How does my investment materialize?
Spreds offers equity and loan investment opportunities in a selection of target companies.
1. Investment opportunities: investments through participatory notes.
Investors who invest through our platform generally do not become direct shareholders or lenders, they invest through a financial vehicle managed by Spreds (called Spreds Finance).
Spreds Finance issues a security that represents the investor's investment. This financial security is called an Equity Note and can be linked to shares of a company (called an Equity-Linked Note) or to a loan to a company (called a Debt-Linked Note). The Equity-Linked Note is the economic mirror image of a share (equity interest) or loan of the underlying company (the company being financed) and entitles its owner to the same return (capital gains in the case of shares or interest in the case of loans) on a pass-through basis, which means that Spreds Finance is obliged to pay the investors holding the Notes the proceeds of the underlying investment to Spreds Finance.
The main advantage of this system is that, in most cases, shares or loans in private companies are illiquid (meaning that investors cannot sell them) and often not divisible (meaning that investors must invest in multiples of a large amount, for example 100,000 euros). With Participating Notes, investors can invest smaller amounts and they can (if they find a buyer) sell their Notes.
Investing through participating notes means that investors are grouped together. By acting collectively, they have a stronger voice and do not need to be burdened with the administrative and legal tasks associated with private equity investments.
Investing through Participating Notes means that Spreds, as manager of Spreds Finance, will manage the corporate actions related to the underlying assets until the end of the investment, such as issuing Tax Shelter Certificates, attending general meetings, paying interest on loans, collecting reports or organizing decisions to be made by investors. The voting rights attached to the underlying investment are exercised collectively by all investors in that investment and are then ultimately exercised by Spreds Finance on their behalf.
Spreds Finance is a dedicated financial vehicle whose sole activity is to hold investments or stakes in companies, with one sub-fund for each fundraising.
The particular structure of Spreds Finance ensures that each compartment is isolated from the others. This means that if one company has financial difficulties, it does not impact the other companies. In addition, each sub-fund is fiscally transparent, which means that there is no additional taxation on capital gains or interest.
2. Investment opportunities: direct investors.
Some of the opportunities offered on Spreds.com allow investors to become direct shareholders or lenders in a company. In this case, no Spreds Finance sub-fund is used and investors hold shares or loans in the selected companies directly, which means they will have to manage them themselves. Spreds always clearly indicates when an investment is made through Participating Notes or directly in the company.
**3. What happens if a company is listed on the stock exchange?
If, at some point in the evolution of a company, its shares (or debt securities) are to be listed, these shares (or debt securities) become liquid and divisible. Spreds Finance will therefore convert the Participating Notes held by the investors into shares (or debt securities) of that company and transfer them to their securities account, thus allowing the investors to trade their assets on the stock exchange and exercise their voting rights themselves.
**4. Spreds' selection process
The selection process of Spreds is as follows:
The application phase begins once a project owner decides to submit an application to Spreds' New Client Acceptance Committee (NCAC), which is responsible for evaluating the absence of "red flags" that would prevent Spreds from supporting a project owner's fundraising. To this end, it is important for the NCAC to ensure that it has sufficient information to make a reasoned decision.
The application phase is conducted in two stages.
In the first step, project applicants that do not a priori meet the requirements for further cooperation with Spreds are filtered out. The following projects will be excluded by default, but some exceptions can be made:
- Project owners who are not ready to raise at least 50.000 Euro;
- Project owners with a criminal record in the field of anti-money laundering;
- Project owners established in a non-cooperative jurisdiction, as recognized by the relevant EU policy, or in a high-risk third country in accordance with Article 9(2) of Directive (EU) 2015/849.
In the second step, the project owner provides representations and warranties, which means that it is liable for any misleading and/or incorrect information to Spreds and investors in case of damages.
The NVC, based on this information, decides whether or not Spreds will sign a contract with the project owner.
**5. Selection criteria for investors
Spreds offers investors an easy way to evaluate investment opportunities through a Fact Sheet that appears on every campaign profile.
6. Equity Fact sheet
The Equity Fact Sheet is a standardized table set up by Spreds, allowing investors to evaluate investment opportunities. Spreds will ask the entrepreneur(s) of the company raising funds to answer yes or no to the following questions in order to provide a uniform and transparent way to evaluate and compare investment campaigns on the platform.
The fact sheet is also used to determine whether the investment opportunity is available to Tax Shelter Tracer investors. A minimum of 6 positive responses, as well as full compliance with the legal requirements for creating a Tax Shelter for micro-businesses, are required for the Tax Shelter Tracer to make an investment.
The company has 2 active entrepreneurs. Active entrepreneurs are shareholders owning at least 10% and working at least half time for the company.
The entrepreneur(s) is/are experienced. An experienced entrepreneur is someone who has relevant industry management experience (at the C-level) and/or has been a founder and/or involved at the C-level for more than a year in a business that. :
o has completed a successful exit (i.e., the sale of the company or 100% of the shares for x3 of the amount invested)
o has been in existence for more than 5 years and is not subject to a warning procedure or any type of reorganization or judicial liquidation.
