PRICING AND VALUATION:
|Net Value per Share: $10.49 as of March 31, 2015|
|Net Value per Share: $10.87 as of June 30, 2014|
|Current Offering Price: $10.50 to Feb 28, 2016|
Shares are, subject to tax credit availability, being offered to eligible investors at $10.50 per share.
Until Feb 28, 2016 tax credits may be available for the 2015 taxation year. After that tax credits may be claimed for the 2016 taxation year.
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WHO can invest in WUTIF?
To invest in WUTIF, you must be an “accredited” investor or be a business associate or close friend of one WUTIF’s directors.
Residents of British Columbia qualify for the 30% refundable tax credits. A refundable tax credit means that the Government will refund cash if no taxes are owing. Non-resident investors may also buy shares and are encouraged to inquire about how they, too, can benefit from the tax incentives.
WHY invest in WUTIF?
The most important reason to invest in WUTIF is to enjoy an attractive return on investment, regardless of the tax advantages that such an investment may offer.
WUTIF will co-invest with other investors in university spin-off ventures and other B.C. companies that demonstrate the potential to become leading companies in the advanced technology sector. The goal is to benefit from taxpayers’ investment in advanced research and development.
In B.C., there are practically no early-stage funds. Only angel investors, i.e. knowledgeable entrepreneurs themselves, invest in new companies. Institutional investors avoid these early opportunities because they generally require a great deal of hand-holding and supervision – something that angels willingly contribute. WUTIF will co-invest with such investors.
According to Venture Economics, early stage funds outperform other investment funds. On a 20-year basis, early stage funds return better than a 20% annual compound rate of return to their investors. Rob Wiltbank of Willamette University has studied more than 1,000 angel backed companies and found that, on average, the return on investment is 27%.
In order to achieve returns such as this, WUTIF will invest only in early stage companies that have a huge upside potential. It will mitigate risk by ensuring that these startup ventures meet certain minimum standards (see “entrepreneurs” page for guidelines).
By investing in a broad range of qualified companies, WUTIF will be a participant in the winners of tomorrow. Those that perform will give their early investors returns in the 10 to 100-fold range. After an initial start up period, it is WUTIF’s goal to double in value every five years.
WUTIF incorporates a number of unique features that are attractive to investors.
Offered under British Columbia’s Venture Capital Corporation (VCC) program, WUTIF provides investors with a 30% refundable tax credit. This feature, available only in BC and similar to the credits offered in other jurisdictions for labour-sponsored venture funds, will significantly reduce the cost to the investor. Professor Thomas Hellmann at the University of British Columbia prepared an evaluation of the VCC program. For a copy of this, click here.
The tax benefits that accrue from investing in the VCC and holding them in an RRSP account substantially reduces the total “out of pocket” cost to the investor. Consequently, a substantial portion of the downside risk of investing in has been effectively removed. Investors can realize an almost immediate payback of up to $74 for every $100 invested in WUTIF.
Due to the popularity and success of the VCC program, there is an annual limit of $33 million in tax credits. Because this limit may be reached early (as has been the case in some years), investors are encouraged not to wait until the annual deadline.
Due to the pooled nature of investing through the Fund, many of the risks normally associated with investing in early stage technology are greatly mitigated through diversification and pooling with other technology investors. The Fund will co-invest with knowledgeable “angel investors” and take equity positions in startup technology ventures. Early stage funds of this type often outperform other asset classes.
When can Shares be sold?
Unlike some labour-sponsored funds in which investors must hold their shares for eight years, there is no mandatory hold period for investors in WUTIF. Holders of WUTIF shares may sell their shares privately to other parties – subject to BC Securities Commission rules and regulations. However, like other VCC Funds, WUTIF will offer to redeem shares after approximately five years and possibly earlier, depending on when it is able to realize gains on any of its investments. However, in the interim period, there may be no market for these shares and investors may find it difficult to sell their shares. An investment in WUTIF should be viewed as a long-term investment.
Investors may redeem their shares and immediately re-invest their proceeds for another five years, for an additional 30% tax credit provided that WUTIF is in a position to make redemptions. By then, investors will have recouped most – if not all – of their capital. Of course, after the second five years, they can rollover yet again – provided that tax credits are still available.
Other Benefits to Investors
WUTIF Management’s performance will be performance based. By co-investing with others, such as angels, WUTIF will not incur high operating costs by placing its own managers in its investee companies.
Investors in WUTIF will also benefit in other ways. For example, they will have opportunities for preferential participation in pre-public financings. They will also be invited to co-invest in companies for which the Fund has negotiated a Terms Sheet.
With respect to communications, WUTIF will provide a monthly update to its investors and will also invite them to various events that it may host, for example, monthly angel network meetings.
A confidential web page is available to all shareholders. This provides financial performance information, information on investees and periodic updates.
The Fund managers will present companies to WUTIF’s Board and only the independent directors will approve investments. The Managers must ensure that the companies meet the investment criteria and comply with the proposed terms after ensuring that adequate due diligence has been done by the co-investors (e.g. angels) and WUTIF’s partners.
Due Diligence Process, Management and ROI
Common concerns of investors relate to the due diligence process, management critical mass and return on investment.
Venture capitalists perform extensive “due diligence” on a company’s technology, people, and business plan before they invest. Then, after investing, they generally take board positions and supply management help to their companies. This is an expensive process. To afford this, VC funds need to be of a substantial size, generally believed to be in excess of $30 million. Hence, the normal 3% management fee that is paid to VC’s will allow them to engage professional managers to perform these functions. They are also motivated to produce results insofar as they generally take a 20% share of the gains realized as investments are liquidated.
WUTIF does not have this critical mass problem. It relies on its relationship with others to perform most of the initial due diligence. It also imposes its own criteria (see “companies”). Most importantly, it relies on the judgment of co-investors (e.g. angels and mentors) who risk their own capital and who will commit time and resources in nurturing these companies. Due to the relatively small amounts of capital invested in any one company, WUTIF is spreading its risk among many companies. It has been shown that, in the advanced technology business, identifying winners at startup is more art than science. The management and directors of WUTIF and the management company are motivated by a similar 20% share of gains realized on investments.
With respect to return on investment, the numbers work like this: Of 50 companies invested, 2 can be expected to return >20X each, 3 can return >10X and perhaps 6 will return >5X. If $100K is invested in each of 50 companies ($5M), the fund can return 2X (i.e.$10M) overall. On average, though, the success rate of a sample of 20 companies (e.g. university spin-offs) is better than this.
It is important to note that traditional Venture Capital funds invest only in those companies that have huge buy-out potential, usually in access of $100 million. This is because they generally make few large investments. Angel-backed comapnies, on the other hand, are often more niche-oriented firms that are sold for much smaller amounts. WUTIF has already had two such exits – one that sold for approximately $30 million and one that sold for $6 million!
Finally, many of WUTIF’s early investees are now maturing and are positioning themselves for imminent exits.