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Admin fee changes

With the upcoming launch of our new fund, we have recently made some adjustments to how we charge fees at Cur8 Capital. A lot of thought has gone into the changes and we wanted to take some time to explain the thinking behind each of the changes.

Historically we have charged the following on the deal-by-deal syndicate:

  • Members: 3.5% deal fees and 5% profit share
  • Non-Members: 7% deal fees and 7.5% profit share

We are now shifting to the following:

  • Members: 4% deal fees and 20% profit share
  • Non-Members: 8% deal fees and 20% profit share

We are also now introducing an EIS fund and commercial real estate investments. Members will benefit from a discount of 1% and 0.5% respectively.

If someone invests in the EIS VC Fund, as an additional perk they get the following deal-by-deal fees:

  • Members (+ EIS Fund Investor): 2% deal fees and 20% profit share
  • Non-Members (+ EIS Fund Investor): 4% deal fees and 20% profit share

This means if you are a fund investor, admin fees on individual deals are almost half of what they were previously.

Below is a summary:

 

Fund Entry fee

Fund Annual fee (capped at 5 years)

Fund & Syndicate Carry

Syndicate one-off admin fee

Fund Investor + Member

1.5%

2%

20%

2%

Fund investor + non-member

2.5%

2%

20%

4%

Non-fund investor + member

N/A

N/A

20%

4%

Non-fund investor + non-member

N/A

N/A

20%

8%

 

It is also important to note that historic deal terms remains as they are. So if you invested a year ago in a deal on the historic terms, they will be respected. We are not retrospectively changing anything,This also means that the very early deals we did where we did not charge any profit share, shall remain like that.

Existing members will also continue to benefit from the existing member terms on the deal-by-deal investment until their annual membership term expires.

Where we introduce future funds, e.g. real estate, we will ensure that members get a discount on the entry fee into that fund. 

Generally speaking, membership ensures a discount on the initial entry fee into a fund and cheaper fees on the syndicate.

The trigger for the change

The biggest change in Cur8 Capital’s history took place recently with the set up of our inaugural VC (EIS) Fund.

We needed to work out how we would charge for this in a way that was competitive with the market and fair. 

This VC fund will also be distributed more widely than the core Cur8 audience and we wanted to make sure it was appropriately structured for that. It will be distributed via financial advisors, tax advisors, wealth managers and accountants and so it will be attracting mainstream and sharia-compliant investors.

There are 3 components to the fees associated with a fund:

  1. Entry fee; 
  2. Ongoing management fee; and
  3. Carry.

We have a legal background in this space and are acutely aware of the market for funds. In addition, these are the sources we considered carefully when determining what the market price for these fees was:

  1. Wealth Club. This is a platform that lists out various EIS-eligible VC funds.
    Each of the 25 or so funds on there charges a performance fee of 20% - 30%.
    Not one of them charges below this. Each of them also charge significant fees - including custodian fees, management fees, fees to portfolio companies, and dealing fees.
    None of them are sharia compliant

  2. Preqin. This is an industry data platform.
    It deals with more institutional funds where investors are larger institutions that would commit minimums of £5m+. This is their view on the typical fund terms. On page 9 of this report they also share the industry standard of 20% performance fee ranging across a range of different fund types.
    Institutional funds tend to be larger - £40m + and as such are structured differently to EIS funds, however as can be seen, a 2% management fee and 20% performance share is industry standard.
    Given Cur8 Capital is now also working on an institutional fund in parallel to the EIS VC Fund, and given that this fund will be the basis for all future funds we launch, it made sense for us to align on the industry standard terms. 

The fees for the Cur8 EIS Fund are very simple and don’t include many of the hidden things that funds often charge (e.g. fees to portfolio companies). We charge:

  1. 2.5% entry fee
  2. 2% management fee (capped at 5 years)
  3. 20% carry

When comparing to other funds, it is important to do an overall analysis and look at fees in the round. For instance, if a fund does not charge an entry fee but then doesn’t cap the length of management fees as we do, it’s an unfair comparison.

We are not these things

There is a little bit of confusion sometimes as to the various types of terms being used in similar-looking-but-different vehicles. 

It is also important to note that we are not the following:

  1. We are not a part-time syndicate lead that gets access to dealflow and invests in it, clubbing together with other investors. We are a fund manager and actively work with companies to add value to them. Our relationship with investors and companies does not end once the investment has happened.
    Such syndicates typically will charge a performance fee of 20% but their initial fees would be lower than ours. This is because this is not their full-time job and their relationship with the company is not as ongoing as a typical fund manager.

  2. We are not offering late stage deals into growth-stage or pre-IPO companies. Here there is typically no value add being provided by the fund manager (or SPV holder) other than giving access to the deal. You would expect there to be a lower management fee ongoing (as there is little management to do) and a sometimes a lower performance fee too (as there is little ongoing work).