The entrepreneur(s) has (have) invested - through a cash contribution - a minimum of €15,000 in his (their) company in exchange for shares or will do so at the latest at closing.
The company is advised by a professional start-up advisor, e.g. an incubator, gas pedal, studio or public institution. The advisor provides guidance and advice. The startup advisor must be the incubator, gas pedal, studio or public institution itself. Not a person affiliated with an incubator, gas pedal, studio or public institution.
The company is supported by a professional co-investor who has invested at least €25,000 in the company or will do so at closing. The co-investor:
o cannot be a family member to the 1st (child or parent) or 2nd (grandchild, grandparent or sibling) degree, a spouse/significant other or an employee of the company
o invests directly in the company or through a dedicated sub-fund of Spreds Finance.
An incubator, gas pedal and/or studio has equity in the company or will have equity at closing. The incubator/accelerator/studio must have equity in the company in exchange for an in-kind (e.g., program participation) and/or cash contribution.
The co-investor and/or incubator will become a member(s) or observer(s) of the Board of Directors.
The valuation of the company is within the following limits:
o less than 1 million euros; or
o more than 10 times the company's turnover in the previous year.
The valuation of the company is determined by the co-investor or the incubator.
The valuation of the company is determined by an organization specialized in the valuation of companies of comparable size.
The company has made a previous equity or convertible loan financing round in which it convinced a minimum of 10 investors.
The company has raised 5,000 euros in a private phase of this crowdfunding.
7. Filtered investments.
Members of the Spreds platform will be able to filter companies according to different criteria, allowing them to clearly see which opportunity matches their interests.
8. Tracer Investments
A Tracer is an innovative tool that helps investors build a diversified portfolio of start-ups. With the Tracer, they will be able to invest in a predefined number of companies that meet at least 6 of the 12 criteria listed in the stock information sheet. While subscribing to an automated investment portfolio, they retain full control over each investment with a withdrawal option on each investment.
With our Tracers, each investor can easily minimize their risk exposure by investing in different startups. While many startups fail, some succeed and provide potentially significant returns to their investors on a diversified portfolio. To learn more about startup failure statistics, click here.
Investors will have privileged access to certain opportunities and will benefit from a reduced subscription fee of 4% (instead of 5%).
**9. The risk of start-up failure
Statistics show that 40-50% of start-ups fail, which means a total loss for the investor, 40% survive generating a small loss or return, while the remaining 10-20% succeed - i.e. they are bought out or go public - and generate a capital gain that represents a multiple of at least 3 times the initial investment.
10. Issuance of the Key Investment Information Sheet.
The KIIS is a maximum 6-page document (the appendix containing information on investor rights is not included) providing information on the project, the Notes investment, the underlying asset and the risks associated with the investment. It will always be made available to investors (also downloadable) when an offer is made.
Spreds ensures the regulatory validity of your crowdfunding campaign. Throughout the preparation of the campaign, entrepreneurs will be accompanied by the Spreds team to fill in the "key investment information sheet". Although Spreds will provide significant support in this drafting and perform a number of checks, its content (and translations) will be the sole responsibility of the entrepreneur.
Spreds will also provide entrepreneurs with guidelines on how to properly draft their marketing material to potential investors.
**11. Spreds Finance: Tax Shelter Management
The Tax Shelter eligibility of each opportunity is validated by Spreds based on a series of statements and information provided by the entrepreneur of each company.
Tax Shelter certificates are issued by Spreds Finance each year for 4 years following each investment. These certificates can be downloaded from the investor's Spreds online profile.
Spreds Finance will also issue special certificates in the event of a company's bankruptcy or sale of the underlying shares.
12. Spreds Finance: Representative Noteholders and general meetings.
Spreds will organize general meetings for decisions that may have an impact on the rights or the economic situation of the investors. These decisions are those that have an impact on the patrimonial rights of investors (e.g. sale of shares, possible dilution resulting from the creation of a new class of shares with preferential liquidation rights, changes in the repayment schedule of a loan, etc.).
All general meetings organized by Spreds Finance comply with the relevant legal provisions set out in the Belgian Code of Companies and Associations (CCA). This means, among other things, that investors must be invited to general meetings at least 15 days before the scheduled date. Two conditions must be met for a decision to be approved:
- a quorum of 50% per compartment must be reached; and
- a majority of 75% of the votes cast per sub-fund must be reached.
As provided by the CCA, if the 50% quorum is not reached, a second general meeting is convened for that compartment (the 15-day notice period also applies here). Note that the 50% quorum is not mandatory this time. However, a 75% majority is still required for the decision to be adopted.
The only exception to the convening rules is when an urgent decision has to be taken in the interest of the investors. Spreds can then take the decision to preserve these interests and will report to the investors on the decision taken and the reason why it had to be taken urgently.
Spreds does not organize a general meeting for common decisions (such as the approval of the annual accounts, the dismissal/appointment of a director, etc.). This means that Spreds Finance will vote by proxy by giving a mandate to one of its co-investors1 . The designated co-investor will therefore vote for Spreds Finance.