Risk warning

Risk Classifications of Propositions on the Symbid Platform

 

Start-Ups (very high risk)

We define Start-Ups as legal entities (private limited liability companies, public limited companies and cooperatives) that started a business at most three years ago. Statistically, Start-Ups run a major risk of not surviving the first three years of their lives. This is why Start-Ups are always classified as very high risk. On the Symbid Platform Start-Ups propositions are therefore financed, fittingly, by risk capital. Following the different steps in the due diligence process and the preparation for transactions make the risks as transparent as possible. For Start-Ups, this process focuses on the following:

- The quality of the entrepreneur / undertaking;

- Development of liquidity position;

- Solvency / liability capital;

- Earning power / payment capacity;

- Prospects for the industry.

 

Growers (high risk)

Besides Start-Ups there are growing SME’s (set up more than three years ago) looking for equity capital or risk capital to reinforce their balance sheet positions or develop new activities. For this category, issuing shares via regulated markets is often too costly. These companies play an important role in the recovery of employment or the revival of economic growth in the Netherlands, and Symbid offers this group an exciting alternative. Again, we will first determine whether additional investments would suit the company. For Growers, specific points of interest are:

- Current loans with associated repayment obligations;

- Current accounts payable balance;

- Historic sales compared to projected sales.

 

When considering applications for placement we focus on the following aspects:

- Structural risks (excess of target, conflict of interests);

- Cashflow (primary source of repayment);

- Price risk ratio.

 

Builders (high risk)

Not only starting and existing SME’s are looking for equity financing. Risk capital is a much-needed link in the financing chain for the financing of renovations, transformations, sustainability improvements and new constructions in the property sector. In time, Symbid will support such propositions, provided that the character of the investment suits Symbid’s mission and the project will have a favourable and progressive impact socially. The assessment may include a valuation of the property, in addition to the aspects listed above.

 

Cautions and Risk Factors regarding Investing on the Symbid Platform

 

The risk factors set out below are circumstances that might arise. Symbid and the company considered the issuing institution cannot pronounce on the likelihood of such risks actually coming true. If realised, those risks may affect the financial position of the issuing institution and thus have a negative impact on the value of the investment.

 

The continuity of the issuing institution depends on how said risks are handled. The list of risk factors is not exhaustive and other factors, which at this point are not known to Symbid or the issuing institution or which the issuing institution at this point does not consider relevant (in a material sense), may have a negative impact on the issuing institution’s financial position and thus on the value of the investment.

 

Risks Associated with the Sector in which the Issuing Institution Operates

 

Government-Regulated Market

There is a risk that political decisions produce unfavourable legislative amendments, at a local, national or European level. The competent authorities could also change the interpretation of existing legislation, or issue new regulations or guidelines. This may result in reduced sales and/or increased costs for the issuing institution, which in turn may cause continuity problems for the issuing institution.

 

Changes in Macro-Economic Conditions

Depending on the nature of the issuing institution’s activities macro-economic conditions may affect the costs of the issuing institution and/or its returns. The value of property depends on economic and financial trends, among other things. When prices in the property market go down between the point of purchase and the point of sale, the expected proceeds may go down as well.

 

Risks Associated with the Issuing Institution

 

Counterparty Risk

The issuing institution’s counterparties might not meet their financial obligations towards the issuing institution, or do so incorrectly or incompletely. As a result, returns for the issuing institution will be less than expected. Like any other business, the issuing institution runs the risk of a counterparty not being able to (fully) honour its financial obligations. This risk may arise if the counterparty is insolvent, for instance.

 

Issuing Institution Relies on Board Members

The functioning and operation of the issuing institution in facts depends on the specific knowledge and experience of its directors. With the loss of a board member that specific knowledge and experience could be lost as well. In the short or longer term, this could adversely affect the business operations and financial results of the issuing institution.

 

Competitive Risk

The markets in which the issuing institutions operate are often very expansive. In the Netherlands there are several other major players – in the Netherlands and abroad – that could qualify as direct competitors of the issuing institution. There is a risk that at some point those competitors will be more successful than the company in which the financing is realised. This would make it impossible for the issuing institution to acquire the claims it wants. As a result, the issuing institution may be hindered in meeting its payment obligations towards the investors.

