INVESTMENT STRATEGY2018
INVESTING IN TECHNOLOGY COMPANIES WITH A SOCIAL PURPOSE
Impact100 million livesM ISSION :
CONTENTS
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Fund Overview
Why Invest in Social Impact VC Fund?
Investment Process
Case Studies and Portfolio Companies
Post Investment Process
Contact Us
Appendix
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KEY CONSIDERATIONS
OUR MODEL
OUR DIFFERENTIATION
DEA
L FL
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OUR STRUCTURE
Aligned w it h UN SDG
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Early Stage Student Technology
Early Stage Technology
OUR TRACK RECORD
250+ investments Exit multiples of 2x to 42.3xIndustry experience and knowledge
Our principals advise leading investors, family offices and governments on technological change. The team is integrated into key venture and startup hubs including Silicon Valley and London.
15%+ annual returns via seed stage startups (67%), student led startups (33%).
Investment focus technology with a broad social impact, including health- and med-tech, fin-tech, ed-tech, clean-tech.
Targeted investment into key deal flow from 500 Startups, Stanford, Berkeley and other top accelerators.
Scalable model for superior risk adjusted returns with scope for large social impact using our corporate VC relationships.
Co-investment opportunities in later rounds of successful next generation companies.
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KEY FUND TERMS
Target Fund Size US $200 million in capital commitments
Investment Period 4 years from final closing
Fund Term 10 years with option to extend by two one year periods through LP vote
Management Fee & Carried Interest
Management Fee: 2% (pre- and post-investment period) Carried Interest: 20%
Flexibility for Investors Our legal structure allows focused investment into sub-set of our deal-flow
Target Return 15-20% (net of fees)
Concentration Concentration limit 10% (no portfolio company may comprise >10% of fund without LP approval)
Co-Investment Follow-on & pro-rata beyond fund concentration may be offered to LPs via SPVs
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PORTFOLIO COMPANIES OF INDIVIDUAL IC MEMBERS
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MORE THAN 250 VENTURE CAPITAL INVESTMENTS ACROSS TNGF INVESTMENT COMMITTEE
LOTTERY.COM SHIPPO INTCAS FILLFACTORY
COPIA NESS BAKER TECHNOLOGIES DRI
VARIOPTIC BACKLOTCARS BIGFINITE HAVENLY
MONKIMUN CLEARACCESS IP MISTERBNB ALBERT
multiple 42.3X multiple 20.1X multiple 15X multiple 12X
multiple 10X multiple 10X multiple 8.2X multiple 6X
multiple 5X multiple 4.3X multiple 4.2X multiple 3.8X
multiple 3.1X multiple 3X multiple 2.6X multiple 2X
NEXT GENERATION INVESTMENT COMMITTEE
- 17 years experience as an Emerging Market and Asian equity portfolio manager
- Formerly Head of Emerging Market and Asian Equity at Aviva Investors and Long Short Emerging Market Portfolio Manager at Lansdowne Partners
- Formerly Senior Portfolio Manager Allianz Global Investors and Senior Analyst EMEA at Wells Capital Management
- Latin America Portfolio Manager F&C
- 3 years experience with seed stage startups
- MA(Hons), Cambridge University, Economics
COO and Risk & Financial Managem ent
Mark Ar t her t on
- CEO, Alchemy Ventures, mentoring thousands of university students and lecturing at leading universities including Berkeley, Stanford, Imperial, LSE amongst others
- Ex-Head of Strategic Initiatives, Imperial College, London
- Formerly Strategist, Moore Capital
- Consultant, Man Group, Environmental Capital Opportunities
- 14 years experience with seed stage startups
- MSc, BSc, London School of Economics & Political Science; MA, King?s College London
Managing Par t ner & Por t fol io Manager
Muzaf far Khan
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250+ invest m ent s across TNGF com m it t ee
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INVESTMENT COMMITTEE CONT'D
- Partner at the Global Venture Capital Seed Fund, 500 Startups; member of the investment committee
- Runs 500 Startups? US based accelerator programs
- 500 Seed Program emphasizes internet marketing and customer acquisition, design and user experience, and lean startup practices and metrics
- 500 Series A Program delivers growth marketing and investment for post-seed and pre-Series A companies
- 10.5 year veteran of Yahoo! Inc
- BA, University of British Columbia, History & Asian Studies
Invest m ent Analysis & Due Dil igence
Marvin Liao
- 22 year veteran in Corporate Venture Capital (CVC)
- Ran the CVC operation for Dow in Europe
- Invested over $100M in 35 direct deals and, as an LP, in 15 VC funds
- Held senior business management roles across various geographies, including Head of New Businesses for EMEA.
