basis;

 

• enter into any transaction outside the ordinary course of business;

 

• pay compensation for loss of office to a director which exceeds his contractual entitlement, except as may be ordered by a court or tribunal;
• enter into a service or any other agreement with a value of £70,000 or more with any director or person connected with any director, or materially change such an agreement;
• * appoint a director
• grant any option or other right to subscribe for any of its shares;
• redeem any of its shares or enter into a contract to purchase any of its own shares;
• issue any share capital;
• increase or reduce its authorised share capital or reduce its issued share capital; or
• alter its memorandum of association or articles of association.

• We will not unreasonably withhold or delay consent (or make it subject to unreasonable conditions) in respect of the matters referred to in those sub-clauses paragraph 10 marked with an asterisk (*) but otherwise we shall have complete and unfettered discretion as to whether or not to give or withhold any consent.

 

Provision of Resources

 

• We agree to provide the following resources in connection with the Pathfinder Field of Action:

 

12.1          [laboratory/premises];

 

12.2          [equipment];

 

12.3        [consumables];

 

12.4          [internet, telephony, workstation],

 

 

 

SIGNED ON BEHALF OF THE INSTITUTION NAMED ABOVE IN AGREEMENT TO THE TERMS IN THIS SECTION 3 BY

 

 

 

…………………………………………………………………

Director of Research & Innovation

 

Date:

SECTION 4 – YOUR MENTOR

 

This section of your Application Form does not need to be completed when it is first submitted as, in the ordinary course, IDEAs would expect to introduce you to one or more Mentors which it selects from its Experienced Director and Executive Network but IDEAs will consider working with a Mentor whom you know already and introduce to IDEAs. If you know of someone who you would regard as a suitable Mentor and you would like IDEAs to consider his or her appointment in this role, then please do complete this section of the Application Form with details of your proposed Mentor. A Mentor will be required to sign this section of the Application Form prior to acceptance of your Application by IDEAs and, in particular, this means that the Mentor will need to agree to be bound by the Mentoring Provisions set out below.

 

 

NAME:

 

 

ADDRESS:

 

 

CONTACT:

 

 

TELEPHONE:

 

 

EMAIL:

 

FACEBOOK NAME

 

LINKED IN NAME

 

QUALIFICATIONS:

 

SCHOOL:

 

UNIVERSITY:

 

POST GRADUATE

 

 

EMPLOYMENT HISTORY

 

                                                                                                                                      

MENTORING PROVISIONS

 

1.        My appointment as a Mentor to the Applicant shall commence on the date when this Application Form is accepted by IDEAs in section 7 and may be terminated by either the Applicant, or IDEAs or me at any time with immediate effect or on a date specified by the Applicant, IDEAs or me by a notice in writing. My appointment does not confer any right to hold office of any entity for any period nor give me the right to compensation if I cease to be a Mentor.

 

2. Whilst I am a Mentor I agree to act as a mentor of the Applicant in relation to the Pathfinder Field of Action to the best of my abilities during the expected timetable for the Pathfinder Field of Action providing such help, assistance and encouragement as I may (in my discretion) deem appropriate and as my other commitments allow and to bring independent judgment to bear on issues of strategic direction and development, leadership, resources and commercial exploitation of the fruits of the Pathfinder Field of Action and provide such other support and assistance as may be expressly set out in or otherwise reasonably commensurate with the Pathfinder Field of Action.

 

3. I will act in relation to the Applicant as a fiduciary and do such acts and things as may reasonably be calculated to promote the success of the Pathfinder Field of Action for the benefit of the Mentor, IDEAs and the Institution on such basis as appears to me to be fair and reasonable and, in doing so, having regard (amongst other matters) to the likely consequences of any decision in the long term.

 

4. I will avoid situations in which I have, or can have a direct or indirect interest that conflicts, or possibly may conflict with the interests of the Mentor, IDEAs and the Institution in the Pathfinder Field of Action and, in particular, I agree that whilst I am a Mentor and for 12 months thereafter I will not be or become a director, employee, consultant, mentor, partner or professional adviser of any person or entity whose research or business may be competitive with the constituent elements of the Pathfinder Field of Action.

