Spark EIIS Private Portfolio

EIIS PRIVATE PORTFOLIO

A New Investment Product for the Discerning Private Investor

Designed to provide investors with a product superior in nature to that offered by traditional fund managers.

A unique product that has more benefits, less costs and some attractive tax incentives that have the potential to substantially magnify investment returns. With an entry level for private investors that is considerably lower than what would be required to access traditional investment funds.

n THE EIIS PRIVATE PORTFOLIO

Summary

Research shows that investors who spread their risk across a range of investments achieve higher returns. Private Investors can benefit from having a broad and diverse portfolio of investments in early-stage businesses.

We have designed a product that makes it easy for investors to build a portfolio of shares in high-growth companies, in much the same way as professional investment managers operate.

This product is called the ‘EIIS Private Portfolio’ and is structured to enable private investors to invest a fixed amount in a broad range of carefully selected EIIS campaigns that are presented on the Spark Crowdfunding platform.

Investors can choose from 3 investment options - €500 per campaign, €1,000 per campaign or a customised higher amount.

There are no set-up fees for investors to join the EIIS Private Portfolio, nor are there any ongoing management fees, commissions, or transaction fees for investors. It is completely free – 100% of your funds go towards purchasing shares in these carefully selected companies.

Please note there will be a 5% (discounted from our standard 6%) success fee on any profitable exits for EIIS Private Portfolio members and this fee will be

We have designed a product that makes it easy for investors to build a portfolio of shares in high-growth companies, in much the same way as professional investment managers operate.

calculated based on the profits made, not the overall value of the investment at exit.

A major advantage of the EIIS Private Portfolio is that only EIIS qualifying companies will be eligible for investment, which means Irish taxpayers will receive a 40% tax rebate on investments.

What this effectively means is that Irish investors are purchasing carefully selected shares at a 40% discount to the market valuation AND are paying no commission or management fees to have access to these investment opportunities.

THE SPARK EIIS PORTFOLIO CLUB THEREFORE OFFERS:

The absence of fees and the generous tax refunds means that investors are far better positioned than traditional fund managers from the outset to maximise the returns on their investments.

By using the Spark Crowdfunding platform to keep a record of your investments, the EIIS Private Portfolio provides Spark investors with a very flexible, costfree, and easily manageable way of building and monitoring your own portfolio of investments in carefully selected high-growth companies.

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Access to a diversified portfolio of highgrowth companies, many of which are exclusive to Spark.

Low entry investment levels, starting at just €4,000, spread out over 12 months.

Tax refunds of 40% of the amounts invested on all investments. (This reduces the minimum entry level to just €2,400, spread over 12 months.

No portfolio management fees or charges.

Full visibility on all investments made through the Spark platform.

Regular investment updates from investee companies and analysis of broader start-up market activity, trends and themes

The opportunity to join a portfolio community and exchange information based on shared expertise or existing relationships.

The absence of fees and the generous tax refunds means that investors are far better positioned than traditional fund managers from the outset to maximise the returns on their investments.

How it works 2 3 1

Investments are made at the beginning of each campaign in your own name, directly into the campaign. This is not an investment fund or club where funds are collected on a monthly basis and aggregated into one large pool. Spark Crowdfunding is simply acting as a facilitator and neither has access to your funds, nor is managing your funds.

Investors are free to opt out of any campaign that they would specifically prefer not to invest in. Investor consent will be sought prior to inclusion in any investment opportunity.

Investors can review their list of investments at any time in their own private account on the Spark Crowdfunding platform.

Conclusion

n THE EIIS PRIVATE PORTFOLIO

The Spark EIIS Private Portfolio enables private investors to build their own portfolio of shares in the same way as professional investment managers build portfolios.

Investors pay no set-up costs or ongoing management fees to operate this portfolio of investments.

The low entry levels of either €500 per campaign or €1,000 per campaign are designed to accommodate small to medium sized investors. (Investors may customise their portfolios to higher investment amounts but the minimum investment level is relatively low.)