- Currently consults for corporates, governments, start-ups and funds on CVC, investments and fundraising.
- Supports the UK government - to stimulate the flow of inward VC investment.
- President of the Global Government Venturing Leadership Society.
Corporat e VC Relat ionships & Invest m ent Analysis
Paul Mor r is
Strong industry track record
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TOP TIER SERVICE PROVIDERS
Audit Legal Fund FormationTax
US Tech AdvisoryFund Administration Regulatory Valuation
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FIRST TIME FUNDS ARE BACK IN FAVOUR NUMBER OF DEALS BY INVESTMENT STAGE AS AT MAY 2018
FIRST TIME FUNDS GENERATE SUPERIOR RETURNS, PARTICULARLY THOSE FOCUSING ON EARLY STAGE INVESTMENTS
Source: Preqin as of May 2018 Source: Pitchbook, as of August 2017
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VENTURE CAPITAL FUNDS SEIZE THE OPPORTUNITY TO INVEST IN NICHE SECTORS
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Seed/Angel
Unspecified Round
First-time PE raising as proportion of total
PARTICULARLY WHEN THE INVESTMENT FOCUS IS EARLY STAGE SUPPORTED BY STRONG PERFORMANCE
FIRST-TIME FUND MANAGER INVESTMENT IN EARLY STAGE COMPANIES
Smaller early stage deals tend to come at favourable valuations
Median returns for first-time funds show strong out per form ance from 2010 vintages onward
Source: Preqin
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Median Net IRRs of Venture Capital Funds by Vintage Year
As per the chart above, TNGF focuses on deals under $25M, directly entering at the most favourable valuat ion multiples.
Source: Preqin
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PE/VC Impact Investing, Fund Index Summary ? Horizon Pooled Return
Impact investing sector is expected to
grow to $1 Tr i l l ion GIID, JP Morgan
?Venture Capital funds [focused on impact] generated an internal rate of return of 9.5 per cent over the period studied, comfortably outstripping the broader venture capital sector. Meanwhile, funds with a social mission generated investment exits with an average internal rate of return of 33.5 per cent?
All Street, Forbes
?Over the next two decades there are 460 billionaires around the world who will hand over $2.1tn to their heirs??
Financial Times
??Millennials? values are distinctively focused on making the world a better place, using financial capital for social return??
Burkhard Varnholt, Deputy Global CIO, Credit Suisse
SOCIAL IMPACT IS A GROWING AREA THAT IS GENERATING STRONG RETURNS
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(5.87X)
Source: Preqin
?The bank has raised $125 million in commitments for
its first global impact fund. It will invest in private-equity
funds that demonstrate they positively affect the
environment or society while delivering strong
financial returns?, Business Insider, May 2017
?the Ford Foundation recently earmarked $1bn for
?mission? or ?impact? investing, or investments
that are supposed to promote social change and old-fashioned profits?, FT,
December 2017
?UBS committed to direct at least $5 billion of client
assets into new SDG-related impact investments over the
next five years?, BusinessWire, March 2017
?We believe in companies whose social impact
enhances their financial returns?, John Amore,
Managing Director UBS Wealth Management
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?RESULTING IN INSTITUTIONS DIRECTING MORE RESOURCES INTO THE SPACE
ESTABLISHED LARGE-SCALE INSTITUTIONAL INVESTORS ARE ALLOCATING INCREASING RESOURCES TO IMPACT INVESTING
Three-quarters of millennials prioritize social
goals when they invest
Up from a third of baby boomers
?Approximately 60% of investors reported that they actively track the financial performance of their investments with respect to the Sustainable Development Goals (SDGs) or plan to do so soon."