 

5. I understand that if Intellectual Property Rights are created by the Applicant pursuant to the Pathfinder Field of Action which are exploited by their assignment or licensing to third parties or if one or more companies are established for the purposes of creating a business based on or incorporating those Intellectual Property Rights each of the Applicant, the Institution and IDEAs shall assign to me a pro rata percentage of their rights or, as the case may be, of their Newco shares which any two of them may decide to be fair and reasonable in recognition for my past and, as may be the case, my continuing services as a Mentor to the Applicant; it being acknowledged that, except in exceptional circumstances, that percentage is unlikely to be greater than 10% of their rights or, as the case may be of their Newco shares. I shall not be entitled to any other fee or benefit from the Applicant, IDEAs or the Institution.

 

6. I will not, for my own benefit or for that of any party, (other than the Applicant, the Institution and IDEAs) at any time make use of any information which is divulged to me as a Mentor and which is described by the party divulging it as being of a confidential nature and/or which by reason of its nature or the circumstances or manner in which it comes to my knowledge is apparently of such a confidential nature, or, save as may be required by law or any governmental or regulatory body, disclose such information to any other person or entity, other than with the authority of IDEAs, provided always that information shall not be or shall cease to be confidential if and to the extent that it comes to be in the public domain other than as a result of my act or default.

 

7. I agree to provide to IDEAs and the Institution such information as they may require from time to time in relation to the Pathfinder Field of Action which is in my possession and control.

 

 

 

 

 

SIGNED BY ABOVE NAMED MENTOR IN AGREEMENT TO THE TERMS OF THIS SECTION 4

 

 

 

………………………………………………………………………………….

 

 

DATE:

SECTION 5 – YOUR SPONSORS

Your Application must be sponsored by three individuals, one of whom should be an Institutional Sponsor, a professor or other senior academic from your Institution who is in a position to comment on the merits of the Pathfinder Field of Action and the other two should be Personal Sponsors, individuals who have known you well for over ten years, one of whom should not be a member of your family. Your Sponsors will be required to sign this section of the Application Form prior to acceptance of your Application by IDEAs and, in particular, this means that your Personal Sponsors will need to provide a personal reference and also agree to be bound by the Personal Sponsoring Provisions set out below.

 

 

 

INSTITUTIONAL SPONSOR

A professor or other senior academic from your Institution in a position to comment on the merits of the Pathfinder Field of Action

 

 

NAME:

 

 

ADDRESS:

 

 

 

PHONE:

 

 

EMAIL:

 

 

INSTITUTION:

 

 

POSITION:

 

 

COMMENTS ON THE PATHFINDER FIELD OF ACTION

 

 

SIGNED BY THE ABOVE NAMED INSTITUTIONAL SPONSOR

 

 

 

………………………………………………………………………………….

 

 

DATE:

 

PERSONAL SPONSOR 1

A person who has known you well for over ten years and who is not a member of your family

 

NAME:

 

 

ADDRESS:

 

 

PHONE:

 

 

EMAIL:

 

FACEBOOK NAME

 

 

LINKED IN NAME

 

 

PERSONAL REFERENCE FOR THE APPLICANT:

 

 

PERSONAL SPONSOR 2

A person who has known you well for over ten years and who may be a member of your family

 

NAME:

 

 

ADDRESS:

 

 

PHONE:

 

 

EMAIL:

 

FACEBOOK NAME

 

 

LINKED IN NAME:

 

 

PERSONAL REFERENCE FOR THE APPLICANT:

 

 

 

 

 

PERSONAL SPONSORING PROVISIONS

 

 

If IDEAs should lose contact with the Applicant, for whatever reason, we agree to provide to IDEAs on request with such information as IDEAs may require and is in our possession or control concerning the last known address and contact details of the Applicant.

 

 

 

SIGNED BY THE ABOVE NAMED PERSONAL SPONSOR 1

 

 

 

………………………………………………………………………………….

 

 

DATE:

 

SIGNED BY THE ABOVE NAMED PERSONAL SPONSOR 1

 

 

 

………………………………………………………………………………….

 

 

DATE:

 

 

 

 

SECTION 6 – YOUR APPLICATION AND ACCEPTANCE OF THE TERMS AND CONDITIONS

 

I hereby apply to IDEAs for its participation in arrangements for the creation of Intellectual Property pursuant to the Pathfinder Field of Action described in section [].

 

I believe that it is reasonable to assume that within 10 years it will be possible to exploit Intellectual Property Rights derived from the Pathfinder Field of Action and/or to establish a business which results from new or improved products, processes or services utilising those Intellectual Property Rights.

 

I agree to be bound by the Terms and Conditions set out in Section 8 if this Application is accepted by IDEAs.

 

 

SIGNED BY THE ABOVE-NAMED APPLICANT

 

 

 

………………………………………………………………………………….