There are no long-term commitments or obligations on participation. Investors are free to opt out of any particular investment opportunity or pause their participation at any time.

The EIIS Private Portfolio offers exclusive access to curated investment opportunities, many of which are also Enterprise Ireland funded companies.

Private investors are therefore building a diversified portfolio of high calibre investments with no management fees or costs and with a 40% tax rebate on every investment.

Private investors are therefore building a diversified portfolio of high calibre investments with no management fees or costs and with a 40% tax rebate on every investment.

Next steps

n HOW YOU CAN PARTICIPATE

Participation in the EIIS Private Portfolio is by invitation only.

For this first phase we will be limiting the number of members of the EIIS Private Portfolio to ensure we provide an excellent service to those investing €500 per campaign and €1,000 (or greater) per campaign.

At our current number of campaign offerings, we would anticipate having approximately 12 campaigns per annum in the EIIS Private Portfolio.

This would equate to an annual investment of €6,000 per annum at the €500 per campaign level (which is reduced to €3,600 after the 40% EIIS Tax Rebate is applied). For investments of €1,000 per campaign, this equates to €12,000 per annum (which is reduced to €7,200 after the 40% EIIS Tax Rebate is applied).

Please contact Gary McCarthy, Head of Risk, if you would like to participate in the Spark EIIS Private Portfolio at gary@sparkcrowdfunding.com

1 How it operates

n THE EIIS PRIVATE PORTFOLIO

The first decision for investors on Spark Crowdfunding platform is to decide how much one would like to commit to building a portfolio.

Investing in start-up businesses is inherently risky, so your Spark Portfolio should be a relatively small part of your overall personal wealth management strategy.

We have three plans available to investors, namely ‘Silver’, ‘Gold’ and “Velvet”.

• The ‘Silver’ plan represents a €500 investment each campaign.

• The ‘Gold’ plan represents a €1000 investment each campaign.

• The ‘Velvet’ plan represents a customised amount of more than €1,000 invested in each campaign.

By selecting either plan, this will be the amount of money investors will be committing to investing in each campaign. The portfolio plan is long term (3 years) but it is flexible as investors can choose to opt in/out each of any specific investment.

A FLEXIBLE APPROACH TO SUIT YOUR INVESTMENT STYLE AND BUDGET

We expect there will be 10-12 campaigns over a calendar year.

Spark investors can budget to invest either at the Silver level (€6,000) or at the Gold level (€12,000) on an annual basis.

Please note that investors will be required to opt in for each campaign. This means that it is not an automatic payment/debit.

MINIMUM OF 8 CAMPAIGNS REQUIRED A YEAR

Investors can opt out/choose not to invest in specific campaigns. However, they will need to invest in a minimum of 8 campaigns in a calendar year.

It should also be noted that some parts of the year will be busier than others but the Spark team will do its best to spread out the campaign offers.

QUARTERLY REPORTING KEEPING YOU INFORMED

The Spark team will also publish quarterly update reports on historic campaigns and portfolio companies. These reports will aggregate data of the individual companies and provide analysis of trends and specific milestones of interest to investors.

YOUR 3 YEAR GOAL

The goal of the Private Portfolio is for each investor to build a portfolio of approximately 30 companies over a 3-year period with a purchase value of €15,000 or €30,000 depending on your chosen plan.

Ideally, your portfolio companies will feature a diversity of industry sectors, investing environments/valuations and founders. Nobody can forecast the future but a multi-year portfolio of companies should be able to capture a number of positive trends and developments.

There will be negative outcomes too but, remember, all of the investee companies will have EIIS tax rebate status which provides investors with a helpful 40% downside risk protection.

THE INVESTMENT PROCESS FOR EACH CAMPAIGN

The mechanics of investing in any campaign will be like other campaigns on the Spark platform with which you will be familiar.

Investment documents will be available for review and meetings will be arranged with investee company founders.

Private Portfolio members will be asked to confirm their investment according to their chosen plan. No investment will be made without that confirmation.