Source: GIIN
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TNGF's focus on the 16 UN Sustainanable Development Goals and Impact Investing
Circular Economy Resource efficiency / Material recovery & Reuse
Sustainable Energy Access to Energy, Clean Energy, Energy Efficiency
Food and Agriculture Access to nutrition, food quality, sustainable agriculture
Water and SanitationAccess to water and hygiene, clean water, water efficiency
Health and Social CareAccess to health and social care, enhanced healthcare, drug development
Financial Inclusion Access to financial services
Education and EmploymentAccess to education and skills development. Quality employment and job creation
CLEAN-TECH
HEALTH- & MED-TECH
FIN-TECH
ED-TECH
TNGF TARGETS
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UN GLOBAL GOALS PILLARS SUB-THEMES
INVESTMENT PROCESS
Investment Process I Investment Process II Investment Process III
Driving the Winners
Targeted marketing Distribution
Strategic fundraising and capital structure management
Ongoing mentorship of the CEO and board
Narrowing the Investable Universe
Berkus Model
Scorecard Model
Risk Factor Model
Venture Capital Method
Rigorous four step funnel based on qualitative and quantitative business and market assessment
Portfolio Optimization and Risk
Diversified portfolio of startup investments across themes and sectors
Rigorous analysis of follow-on investments
Co-investment with leading investors, accelerators, institutions and VCs
Standardized term sheets with investor protections
30% follow-on pro-rata investments at Series A
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CAPITAL ALLOCATION DECISION PROCESS
Investment committee evaluation process ? For each company Mark Artherton provides risk analysis to fund, market evaluation and potential exit valuation. Muzaffar Khan evaluates team potential and mentoring requirements.
FILTER LEVELS - HOW WE DECIDE WHICH COMPANIES TO INVEST IN
E.g. CARDINAL VENTURES
CORPORATE VC PARTNERS
INVESTMENTCOMMITTEEEVALUATION
INVESTMENT
AC
CEL
ERAT
OR
S A
ND
FO
RM
AL
INTR
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UC
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APPLICANT
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Marvin Liao?s Team carries out deep dive
analysis and due diligence
Paul Morris?s team analyse Corporate VC
exit/JV
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SCOUT OPERATING PARTNERS DUE DILIGENCE INVESTMENT COMMITTEE SUCCESSFUL APPLICATION
INVESTMENT PROCESSHEALTH TECH EXAMPLE
TRACK RECORD
CHALLENGE AIM INDUSTRY EXAMPLES SOCIAL IMPACT
Long term prevention of
illnesses
Empower individuals to take more responsibility for personal health and maintain a healthy state of being reducing stresses and strains on health services
Zocdoc (USA) launched 2007, raised $130m at total valuation of $1.8bn in Aug 2015
Medopad (UK) launched 2011, Series A raised $28m, valued at over $1bn
Early detection of illness and improved preventative
measures reduce long term health care costs and
improve long term population health
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BigFinite is a regulated IoT and big data analytics for optimizing pharma & biotech manufacturing processing. Exit multiple 4.2X 4 years
BigFinite health-tech company investment
exit multiples 4.2X in 2016
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INVESTMENT PROCESS MEDICAL TECH EXAMPLE
CHALLENGE AIM INDUSTRY EXAMPLES SOCIAL IMPACT
Living with severe conditions with as little
disruption as possible
Allow individuals to continue to live their lives and contribute to society whilst reducing demands on health services
Flatiron Health (USA) Series A raised $8m 2013 Roche purchased for $1.9bn in 2018
Guardant Health (USA) launched 2012, raised $360m in 2017 at an estimated value of $4.5bn
Patient care technologies for Alzheimers
Constant monitoring with minimal disruption for
illnesses such as cancer, diabetes, heart disease
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NESS (Israel) is medical device in neuro-stimulation. Exit multiple 10X 4 years
Ness med-tech company investment
exit multiples 10X in 4 years
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INVESTMENT PROCESS FINANCIAL TECH EXAMPLE
CHALLENGE AIM INDUSTRY EXAMPLES SOCIAL IMPACT
Cheaper and more globally connected financial system.
Onboarding private sector cash into global legal financial system.
Improved connectivity and integration of business in poorer countries. Leading to greater access to more affordable banking services for the world?s poor.