 

 

DATE:

 

 

SECTION 7 – ACCEPTANCE OF THE APPLICATION BY IDEAs

We agree to finance expenditure in relation to the Pathfinder Field of Action in the aggregate sum of:

 

£

 

and to:

 

• use our reasonable endeavours to arrange Mentoring Services; and

 

• provide commercial and administration services

 

in accordance with and in consideration of the Terms and Conditions set out in Section 8.

 

 

 

 

 

 

 

 

SIGNED ON BEHALF OF IDEAs

 

 

 

………………………………………………………………………………….

 

 

DATE:

 

 

 

 

 

 

 

SECTION 8 – THE TERMS AND CONDITIONS

 

 

1. Definitions

In this document, the following terms shall have the following meanings:

 

“Application”                                                    means this document in its entirety, including sections 1-8.

 

“Conversion Notice”                                    means a notice served by IDEAs pursuant to clause 6.

 

“Call Value”                                                     means the value of IPR Rights or Spin Off Shares Owned by the Applicant as at the date of the Conversion Notice which is agreed with the Applicant or, in default of agreement, determined by a reputable firm of accountants nominated by the Institution.

 

“Conversion Value”                                 means a value equal to CV in the formula

 

CV = P x (1+r)ⁿ

 

where:

 

P = the amount paid by IDEAs pursuant to a Payment Order;

 

r = 1.88%

 

n = the number of months or part thereof which have elapsed since the date of the payment made by IDEAs and the date of the Call Notice not exceeding 60

 

Provided however that where IDEAs has made payments pursuant to more than one Payment Order then the Conversion Value shall be the aggregate of all of the values calculated using this formula in relation to each such payment.

 

“Institution”                                                    means the institution named in Section 3 of this Application.

 

 

“Institutional Sponsor”                            means the person named in Section 5 of this Application.

 

 

“Intellectual Property’                             means copyrights (including all such rights in computer software) , moral rights, related rights, patents, utility models, registered and unregistered trademarks, trade or business names, service marks, design rights (registered or unregistered), utility models database rights, rights in unfair competition, rights in undisclosed or confidential information (such as know-how, trade secrets and inventions) (whether patentable or not), domain names and website content, rights protecting goodwill and reputation, rights under licenses and consents in relation to these things and other similar intellectual property rights (whether registered or not) and applications for such rights as may exist anywhere in the world.

 

“IPR Rights”                                                      means Intellectual Property which is Owned by the Applicant and derived in whole or in part (directly or indirectly) from the Pathfinder Field of Action.

 

“Mentor”                                                          means the person named in Section 4 of this Application or any substitute.

 

“Mentoring”                                                   means the coaching of the Applicant by the Mentor in accordance with the Mentoring Provisions.

 

“Mentoring Provisions”                           means the mentoring provisions set out in Section 4 of this Application.

 

“Note”                                                                 means the Application Form and all Payment Orders pursuant to which IDEAs has made payments to finance expenditure incurred in accordance with the Pathfinder Field of Action.

 

“Owned”                                                            means the right of or any and all claims to beneficial ownership now or in the future (and whether or not contingent on the occurrence of some other event or act) of IPR Rights or Spin Off Shares or of any economic benefit which may now or in the future be derived from IPR Rights or Spin Off Shares.

 

“Pathfinder Field of Action”                 means the Pathfinder Field of Action set out in Section 2 of the Application as may be amended and agreed in writing by the Applicant, the Mentor, the Institution and IDEAs from time to time.

 

“Payment Order”                                         means a notice in writing received by IDEAs from the Institution and the Applicant which directs IDEAs to pay for expenditure to be incurred or to reimburse expenditure already incurred for the purposes of the Pathfinder Field of Action and which encloses a note from the Mentor approving that expenditure.

 

“Personal Sponsors”                                   means the persons named in Section 5 of this Application.

 

“Spin Off Shares”                                           means shares Owned by the Applicant in the capital of any body corporate to which Intellectual Property derived in whole or in part (directly or indirectly) from the Pathfinder Field of Action is assigned or licensed.                 

 

“Tithe Payments”                                         means payments made by the Applicant to IDEAs pursuant to and in accordance with clause 13.

 

“Tithe Period”                                                means the period specified in clause 16.

 

 

1. The Applicant undertakes to IDEAs to diligently pursue the aims and objectives of the Pathfinder Field of Action and to do such acts and things and consult and cooperate with the Mentor and IDEAs to an extent which is commensurate with a good workmanlike approach to the work to be undertaken in accordance with the Pathfinder Field of Action.

