Here we set out and explain the various “asset classes” which we regularly offer to investors on this site under Investment Offers.
In this website, we are only intending to provide factual information, and not intending to make any statement of opinion or recommendation, or give any “product advice”, even though we are licenced to do so.
An “asset class” defines an investment type- e.g. cash at bank, precious metals, ASX stock, property, mortgage funds etc.
We focus on startups and higher yielding asset classes, which can increase the overall income or capital growth of your portfolio, but which inevitably carry more risk.
Pursuant to the Authority granted to us under AusFirst’s AFS Licence, we structure and package investment opportunities in these classes –
- Preferred Equity Investment in Property Developments (Pref Eq)
- Angel Investing
- Corporate Bonds
- First home buyer commercial grants
- First Home Buyer Bonds (FHB Bonds)
- Syndicated Mortgages
- Mortgage Funds
- Sidecar Funds and Portfolio Funds
Most of the offerings on this site are developed by us. However, we also act as a broker for offers developed by other Corporate Authorised Representatives authorised under AusFirst’s AFS Licence. Also, we act as brokers for in more traditional investments and capital raisings for startups and existing growth companies, where the offer is developed by the fund seeker itself or by other dealers.
1. PREFERRED EQUITY INVESTMENT IN PROPERTY DEVELOPMENTS
The structure which we offer for preferred equity investment has been developed by AusFirst as the Australian Financial Services Licence holder and us in order to enable investors to participate passively in the normally high profits from property developments without the necessity to provide personal guarantees on project borrowings.
The preferred equity also assists developers by providing much needed cash at the front end of the project, in return for paying investors a healthy coupon (interest rate), which varies from 15% to 20% per annum.
It is a structure which provides transparency to investors through the funds being raised in a separate Investment Company (IC) pursuant to an AFS Licence and it provides for the funds to flow in and out of an audited solicitors’ trust account to directly pay for project expenses.
Two special purpose vehicles are incorporated – these are new companies whose sole business will be for the IC to help fund the project and the Development Company (DC) to develop the project.
The key legal agreement protecting IC’s investment is a Preferred Equity Agreement (Pref Equity Agreement) which is entered into between IC and DC.
IC is owned by the investors (with the exception of one founder’s share which has no voting, dividend or capital rights once investors have purchased shares) and it is making an offer to raise investors’ funds. It sells “stapled securities”, being shares and debentures, which must be purchased as a parcel or redeemable preference shares.
The funds are raised to enable IC to make the Preferred Equity contribution to DC to provide equity for the Project. Debentures or redeemable preference shares provide an easy and normally tax effective mechanism to enable investors to invest in IC and receive their money back plus their interest coupon.
DC acts as a principal developer not a project manager. Under the terms of the Pref Equity Agreement, DC may use the Project land as security for a first mortgage loan from a bank or private lender (prime lender and prime loan). DC’s directors must agree to provide the personal guarantees normally required by the prime lender. DC’s role is to deliver the Project on time and achieve the budgeted profit.
IC may initially take a second mortgage or may take one later in the case of default by DC of its obligations under the prime loan agreement or the Pref Equity Agreement. Its security is always the equity in the Project held within DC, and IC’s position as the major creditor with preferential rights of repayment of the Preferred Equity contribution and the coupon under the Pref Equity Agreement.
IC has preference over the DC shareholders pursuant to the terms of the Pref Equity Agreement for the repayment of the Preferred Equity plus the coupon payable on it, and for the repurchase of the shares in IC plus the coupon payable on them.
When the property settles, the prime lender is repaid first, then all remaining funds are banked into IC’s solicitor’s trust account and IC is then repaid in this order:
1) IC’s Preferred Equity contribution;
2) the coupon on that contribution;
3) the share buyback amount plus the coupon on that share cost;
4) Only then can DC be paid the balance of the sales revenue.
In this way, Investors receive back their total investment + the 20% per annum coupon. Each $100,000 invested receives $20,000 coupon for a 12-month investment, $30,000 for 18 months and so on.
2. ANGEL INVESTING
This means becoming an early investor in new businesses, mainly those commercialising new technologies and inventions or business ideas.
This is an asset class which has grown in popularity in Australia in recent years as the changing face of technology leads to opportunities to participate in the potentially lucrative world of startups. Investors seek to buy in early when stocks are cheap, and cash out when the promoters exit on a trade sale, list on the stock exchange or become takeover targets. The objective is to buy at one price and sell at a much higher price – $1 becomes $5 or “5x” over as short a time as possible.
It is not for the faint hearted, as losses are to be anticipated. However, adopting a portfolio risk management strategy by spreading investments across industry types, stages of business development and personalities of the promoters can reduce risk and be very exciting, satisfying and profitable.
We typically will not raise funds for a pre-revenue start up without them also signing a “Supported Venture Agreement” whereby they agree to us monitoring and advising on how the money is spent against agreed milestones.