Funding Circle (UK), launched in 2010 set to IPO in 2018 at valuation of around £2bn
WorldRemit (UK), launched 2010, valued at approx. $668m in 2017
Allow greater opportunity for businesses to succeed by reducing loan costs to
SMEs. Greater availability of
affordable credit for the poorest in society.
Lower the costs of micro credits.
Reduction of corruption and theft in war-torn and developing areas.
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Albert helps change the way our generation makes financial decisions. Purchased in in 2016. Exit multiple 2X.
Albert fin-tech company investment
exit multiples 2X in 2016
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TRACK RECORD
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Provide access to education for all children - virtual
classrooms.Raise general level of education globally.
Video and utilise augmented reality and virtual reality in
the classroom.
INVESTMENT PROCESS EDUCATION TECH EXAMPLE
INTCAS is a global technology platform connecting students to work collaboratively with the global education industry to explore, design and build their careers using a single system. Invested in 2016.MONKIMUN is a language learning for kids and toddlers NAV $0.9M. Exit multiple 3.1X in 2014
INTCAS purchased
at a £4M valuation, now valued at
£60M
TRACK RECORD
CHALLENGE AIM INDUSTRY EXAMPLES SOCIAL IMPACT
Standardise education around the globe.
Improve interest and engagement of pupils.
Better access and quality of education for all children, reducing long-term povertythrough increasing opportunity
Vipkid (China) launched in 2013, raised $200m in 2017 with a valuation over $1bn
VR Ed-tech company Nearpod (USA) launched 2012, raised $21m in 2017
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INVESTMENT PROCESS CLEAN TECH EXAMPLE
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CHALLENGE AIM INDUSTRY EXAMPLES SOCIAL IMPACT
Decrease and/or stop pollution.
Greater access to cheaper and cleaner
energy.Reduce food waste.
Reduce negative effects on climate, providing a better quality of life and reducing health issues
Sonnen, (Germany) founded in 2008, raised E60m in 2018
Stem Inc (US) launched in 2009 raised $80m in 2018
De-polluting city air ? tech-trees
Waste to energy solutions
Next Generation storage batteries
Improved Solar Panels
Recycle excess food
COPIA connects businesses with excess food to those who need it. purchased in 2016 at a valuation of $1M, now valued at $10M.
Copia
purchased at a $1M valuation, now valued
at $10M
TRACK RECORD
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KPIS FOR STARTUP INVESTMENTS5 Key Performance Indicators (KPIs) to be used as yardstick measures for each startup investment:
Growt h in revenue year -on-year ,
including nom inal values
Relat ive speed in m arket share
grow t h
Im provem ent s in t he of fer ing,
whet her service or product
Increase in geographical
dist r ibut ion range
Growt h and deepening of t he
com panies hum an t alent pool
Quarterly plans versus actual performance Investment Committee to go through the quarterly plans and
KPI performance on a half-yearly basis
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INVESTOR REPORTING EVERY YEAR THE NEXT GENERATION FUND WILL PROVIDE THE TWO VALUATIONS TO INVESTORS.
The whole portfolio will be available in an online report and will detail how each investment is performing against its KPIs and 3 year forecasts. To be updated annually.
Provided by independent auditor, KPMG, based on market benchmarks & sector analysis
EXTERNAL VALUATION
Provided by TNGF, overseen by Duff & Phelps who sit on the Valuation Committee
INTERNAL VALUATION
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MANAGING UNDERPERFORMING STARTUPS
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BRING IN ADDITIONAL SUPPORT FROM NETWORK
Muzaffar here leverages his passion for mentorship which he has developed over the past 14 years coaching students from leading universities, bankers, CEO?s and board members around the world. Startups can change their Operating Partner based on the advice they require and their maturity; Muzaffar will make the decisions when changing the Operating Partner based on the company?s needs.
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FAILING STARTUP INVESTMENT
FAILING STARTUP INVESTMENT
Increase mentorship from Muzaffar Khan and Marvin
Liao
Consider other opportunities for the
business
Industry sale through Paul Morris?s CVC connections
CONTINUE TO BACK AND SUPPORT FUTURE KEY LEADERS AND MAINTAIN GOOD WILL
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COMMITMENT TO SOCIAL IMPACT
It is our view that outperformance will be generated by the next generation of leaders if they are supported by the right framework and incentive structure.