The Spark team will assist with any queries on the Portfolio Club. We anticipate an exciting pipeline of campaigns to build your own fund.

KEY FEATURES OF THE PORTFOLIO PLAN

The key features of the Portfolio Plan are as follows:

• Portfolio Plan investors will invest the same amount of money in each campaign which we anticipate to be approximately 12 campaigns per annum.

• Portfolio Plan investors select a chosen level of commitment (€500 or €1000 or units thereof) which will be automatically invested in each campaign. However, investors can opt out of any campaigns where they would prefer not to invest.

• Update reports on the investee companies in the portfolio will be delivered to investors on a quarterly basis plus analysis on the aggregate data.

• Incentives to Portfolio Investors will vest/award on an annual basis and are predicated on a minimum of 8 campaigns invested.

2 Reasons to participate n THE EIIS PRIVATE PORTFOLIO

The EIIS Portfolio Club is an opportunity for members of the Spark Crowdfunding platform to participate in a more systematic method of investment.

“Picking winners” is a real challenge when investing in high growth/high risk businesses. Even the professionals struggle.

The professional investor’s solution is to move away from concentrated one or two company bets and spread the risk across a portfolio of companies. This is the essence of a venture capital (VC) fund.

Think of the EIIS Private Portfolio as an initiative to assist private investors in building their own VC fund. With Spark Crowdfunding, a major benefit is that you don’t have to pay any management fees and access amounts are much lower than with traditional investment funds.

CREATE YOUR OWN VENTURE CAPITAL FUND

The portfolio approach to investment does not obsess about picking winners.

Instead, investors invest similar amounts in each funding campaign/company. The goal would be to build a portfolio of 30-40 companies over a 3 year period. In effect, you will have created you own venture capital fund, without the onerous task of extensive company analysis on each investment.

There are well documented reasons in the field of behavioural finance as to why a more concentrated investment approach can lead to unintended risks. The big bet “winner” approach entails an inherent overconfidence which can lead to loss and which can be further compounded by an emotional attachment to an

out-sized investment of time and money. This emotional bias can prevent investors from seeing opportunities elsewhere and spreading their risk across a portfolio.

BENEFITS OF THE PRIVATE PORTFOLIO

The benefits of the Private Portfolio can be summarised as follows:

1. Better Diversification: A portfolio approach with an increased number of companies reduces risk by diversifying exposures across factors like technologies, geographies/markets and sectors.

2. Better Information: The Spark team will aggregate quarterly updates from investee companies to provide data for analysis of trends and performance.

3. Better Economics: Because the Portfolio Plan will be investing in each campaign there will be discounts on normal exit fees charged provided to Private Portfolio investors. These discounts are in addition to the 40% EIIS tax rebate that all of the investments will benefit from.

4. Better Networks: The community effect of a shared experience and commitment is a more effective way to build relationships.

THE CROWDFUNDING ‘COMMUNITY BENEFIT’

The community benefit referenced may seem a ‘soft’ or non-quantifiable advantage, but the professional VC firms are certainly paying attention.

Recent surveys of VC firms have specifically identified the “community” benefits of crowdfunding platforms as a threat to both their business models and their exclusive access to funding campaigns.

Clearly, the professionals see a future with more investment opportunities/funding campaigns being presented directly to private investors.

That is very good news for those who wish to build a portfolio of multiple opportunities in a systematic manner.

“Picking winners” is a real challenge when investing in high growth/high risk businesses. Even the professionals struggle.

3 Terms of participation

n THE EIIS PRIVATE PORTFOLIO

Eligibility: Members of the Portfolio Club must be existing members of the Spark Crowdfunding platform. The Terms of Use and Privacy Policy governing the Spark Crowdfunding platform will remain applicable for the Portfolio Club.

