Investment

The Fund is targeted at small and medium sized companies a the critical early stages of development (including start-up).

The Fund can only invest in businesses based in the North East. Businesses may operate outside the region but must hold premises or be based in the North East. The Fund is open to applications from all industrial sectors All applicant businesses will need to be limited companies so that they can issue shares.

Applicants will need to demonstrate unique features, excellent growth potential and the ability to generate good sustainable profits.

The fund is not sector specific.

An applicant must not have received funding from other UK government funded Early Growth Funds, The Regional Venture Capital Fund or other public investment funds other than the Proof of Concept or pre-revenue funding which does not exceed £90,000 where the recipient is a university spin out, or £60,000 where the recipient is a non university spin out.

The private investor, at the time of the investment, must not be connected to the recipient company.

Business practices should be considered legal, moral and ethical.

Investment Criteria

The fund is targeted at small and medium sized companies at the critical early stages of development (including start-up).

Applicants will need to demonstrate unique features, excellent growth potential and the ability to generate good sustainable profits.

The fund is not sector specific.

An applicant must not have received funding from other UK government funded Early Growth Funds, The Regional Venture Capital Fund or other public investment funds other than the Proof of Concept or pre-revenue funding which does not exceed £90,000 where the recipient is a university spin out, or £60,000 where the recipient is a non university spin out.

The private investor, at the time of the investment, must not be connected to the recipient company.

Business practices should be considered legal, moral and ethical.

Investment Process

At the time of approach to the Fund it would be expected that a private investor has been identified and has agreed, in principle, to invest. However, it is possible to make an approach in circumstances where a Business Angel has not been identified.

There is no formal application form but the company must submit a full business plan supported by historic accounting information and two years of integrated financial projections in quarterly or similar summary format.

The plan must demonstrate unique features, a high growth potential and a skilled, well rounded management team.

An exit strategy will need to be demonstrated in the plan and the Fund will be looking to exit in three to five years from the investment date.

The Fund will rely, to some extent, on the assessment of risk and the decision taken by the private investor together with the due diligence carried out prior to the investment.

The intention is to make the whole investment process as quick, simple and cost effective as possible and the Heads of Terms and related legal documentation will be drafted accordingly.

Typically, an investment approach will involve:

• Initial enquiries and discussions with Fund Manager.
  
• Submission of Business Plan.
  
• Review by Fund Manager followed by further information, if required.
  
• Submission of Plan to Investment Panel.
  
• Presentation to Investment Panel.
  
• Investment decision.
  
• Heads of Terms and, if accepted, due diligence.
  
• Legal Agreements.
  
• Investment.

Timescales

From the submission of the final Business Plan for review by the Fund Manager to the Panel meeting is approximately ten working days.

The Investment Panel should be able to make an investment decision on the day of presentation and that decision would be conveyed to any applicant within 48 hours.

Once the offer letter has been accepted by an applicant the due diligence and legal exercise can commence and it would be expected that all parties would join into NEEMF´s legal framework documentation which is intended to save on time and costs.

Time taken from acceptance of offer to completion will vary but should in normal circumstances take no longer then four to six weeks.

Legal Terms

1. Introduction

The key documents governing the Investment:

• Investment Agreement
• Articles of Association
• Disclosure Letter

Documentation is in a standard form

2. Investment Agreement

(This document governs the terms of the investment)

The Board

• NEEMF will have the right to appoint an observer to attend board meetings (ordinarily the NEEM Fund Manager or Portfolio Executive).

Warranties

• What are they?

Statements made by the Managers and/or Existing Shareholders about the Company, themselves and the preparation of the business plan and information supplied to the Investors.

• Limitations on liability under the warranties

Warranties are subject to anything the warrantors tell the Investors in the Disclosure Letter.

Any person giving warranties will not be liable for a breach of warranties if they have made due and careful enquiry UNLESS that person has been fraudulent, dishonest or has wilfully concealed something from the Investors.

• Conduct of the Company

Consent will be required from NEEMF before the Company can make significant decisions or changes to its share structure or changes to its plans from those in agreed budgets.
Positive obligations on Company include to:-

- Appoint auditors and produce accounts.
- Keep Managers' emoluments to an agreed level.

• Provision of Information to NEEMF

To include:-

Audited accounts - within 4 months of year end.
Management accounts - within 21 days of month end.
Details of any offer to purchase the Company or its business.
Anything else reasonably requested.

3. Articles of Association

(This document governs the rights of the Shareholders)

Share Rights

• NEEMF shares to rank pari passu with those of any co-investor(s) in respect of income, return of capital and voting.
  
• Payment of dividends subject to NEEMF's consent.
  
• New issues of shares to be offered to all shareholders pro-rata to holdings.

Permitted Transfers of Shares

• To a spouse, lineal descendant or family trust.
  
• Transfers approved by all shareholders.

Pre-Emption Rights

• All shares sold (other than through a drag along, tag along, permitted transfer) must be offered to all other shareholders pro-rata to their holdings of shares in the Company before being sold to a third party.
• Disputes on market value to be determined by an independent expert.

Tag Along

• No third party can obtain a controlling interest in the Company without offering to buy out all other shareholders for the consideration per share (in cash or otherwise) offered to other shareholders.

4. Service Agreement

(This document formally records the terms of employment of the Managers)

The Managers may be expected to enter into new service agreements.

5. Disclosure Letter

Enables Managers to provide information where they consider the warranties to be untrue or misleading.

Costs

NEEMF charges a 3% Arrangement Fee calculated against the sum of the NEEMF investment which is restricted to a maximum fee of £2,000 and a minimum fee of £1,000.

This fee is payable by the applicant at 50% on acceptance of terms and 50% on completion, all subject to VAT

Additionally, an Annual Monitoring Fee, calculated at 1.5% of the investment amount (minimum £500) is payable annually in advance by investee companies.

All legal costs associated with the transaction will be borne by the applicant but they will commensurate with investments of this size.