This is one area where we are happy to give this piece of general financial advice; namely, “investors should not invest with borrowed funds, and should be prepared to accept some losses.
3. CORPORATE BONDS
A corporate bond is a loan from the investor or group of investors to a corporation for a fixed term – typically 2- 3 years. It provides for a repayment date and for the payment of a bond “coupon” (interest), and for security.
Interest rates and terms of payment will vary with the term of the bond, the strength of the company and the value and liquidity of the security. Interest paid to you the investor is typically 2-4 times bank deposit rates, making it a high interest earning asset.
The bonds can be sold mid-term through our brokerage if the investor needs liquidity, but there is of course no guarantee of a sale at that time. If the bond cannot be sold, the investor may have to wait to cash out until the bond is paid back by the company at its redemption date.
Types of security vary from registered mortgages, registered corporate charges or chattel mortgages, personal guarantees or third-party securities from individuals associated with the corporation, and even life insurance policies on “key” personnel.
We sell these in one line or syndicated among up to 20 individuals in order to facilitate investment by smaller investors seeking higher interest returns.
We normally offer these bonds only where the funds are needed by the corporation to expand and grow profits, not to cover previous losses. The offeror must be a “growth” company.
We undertake the due diligence enquiries, package the documentation, and present the offer to you in a neat readable form. If you express an interest you will be invited to visit the company and make your own assessment if you wish.
4. FIRST HOME BUYER COMMERCIAL GRANTS (FHB Industry Grants)
Our associated Corporate Authorised Representative Kixstaart Ventures, working in conjunction with Cloud Homes, has developed an industry grant for First Home Buyers which can be as high at $20,000. This has created the opportunity for investors to both profit out of helping to finance these grants and genuinely help first home buyers enter the market.
This investment is made into an Investment Company where the investor buys redeemable preference shares with a dividend (interest rate) of 1% per month. The funds are used to make short term loans to the sales agent, so they can provide an extra industry grant to the First Home Buyer.
The loans from the Investment Company are fully repaid by the agent to the Investment Company out of the progress payments made by the builder to the agent – normally upon construction of the slab and upon completion.
5. FIRST HOME BUYER BONDS (FHB BONDS)
In order to assist young people to acquire their first home, we offer these FHB Bonds for sale to investors. Investors can achieve a higher interest rate while helping young people achieve their home ownership dream.
Interest rates offered will vary from 2-3 times bank deposit rates, depending on loan to value ratios of the home, employment and strength of saving history of the home owners among other factors.
The bonds have a fixed term – typically 3-5 years, and the bonds can be principal and interest or interest only, depending on the saving plan of the home buyers. Some aim to pay off the FHO Bond first, others aim to reduce their first mortgage loan and then refinance that upwards later to redeem the FHO Bond.
The bonds can be sold mid-term through our brokerage if the investor needs liquidity, but there is of course no guarantee of a sale at that time. If the bond cannot be sold, the investor may have to wait to cash out until the bond is paid back by the first home buyer at its redemption date.
Types of security vary from second mortgages on the home, personal guarantees, charges over shares, third party securities or personal guarantees.
Normally we will only offer FHO Bonds when there are at least two borrowers to avoid risks of unemployment, sickness or injury. They can be protected with sickness and accident and even term life insurance policies.
6. SYNDICATED MORTGAGES
Our Syndicated Mortgages offer Investment in a particular mortgage loan secured by a specific property. They offer a range of interest rates from 6% to 18% per annum. Investors purchase redeemable preference shares in an Investment Company which manages the mortgage, collects the interest from the borrower and pays the coupon (interest rate). The interest rate varies depending on the type of loans which are made by the Investment Company, the risk and the value of the security. A first mortgage loan may pay investors 6-8 % where a second mortgage may pay 12-18%.These rates are indicative.
7. MORTGAGE FUNDS
The alternative to Syndicated Mortgages is a Mortgage Fund which invests in a number of mortgages. Investors purchase redeemable preference shares in Investment Companies which pay a coupon(Interest Rate) varying from 6% per annum to 12% per annum depending on the type of loans which are made by the investment company, and the value of the security. A first mortgage loan fund may pay investors 6-8% where a fund lending on a blend of first and second mortgage loans and preferential equity deals may pay 12-15%. these rates are indicative.
8. SIDECAR FUNDS AND PORTFOLIO FUNDS
Sidecar Funds are investment companies which invest in a portfolio of startups. Portfolio Funds are investment companies which invest in a mixed managed portfolio of investments in the Classes 1-6 above. This enables investors to have the opportunity of investing in a managed portfolio without having to build it themselves. They obtain an instant spreading of risk.
HOW TO PROCEED?
You can “register “on this site and we can provide you with more information. You must by law “register” on this website in order to be able to view Investment Offers.
Just click Register.