We believe that companies should extend their bottom line to include metrics that focus on broader social impact and we are more likely to invest in corporations that are structured as B-Corps or have a clearly defined social mission.
The key metrics for evaluating the social impact of the fund will also be audited by BDO or KPMG with the parameters structured by our law firm, Morrison Foerster based on current best practice in the social impact fund arena.
THE "DOUBLE BOTTOM LINE"
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MESSAGE FROM THE MANAGING PARTNER
THE NEXT GENERATION FUND PHILOSOPHY
We understand the global picture. We want to facilitate the intermediation of
global capital to solve global problems in the most efficient and effective way.
M uzaffar Khan
Muzaffar Khan
Managing Partner
+44 7771 783 416
WWW.LINKEDIN.COM/IN/MUZAFFARKHAN/
CONTACT US
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APPENDIX
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We t ake an act ive approach t o por t fol io const ruct ion and diversif icat ion
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Targeted Marketing Sales Distribution Strategic Fundraising Custom Mentorship
POST-INVESTMENT SUPPORT
Berkus Model Scorecard Model Risk Factor Model Venture Capital Method
VALUATION FUNNEL
Scout Network Operating Partner Network Venture Capital Partner Investment Committee
DEAL SOURCING FILTER
RIGOROUS 4-STEP FUNNEL BASED ON QUALITATIVE AND QUANTITATIVE BUSINESS AND MARKET ASSESSMENT
FINAL SELECTION DECIDED BY OVER THREE DECADES OF IN-DEPTH TEAM EXPERIENCE
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PORTFOLIO CONSTRUCTION
This method further evaluates the company?s strength by using 7 metrics (plus other individual strengths if there are some) and balancing each of these metrics out to see which parts of the company are the strongest and whether that is enough for an investment.
Strength of founder & management team
Size of opportunity / target market
Strength of the product and intellectual
property
Competitive environment
Marketing / sales / partnerships
Need for additional rounds of funding /
investment
Other
The final method used consists of twelve factors and deep dives into the potential value drivers of a startup.
Management
Stage of business
Technology risk
Manufacturing risk
Sales & marketing risk
Funding / capital raising risk
Competition risk
Regulatory risk
Litigation risk
International risk
Reputation risk
Potential lucrative exit
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EVALUATION MODELS
The Berkus Method assigns a number, a financial valuation, to each of five major elements of risk faced by all young companies ? after crediting the entrepreneur some basic value for the quality and potential of the idea itself. This method is used by Next Generation Fund to determine whether a startup is even worth putting through the due diligence process.
Sound business idea (is there intrinsic value
in the solution?)
Stage of technical risk (path to minimum
viable product)
Execution risk (technical and managerial
talent)
Market risk
Production risk
Complete a return expectation analysis based on current exits in the relevant technology vertical and the timeframe it took to achieve them.
Risk Fact or Model Vent ure Capit al Met hodScorecard Valuat ion Met hodBerkus Model
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MENTORING CONTENTS
Introductions to key marketing resources
through our network of experienced
operating partners.
Aid marketing strategy
Negotiate on behalf of startups with
marketing providers to get the most
reasonable engagement terms
Assist startups to efficiently market their
products with limited budgets
(create demand)
Introductions to distributors of their
products (eg Walmart, Amazon etc.)
(ensure access to market).
Introductions to key distribution channels
to accelerate product / service offering to
customers (grow market share).
Strategic fundraising, capital structure
management
Assist with finding access to cheap
capital.
Provide advice on medium to long-term
balance sheet enhancing actions.
Through our network of co-investors and
partners we offer our portfolio companies
early strategic capital .
Our partner expertise in the field of equity
/ debt raises and capital structure
management allows founders to stay
relatively undiluted throughout the
lifecycle of capital raises.
Provide ongoing strategic business
advice.
Advise CEO on how to optimally
communicate with and manage the
Board / major investors.
Mentor key personnel, reduce conflict
with senior management.
Advise on key strategic partnerships,
suppliers and banking relationships.