Private Portfolio Service: Members of the Private Portfolio will be able to participate in a portfolio approach to investment in Spark Crowdfunding campaigns. The portfolio approach places less emphasis on selecting investments but, instead, plans to invest in multiple campaigns on an equivalent-sized basis in order to diversify investor risk. At all times investors can choose to opt in or out of any individual investment campaign. Portfolio members employing a portfolio approach will have access to quarterly updates on all investee companies. Quarterly reports will also be supplemented with regular written content relevant to the portfolio, start-ups in general and market information/education.

Investor Commitment: Private Portfolio members commit to investing €500 (Silver), €1,000 (Gold) or higher amounts (Velvet) per campaign. This is not an automatic commitment. Investors will be asked to confirm their investment prior to the campaign going live. Investors have the option to not invest in specific campaigns.

Incentives: Private Portfolio members at the end of each calendar year are eligible for exit fee discounts, including with legacy investments.

Qualification for Incentives: Eligibility for incentives will be determined by a Private Portfolio member’s participation in a minimum of 8 campaign fundings in that calendar year.

Investor Control: Private Portfolio membership does not require a separate investment account at Spark Crowdfunding. The original Spark member account will continue to apply for Private Portfolio activities. Spark will keep members informed about Private Portfolio opportunities, but this should not be construed as advice. We recommend all private investors seek advice from their professional advisors prior to investing in any campaign on the Spark platform.

Term/Time: The goal of the Private Portfolio is to build a diversified portfolio of 30-40 companies for investors over a 3-year period.

The portfolio approach places less emphasis on selecting investments but, instead, plans to invest in multiple campaigns on an equivalent-sized basis in order to diversify investor risk.

Appendices

1 Spark Crowdfunding - Company Profile

Established in Dublin in 2018, Spark Crowdfunding is an investment marketplace that connects private investors with companies raising funds for growth. Over the last 5 years, 32 Irish companies have raised funds on the Spark platform in amounts ranging from €100,000 to €3m. The average campaign size on the Spark platform is €540,000 and the average investment size is €3,500.

Spark has a database of 11,300 private investors, over 90% of whom are located in Ireland. In aggregate, these investors have declared liquid assets available for investment of €1.4 billion. Of these 11,300 investors, 1,740 investors have declared liquid assets in excess of €100,000. This is a formidable database of private investors and is second only to that of the large stockbrokers operating in Ireland.

All fundraising campaigns are run on the Spark platform, which is developed and owned by Spark. As part of its proprietary marketplace technology, Spark has developed powerful data analytics software which captures mission critical information on investor behaviour and campaign dynamics.

In addition to its extensive database of registered clients, Spark has also built up a strong, engaged and loyal social media following, particularly on LinkedIn and Twitter.

ATTITUDE TO RISK

Spark adopts a highly conservative and risk adverse philosophy in comparison to other financial services companies. As a result of this approach, Spark takes no trading risk and simply acts as a facilitator or broker in all transactions. Equally, Spark gives no investment advice and all clients are encouraged to solicit their own advice before making an investment on the platform.

Finally, Spark never holds Client funds within its own bank accounts. Instead, all client funds are held in a dedicated client segregated funds account at Stripe for the duration of campaigns and funds are only released when legal agreements have been completed and signed. Beauchamps acts as the company legal advisor.

MOBY BIKES

Moby raised €795,000 on the Spark Platform at a share price of €0.24 in November 2020. In April 2023 Moby secured funding elsewhere at a share price of €1.27. This translated into a share price increase of 429% for Spark investors, excluding the 40% EIIS tax rebate they will also have received on their investment.

TRACK RECORD FOR IDENTIFYING WINNERS

Over the last 5 years, the team at Spark have engaged with and evaluated over 700 Irish and UK companies as potential investees to raise funds on the platform. As evidence of the intensive vetting process and a policy of only presenting the highest calibre investment opportunities to its clients, only 32 of these companies have been approved to proceed with a campaign offering to Spark investors in that time. (Three of these 32 companies have also completed second campaigns on the Spark platform.)