  3. We are not a crowdfunding platform. We do not charge fees to startups. We only charge fees to investors. This allows us to access the best deals and we have made this conscious decision as it is in the interest of our investors (and us) long term.

We are a VC Fund manager but with an angel syndicate that can invest on a deal-by-deal basis too. 

Institutional Fund

We have been adamant that we will always continue giving our angel investors access to our venture deals and we will continue to offer the EIS VC fund too (designed more for angels).

We are also starting conversations for a parallel institutional fund (minimum ticket £1m). This is the obvious next step for Cur8 Capital as a business to ensure that we can become a significant player in the market and really move the needle on our mission. 

However even in our early conversations with institutional investors there are a few key things they have stressed:

  1. They want to be on equal terms with all Cur8 Capital investors
  2. They do not want us to be running a separate fund to theirs (as they would like all focus and priority to be on the institutional fund they put their money into).

We will of course resist any request to get rid of the EIS VC fund as it is critical to us from a mission perspective that we give access to our core audience..

However there is no way we will be able to get them to accept that the EIS fund gets vastly better commercial terms than they do. 

So in order to ensure that we can offer everything we want to: (i) EIS VC fund; (ii) deal-by-deal; and (iii) institutional fund, it is imperative we align with the market standard.

As an aside, we are not ultimately centred on the profit share as it kicks in in 10 years time - and that, in the startup world, is a lifetime. The success and failure of IFG and Cur8 Capital is determined much more closely by the management and admin fees (and you’ll see that there we have always been very accommodating). But given all of the wider dynamics in the business it makes sense for us to change the profit share to 20%. We would not want to upset investors unnecessarily - especially when commercially it doesn’t directly impact us immediately. 

We appreciate that historically we have “taken the hit” as our website explained for many years, and now we are adjusting that to align with the market. That is never painless. But we would humbly request our angel community to read through this document and hopefully understand that there are good reasons for this.

Why are you changing the deal-by-deal terms too - why not just the fund?

We would have loved to leave the syndicate terms as they were however unfortunately it would create perverse incentives and make things operationally a nightmare.

It would create the perverse incentive to investors to not invest in the fund - which is the opposite of what we want. It would also upset investors in the EIS fund and investors in the institutional fund.

It would also mean we would need to track multiple profit share agreements which is operationally a nightmare with so many vehicles involved.

Here is a worked example of the performance fee

The Investor invests £10,000. The startup exits in 10 years at 10x. That is a profit of £90k.

This is how the distribution would work:

  1. Investor received £10k original investment
  2. We receive 20% profit share - £18k
  3. Investor received remaining profit - £72k

If there is no profit, Cur8 Capital receives nothing. Carry is generally regarded as a positive thing because it creates an alignment where funds work hard to ensure excellent returns knowing that if the investor does well, so does the fund.

Membership Analysis

These changes, plus the new vehicles, have an implication on membership. Below is an analysis of how things pan out for Members.

Example for Member A (medium-sized investor) compared to a fund investor + non-member:

Investments

Savings

Invests £15,000 into VC Fund

£150

Tops up with £10,000 into specific deals in the year

£200

Invests £20,000 in real estate Fund/deals (assuming 0.5% discount for real estate)

£100

Free or subsidised entry to events (attends 4)

£100

Wider benefits

Member exclusive events, SEIS priority, access to exclusive deals, 24 hour deal priority, discounts, ad-hoc benefits we have historically shown

Total

£550

 


Example for Member B (larger investor) compared to a non-fund investor + non-member:

Investments

Savings

Invests £25,000 into VC Fund

£250

Tops up with £15,000 into specific deals in the year

£300

Invests £50,000 in real estate Fund/deals

£250

Free or subsidised entry to events (attends 4)

£100

Wider benefits

Member exclusive events, SEIS priority, access to exclusive deals, 24 hour deal priority, discounts 

Total

£900

 

Conclusions

Membership is priced currently at £648 and makes most sense for those who are planning to invest regularly with Cur8 Capital and with investments over £30k per annum across VC and real estate.

It may also make sense for smaller investors due to the wider benefits but that is a judgement call per investor based on the value they get out of those wider benefits across the year.

In effect though, investment into the VC fund effectively gives you some key perks (e.g. lower deal-by-deal fee) so for medium and smaller investor who are not planning wider investments (e.g. into real estate), this might be the best route to go down.

We’ve very clearly laid out the economics so that you can slot in your expected numbers and decide if membership works for you or not.

Concluding thoughts

As we grow, in order to most effectively deliver on our mission to help Muslims level up and to bring the most innovative investment products to our community, we need to ensure we are doing the following:

  1. Building a profitable and sustainable business
  2. Looking after our Cur8 Capital investors
  3. Looking after our team and shareholders

We sincerely believe that the fee changes made are the best way to maximise all of those (sometimes competing) goals.