 

2               IDEAs shall use its reasonable endeavours to facilitate the relationship between the Mentor and the Applicant for all the purposes expressed within the Pathfinder Field of Action and to act generally as the administrator of the Pathfinder Field of Action and, at the cost of the Institution, shall have full power and authority to do such acts and things on behalf of the Applicant, the Institution and the Mentor as may be necessary and desirable to register and protect the Intellectual Property created pursuant to the Pathfinder Field of Action the costs of which shall be borne by the Institution.

 

3. If the appointment of the Mentor is terminated in accordance with the Mentoring Provisions IDEAs shall use its reasonable endeavours to procure a suitable replacement.

 

4               Subject to clause 5, IDEAs promises to pay to the joint order of the Institution and the Applicant the aggregate sum stated in Section 7 of the Application in one tranche or in multiple tranches of £10,000 against expenditure incurred or to be incurred in accordance with the Pathfinder Field of Action and as specified in a Payment Order.

 

5. IDEAs’ obligation to pay is conditional upon the approval of the Mentor to the expenditure to be financed by and the amount of the Payment Order.

 

6. IDEAs shall have the right at any time to call upon the Applicant by the service of a notice in writing to the Applicant requiring the Applicant assign and transfer to IDEAs a proportion of the IPR Rights or Spin Off Shares which are Owned by the Applicant.

 

7. Subject to clause 9, the proportion that may be called for assignment and transfer shall be IPR Rights or Spin Off Shares with a Call Value which is less than or corresponds with the Conversion Value of this Note or, if less, with the amount of the Conversion Value of this Note which IDEAs specifies in its Conversion Notice.

 

8. If the Call Value is less than the Conversion Value of this Note then IDEAs shall have a continuing right to call for an assignment and transfer of IPR Rights or Spin Off Shares Owned by the Applicant with a Call Value which is less than or corresponds with the residual Conversion Value of this Note after deducting the Call Value of all previous IPR Rights or Spin Off Shares which are assigned or transferred to IDEAs as at the date of the Conversion Notice which called for that previous assignment or transfer.

 

9. IDEAs shall not be entitled to serve a Conversion Notice which calls for an assignment or transfer of IPR Rights or Spin Off Shares which would exceed 50% of the IPR Rights or Spin Off Shares which would otherwise be Owned by the Applicant if no Conversion Notices are served.

 

10            The Applicant shall not dispose of, encumber, or deal with or amend or modify IPR Rights and Spin Off Shares or consent to any alteration or proposal which has the effect of reducing their value without the consent of IDEAs.

 

11. An assignment or transfer of IPR Rights or Spin Off Shares shall be executed as soon as practicable following the service of a Conversion Notice or, if later, the date on which the Call Value is determined.

 

12. The Applicant hereby grants to IDEAs an irrevocable power of attorney to execute in the name of the Applicant and on his behalf such acts and things as may in the opinion of IDEAs be necessary or desirable for the purposes of effecting an assignment or transfer and which are approved by the Institution or the Mentor as being fair and reasonable as between the Applicant and the Institution. For these purposes, the contract between the Applicant and IDEAs shall take effect as a deed.

 

13. If the Applicant is successful otherwise than by the creation of valuable IPR Rights or Spin Off Shares – for example, if the Applicants becomes a successful investment banker, captain of industry or accountant, success being a measure of wealth in excess of the threshold referred to below – then, in consideration for IDEAs’ services in arranging and facilitating the services of the Mentor, the Applicant shall make Tithe Payments to IDEAs equal to ten percent of his or her annual emoluments in excess of a threshold of £[35,000] per annum plus 50% of any capital gains, excluding gains in respect of the Applicant’s primary residence or any benefits (in the form of pensions or otherwise) payable on the termination of service or retirement and to which the Applicant or his or her dependents may be entitled.

 

14. Tithe Payments shall be payable monthly to IDEAs in such manner and on such basis as to their calculation as IDEAs shall reasonably specify.

 

15. The Applicant shall voluntarily provide to IDEAs all material information which is relevant for IDEAs’ calculation of Tithe Payments and, in any event, shall provide such information in this regard to IDEAs forthwith on being requested by IDEAs to do so.

 

16. The Applicant shall be obliged to make Tithe Payments in respect of all emoluments and capital gains to which the Applicant becomes entitled within the period commencing on [second] anniversary of the date of this Application and ending on the [fifteenth] anniversary of this application. Accordingly, the Applicant shall have no obligation to make Tithe Payments in respect of emoluments and capital gains to which the Applicant first becomes entitled after the expiry of the Tithe Period.