While none of these investee companies have as yet secured an ‘exit’ for investors, many of them have gone on to raise funds again at significantly higher valuations to that at which Spark investors have invested. Evidence of this is as follows:

HALOSOS

HaloSOS raised €353,000 on the Spark Platform at a share price of €1.56 in July 2020. In July 2022 HaloSOS secured funding at a share price of €3.96. This translated into a share price increase of 154% for Spark investors, excluding the 40% EIIS tax rebate they will also have received on their investment.

FLEET

Fleet raised €386,000 on the Spark Platform at a share price of €0.83 in September 2018. In May 2023

Fleet secured funding elsewhere at a share price of €2.76. This translated into a share price increase of 233% for Spark investors, excluding the 40% EIIS tax rebate they will also have received on their investment.

WELLOLA

Wellola raised €180,000 on the Spark Platform at a share price of €7.99 in March 2019. In May 2022 Wellola secured funding elsewhere at a share price of €59.9. This translated into a share price increase of 650% for Spark investors, excluding the 40% EIIS tax rebate they will also have received on their investment.

BUSTERBOX

BusterBox raised €166,000 on the Spark Platform at a share price of €1.00 in August 2020. In October 2022

BusterBox secured funding at a share price of €2.26. This translated into a share price increase of 126% for Spark investors, excluding the 40% EIIS tax rebate they will also have received on their investment.

Spark has a database of 11,300 private investors, over 90% of whom are located in Ireland.

HALOSOS

TESTIMONIALS

Client testimonials from satisfied customers can provide professional validation and lend credibility to a business. They provide social proof, reassuring potential clients that others have had positive experiences with the service and brand. Demonstrating that real customers have benefited from the service builds trust. In this regard we are happy to share a selection of the testimonials we have received from investee companies.

“The process of raising funds with Spark was very easy. They seamlessly steered us through the campaign preparation and close-out so that we received the investment very quickly. As a B2B SAAS start-up we were pleasantly surprised at the support and investment from retail investors. I would highly recommend any start-up to use Spark to raise funds for their business.”

“We recently raised €1.5m on the Spark platform in just 21 days. The level of support and guidance we received from the team at Spark was unparalleled and we were provided with valuable advice on how to optimize our campaign. We would highly recommend Spark Crowdfunding to any growing start-up looking for a new way to raise funds.”

Dr John Thompson, CEO, Aurigen Medical

“We have been extremely impressed with the way Spark Crowdfunding helped us plan our fundraising campaign and introduced us to their extensive database of investors. We also generated a vast amount of free media exposure from the campaign.”

“Raising funds can be time consuming and tricky. Spark introduced ASX to a great network of investors, and also did much of the heavy lifting. This allowed us to raise funds while continuing to focus on growing our business.”

Paddy Power, Founder and President, ASX

Dr John Thompson, CEO, Aurigen Medical

Mike Fitzgerald, Chairman, Net Feasa

We would highly recommend Spark Crowdfunding to any growing start-up looking for a new way to raise funds.”

Rob Fox, CEO, Site Passport

Dr John Thompson, CEO, Aurigen Medical

Mike Fitzgerald, Chairman, Net Feasa

Rob Fox, CEO, Site Passport

Why use a portfolio investment approach?

As a wealth creation strategy, the portfolio approach has a number of advantages compared to large investments on a small number of opportunities.

Leaving aside the obvious numerical advantage of increased opportunities, lessons from financial history, risk management and behavioural finance are compelling reasons to employ a portfolio approach.

We believe the following observations are the most relevant to investors in high growth start-up companies:

1. DIVERSIFICATION

We referenced the numerical advantages of a portfolio approach in our introduction, but risk management is not just about numbers.

In financial markets and life there is one risk constant, one word; CHANGE.

A diversified portfolio seeks to spread its exposure rather than concentrate its exposure to specific industries, geographies, valuations, business models, commodities or technologies.

That diversity allows a portfolio to ride out unforeseen changes, be it temporary or structural. The global pandemic was an extreme live example of change but illustrates the value of diversification in a portfolio.

Just think, a portfolio containing multiple holdings in the events, travel and hospitality sectors would have faced many challenges due to its concentrated exposure to consumer leisure spend.