Capit al Managem ent Ongoing Ment orshipDist r ibut ionTarget ed Market ing
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LEGAL DISCLAIMER - IMPORTANT NOTICE
This investor presentation (?Presentation?) is confidential and is intended solely for persons who may become prospective investors in a proposed fund, The Next Generation Fund I LP (the ?Fund?), to be advised by Next Gen Capital LLP (?Next Gen Capital?). Any reproduction of this information, in whole or in part, is prohibited. For UK investors: The Presentation is being communicated by Next Gen Capital as appointed representative of MJ Hudson Advisers Limited, which is authorised and regulated by the UK Financial Conduct Authority, only to:persons who are ?investment professionals? as defined in Article 14 of the Financial Services and Markets Act 2000 (Promotion of Collective Investment Schemes) (Exemptions) Order 2001, as amended (the ?2001 Order?); persons who fall within any of the categories described in Article 22 of the 2001 Order (?high net worth companies, unincorporated associations etc.?); and any other person to whom it may otherwise lawfully be distributed in accordance with the 2001 Order or the Conduct of Business Sourcebook of the FCA Handbook.This Presentation does not constitute, or form part of, any offer to subscribe to the Fund, nor shall it (or any part of it) or the fact of its distribution form the basis of, or be relied upon in connection with, or act as any inducement to enter into, any contract or commitment whatsoever. Recipients of this document who may consider a subscription to the Fund are reminded that any such subscription must be made only on the basis of the information contained in the formal offering documentation relating to the Fund, which may be different from the information contained in this document.The Presentation is not intended for distribution to, or use by, any person or entity in any country or jurisdiction where such distribution or use would be contrary to law or regulation. The Presentation contains a summary of certain terms of a proposed offering of interests in the Fund as currently contemplated and does not purport to be a complete description of all material terms of an offering that may be finally consummated. The Presentation and any information contained herein is for informational purposes only and is not intended to be, and shall not be regarded or construed as constituting, a recommendation for an investment, financial or other advice of any kind. No investment in the Fund will be accepted solely on the basis of this Presentation. All the requisite terms of the Fund will be contained in the legal agreements relating thereto.
Next Gen Capital LLP (FRN 794206) is an Appointed Representative of MJ Hudson Advisors Limited (FRN 692447) which is authorised and regulated by the Financial Conduct Authority
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FUND OVERVIEW WHY INVEST INVESTMENT PROCESS CASE STUDIES POST INVESTMENT CONTACT US APPENDIX
LEGAL DISCLAIMER - IMPORTANT NOTICE (CONT?D)
Potential investors will, upon request, be given the opportunity to review the actual documentation that will govern the rights and obligations of investors in the Fund and should only make decisions based upon such actual documentation. Potential investors should note that an investment in the Fund is illiquid and its value is volatile and can suffer from adverse or unexpected market moves. Accordingly, the proposed transactions described in this document are subject to change and would not be appropriate for all investors and involve important legal, operational and tax consequences and investment risks (including, in some cases, volatility, currency and credit risk, illiquidity and/or loss of principal), each of which should be independently assessed by investors with their legal, accounting, business, investment, tax and other advisors before making a decision to invest in the Fund. Potential investors should be aware that they may be required to bear the risks of an investment in the Fund for an indefinite period of time. The Presentation contains information that: (a) is general in nature and accordingly has been prepared without consideration of the investment objectives, financial situation or particular needs of any particular investor; (b) is "forward-looking" and not purely historical in nature; and (c) includes estimates and projections and involves significant elements of subjective judgment and analysis. The assumptions underlying the information presented in these materials may be modified from time to time to reflect changed circumstances. Actual events, conditions or results are unlikely to be consistent with, and may differ materially from, those assumed. Next Gen Capital does not have any obligation to update or keep current the information contained herein. Next Gen Capital disclaims, to the fullest extent permitted by English law, any and all liability relating to this information, including, without limitation, any express or implied representation or warranty for statements contained in and omissions from any information set forth in these materials.Next Gen Capital LLP (FRN 794206) is an Appointed Representative of MJ Hudson Advisors Limited (FRN 692447) which is authorised and regulated by the Financial Conduct Authority.
Next Gen Capital LLP (FRN 794206) is an Appointed Representative of MJ Hudson Advisors Limited (FRN 692447) which is authorised and regulated by the Financial Conduct Authority
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