 

17. The Applicant shall have no obligation to make Tithe Payments if and to extent that IDEAs has called for an assignment or transfer of IPR Rights and/or Spin Off Shares with an aggregate Call Value equal to the Conversion Value of this Note and which have been assigned and transferred. Accordingly, the Applicant shall only be obliged to make Tithe Payments in aggregate which equal the extent to which the Conversion Value of this Note exceeds the Call Value of IPR Rights and/or Spin Off Shares which have been assigned and/or transferred to the Applicant.

 

18. The Applicant confirm that to the best of the Applicant’s knowledge and belief, the information the Applicant has provided is honesty believed to be true and complete in all material respects. If it is not, the Applicant understands that the Applicant may not receive support, any support the Applicant has received may be withdrawn and the Applicant could be prosecuted.

 

19. The Applicant agrees to give IDEAs any information IDEAs requires to process the Application and agree to tell IDEAs immediately if the Applicant’s circumstances change in any way that might affect the Applicant’s entitlement to raise Payment Orders pursuant to this Note. The Applicant understand that if the Applicant does not do this, the Applicant may not be entitled to raise further Payment Orders, and may have to repay the expenditure financed by IDEAs pursuant to Payment Orders already raised.

 

20. The Applicant agrees that in the event of receiving an overpayment of a Payment Order, the Applicant is obliged to repay this in full.

 

21. The Applicant understands that if the Applicant has provided details of the Applicants UK passport, IDEAs will verify those details with Her Majesty’s Passport Office.

 

22. The Applicant irrevocably agrees that the courts of the part of the United Kingdom in which the Applicant’s home address is situated (or the English Courts where the Applicant’s address is outside the United Kingdom) shall have non-exclusive jurisdiction to hear any action or proceedings arising out of or in connection with these terms and conditions and the Applicant irrevocably submits to the jurisdiction of those courts, provided that this shall not limit IDEAs’ right to take proceedings against the Applicant in any other court of competent jurisdiction.

 

23. The Applicant agrees that if the Applicant leaves the United Kingdom to reside outside of the United Kingdom or for that or any other reason the Applicant is outside the UK tax system, the Applicant undertakes to provide IDEAs with the Applicant’s new and any subsequent contact details until the Applicant has satisfied all obligations to assign or transfer IPR Rights or Spin Off Shares or to make Tithe Payments.

 

24. If the Applicant has broken the terms of this contract the Applicant agrees that IDEAs, the Institution, the Mentor and the Personal Sponsors may share information held about the Applicant and with each other and with any person, including the government or a government agency of another country, who may assist in establishing the Applicant’s whereabouts and/or in taking action to enforce these terms and conditions.

 

25. The Applicant shall hold in trust and pay over to IDEAs as soon as possible all benefits of any description to which the Applicant becomes entitled following the date of a Conversion Notice in respect of the Call Value of IPR Rights or Spin Off Shares which are to be assigned or transferred to IDEAs but which arise before the assignment or transfer of such IPR Rights or Spin Off Shares has been completed and notice therefore given to all third parties from whom benefits in respect thereof may be received.

 

26. If and to the extent that IDEAs suffers any foreseeable loss or incurs costs and/or expenses directly or indirectly as a result of the Applicant failing to promptly notify any change in the Applicant’s circumstances which is relevant to a determination of whether an obligation to make Tithe Payments has arisen or to the calculation of the amount of such Tithe Payments then the Applicant shall pay to IDEAs such additional amounts as IDEAs might fairly and reasonably demand in compensation for such loss, costs and/or expenses.

 

27. If IDEAs should lose contact with the Applicant, for whatever reason, the Applicant agrees that the Institutional Sponsor and the Personal Sponsors may provide to IDEAs on request with such information as IDEAs may require and is in their possession or control concerning the last known address and contact details of the Applicant.

 

[1] See, section 6A(2)(n) of The Legislative Reform (Private Fund Limited Partnerships) Order 2017

http://www.legislation.gov.uk/uksi/2017/514/pdfs/uksi_20170514_en.pdf .

 

[2] Though please see my proposal for ‘Young Genius Funding’ described later in this response.

[3] See, for example, section 192 Income Tax Act 2007

[4] See, section 6A(2)(n) of The Legislative Reform (Private Fund Limited Partnerships) Order 2017

http://www.legislation.gov.uk/uksi/2017/514/pdfs/uksi_20170514_en.pdf .