Diversification is about more than investing in different products or services; the source of demand can be more concentrated than you think. Now think about climate and technology and the potential big changes ahead. We can’t accurately predict those changes but investors can reduce unforeseen risk and prepare with a diversified portfolio.

2.

TIME AND TIMING

Warren Buffett is often quoted as saying his “favourite holding period is forever”.

The portfolio approach need not be forever but time is definitely an investor’s friend.

The ‘miracle of compounding’ returns is very real and illustrated in every financial textbook but there is another financial truth which features on every market trading website and yet is largely ignored.

The vast majority of investors who participate in short term trading lose money.

How and when investors trade is hugely driven by human emotions which are weapons of wealth destruction. Trying to time markets for the best prices to buy and sell positions is extremely difficult, even for the professionals. The portfolio approach to investing on a monthly basis is systematic and therefore far less sensitive to timing and emotions.

For those wondering if 2023 is a good time to be investing, we will leave you with a final thought on time. The historical fact is that the longer your time horizon, the better your odds at seeing positive outcomes.

n WHY USE A PORTFOLIO INVESTMENT APPROACH?

Try not to think about the prospects for a specific year and observe the following returns of various time periods for the S&P 500 since 1926. The data is provided by Dimensional Fund Advisors:

FREQUENCY OF POSITIVE RETURNS IN THE S&P 500 INDEX

Overlapping periods: 1926-2018

3. FORECASTING

The human brain is horrible at long-range forecasting. Nassim Taleb in his famous risk opus ‘The Black Swan’ argues that we ascribe far too much predictability to the truly unpredictable.

The pandemic year of 2020 is probably a good illustration and a reminder that solid well-founded forecasts today can look ridiculous a few years later.

A portfolio approach allows investors to dilute one’s dependence on a small number of forecasts or business models.

There is a further behavioural risk associated with forecasts. Human beings have a tendency known as ‘anchoring’ - fixating on irrelevant numbers to support our views or positions. We end up adjusting/filtering other relevant information based on the original anchor information.

In a portfolio which contains equally weighted investments there is reduced exposure to forecast risk and an emotional attachment to an ‘anchor’ assumption.

4. DATA/ INFORMATION

Professional fund managers are constantly seeking new sources of information/data to enhance their investment processes and gain a competitive edge.

Clearly, a private investor does not have the resources to employ data scientists, analysts or teams of quants.

However, a portfolio approach is not seeking a trading “edge” but is about building an opportunity set over a multi-year investment period. Investors over that time-horizon will receive lots of information from the companies in their portfolio. That information will be sourced from a wide variety of geographies, markets, industries and customer types and should be considered valuable data.

The logical conclusion to follow that consideration, is that a portfolio with multiple companies/ holdings will provide more information than a concentrated investment in a few holdings.

5. PROSPECTING COSTS

We have previously referenced a famous 2017 research paper from Arizona State University’s Hendrik Bessembinder. The findings are stunning. The bestperforming 4% of all listed companies account for the entire gains of the US market since 1926.

As practitioners in the world of start-up investments, this has given us pause for thought as to the best investment strategy for investors on equity crowdfunding platforms.

The good news for crowdfunding investors is that a critical component of performance/success in the larger public markets is low costs. The no-fee model for investors on the Spark Crowdfunding platform is a great start. It gets even better if one takes into account a further 40% discount on your initial capital stake when the investee start-up company carries an EIIS badge.

The next suggestion leverages the experience of active and passive managers over the years and the historical truths in Bessembinder’s research.

It is incredibly difficult to pick winners, particularly at an early stage in a company’s journey. The information gaps are huge.

However, by employing a portfolio strategy an investor can not only build their own low cost (free) exposure to an entire asset class of start-up private equity but can also avail of a steady stream of opportunities over 3-4 years.

We cannot predict the future, but we can shift the odds in favour of the investor with a no-cost portfolio approach to the search for those winners.

A portfolio approach allows investors to dilute one’s dependence on a small number of forecasts or business models.