 

Bankruptcy Risk

Investors run the risk of the issuing institution’s going bankrupt and/or being granted suspension of payments.

 

Tax Risk

Due to the investment’s multi-year character the effect of taxation on the issuing institution and on the return on investment are uncertain. The issuing institution may face legislative changes, new regulations or political decision-making that could be detrimental to the investors in financial terms. Over the years changes in Dutch regulations or new case law may have an adverse effect on the financial treatment of the investment or the investor.

 

The issuing institution’s tax position has not been pre-coordinated with the Tax and Customs Administration. If the Tax and Customs Administration does not accept the basic assumptions presented, the issuing institution’s results may be affected negatively. This in turn could hinder the issuing institution in fulfilling its payment obligations towards the investors.

 

Platform Availability Risk

Investments are transferred privately through the Symbid Platform. They can be sold and transferred only to other investors who are registered Symbid customers (and thus hold Symbid accounts). Should the Platform not work, temporarily or permanently, for instance because of a technical malfunction, trading may be temporarily impossible. If Symbid, being the Platform’s owner and operator, goes bankrupt, the Platform may be taken down. In such situations investments cannot be traded, or to a limited extent, or not at the desired time, because an investor wanting to sell its investments cannot connect to other (legal) persons to buy and acquire that investor’s participations. Those participations may thus become illiquid, whether or not temporarily.

 

Symbid continuity strategy

 

Symbid offers two different models of crowdfunding, namely equity crowdfunding and convertible loan crowdfunding. Both models have different legal structures, but are similar in that continuity can be guaranteed through the agreements made between an entrepreneur and its investors. This also applies in case Symbid will not be able to continue her activities as a crowdfunding platform. So how does this work in practice?

 

Campaign not yet successful on the platform: complete segregation of capital

As long as a campaign has not reached the required 100% of funding on the platform and thus has been successfully closed on the Symbid platform, all deposited money from investors is under control and supervision of InterSolve EGI B.V. This financial partner has an ‘Elektronisch Geld Instelling’ permit of the DNB (note: an electronic money institution is the provider of the financial product electronic money). In case Symbid will not be able to continue her activities in this phase of a campaign, all investors will be able to retrieve their deposits with InterSolve, minus a small amount of costs incurred by InterSolve.

 

Equity crowdfunding: independent legal structure ensures continuity

If the entrepreneur has chosen equity crowdfunding, all investors will be bundled in a newly incorporated investment cooperative. This investment cooperative will eventually act as an independent shareholder in the legal entity of the entrepreneur (issuing party). The board of the investment cooperative represents the other investors during the cooperative’s shareholding and takes care of the membership register. Symbid will facilitate the establishment of this legal structure, but will not take part as a legal party in the finalized legal structure. Therefore, if Symbid no longer exists, the established legal structure with the various representatives will ensure continuity of the interests of the investors.

 

Convertible loan crowdfunding: independent Foundation Symbid Loan Administration

The Symbid Loan Administration Foundation fulfills a controlling function in the Symbid model for (convertible) loans. The interests of the independent loan holders of each project presented by Symbid, are handled by this independent foundation. The foundation board will be the administrator of the loan register, the holder of any collateral, and, if applicable, supervise the handling of the various cash flows between the parties. It will do so on behalf of the various loan holders. If necessary or desired, the board of the foundation will contact the entrepreneur regarding progress, possible, temporary payment issues, and any other issues. Should an unexpected situation arise in which an entrepreneur can no longer fulfill its obligations, the board of directors can act on behalf of the loan holders and, if appropriate, extract available collateral.

 

In addition, entrepreneurs and investors are not anonymous in the case of Symbid; the signed loan agreements are shared with all parties, giving them access and insight to the information in the loan agreements at all times, also in the case Symbid is not able to continue her activities. This does also imply the issuing entity (entrepreneur) is taking care of the register of lenders.