THE FEMALE LEADERS FUND BY ACORN & SCALE

A VC fund focused on high-growth companies with gender-diverse management and ownership.

EXECUTIVE SUMMARY

The Female Leaders Fund (the Fund) will seek to invest in innovative Australian companies that advance women in leadership to capture attractive investment returns associated with gender diversity. The Fund provides investors with an opportunity to unlock economic value by addressing market inefficiencies in both Australian Venture Capital and female-led ventures. The Fund is positioned to benefit from the vision and relative success of female entrepreneurs whilst addressing the gender gap and supporting investment across the venture capital ecosystem.

Acorn Capital Limited (Acorn Capital) and Scale Investors Limited (Scale Investors) have partnered to establish the Fund. The purpose of the Fund is to generate superior returns for investors by investing in early stage innovative Australian companies with gender diverse leadership.

The Fund will benefit from the superior returns flowing from gender diverse leadership teams, fulfill diversity targets, and support local job creation. The outperformance associated with gender diversity has been established in a compelling body of research by academic, institutional and financial stakeholders. The data supports gender diversity as an investment thesis due to:

Higher financial performance: These companies experience higher return on sales, higher profit and higher return on invested capital1

Better talent: These companies achieve more success at retaining talent and increasing productivity2

Stronger group performance: Which is critical for innovative approaches in identifying new business opportunities, reduces group think while enhancing decision making3

The Fund will leverage the relative strengths of Acorn Capital and Scale Investors through shared processes, networks and mutual collaboration. Acorn Capital is a boutique investment manager that has specialised in emerging companies since 1998. Scale Investors, established by a visionary group in 2013, will bring access to female-led and gender diverse investment opportunities. Together, this Fund will create a portfolio of 8-12 unlisted, innovation driven companies that exhibit effective leadership and deliver outperformance to investors.

1 https://www.catalyst.org/research/why-diversity-matters/
2 https://executive.mit.edu/blog/what-makes-a-high-performing-team-the-answer-may-surprise-you#.XJMpX6BxVEY

OVERVIEW

AN INVESTMENT STRATEGY DESIGNED TO CAPTURE THE INVESTMENT RETURNS ASSOCIATED WITH GENDER DIVERSITY AND WOMEN’S LEADERSHIP.

OBJECTIVE

Creation of a portfolio of unlisted, innovation driven companies with gender diverse teams at the early to expansion stage of development to generate a post fee return of 20%+ p.a.

INVESTMENT PHILOSOPHY

There is a growing untapped opportunity to generate outperformance by investing in early stage innovative companies with gender diverse leadership teams.

Acorn Capital and Scale Investors believe investment in companies with gender diverse leadership at this stage of development has the potential to deliver superior risk-adjusted returns.

STRATEGY

  • Invest in innovative Australian companies that recognize women’s leadership
  • Invest in companies with a proven business and competitive advantage
  • Focus on early and expansion stage opportunities
  • Leverage Acorn Capital’s experience and technical capability
  • Leverage Scale Investors’ deal flow and networks to attract and source female-led and gender diverse companies

THE FUND

Key benefits include:

  • Access the outperformance associated with gender diverse leadership teams
  • Address market inefficiencies to unlock economic value to investors and the domestic economy
  • Subject to approval and registration of the Fund by Innovation Australia, tax effective fund structure where realisations of investments will attract no income or capital gains tax and investors receive a 10% tax rebate on invested capital

MANAGER PROFILE

Acorn Capital is a boutique investment manager that has specialised in emerging companies since 1998.

INVESTMENT EDGE

  • Large and experienced team with a strong investment track record and operational experience
  • Strong deal flow driven by powerful networks, industry access and limited competition
  • Public and private market experience with the ability to consider and leverage investment metrics across listed and unlisted companies

THE OPPORTUNITY

The Fund represents an opportunity to unlock economic value by addressing market inefficiencies affecting Australian venture capital.

Australia is one of the richest sources of innovation, yet it remains an overlooked investment opportunity. Australia is more innovative than most people believe, ranking 6th of 234 OECD countries in terms of innovation. However, this innovation is not backed by investment as Australia ranks 21st of 354 countries in terms of venture capital as a percentage of GDP. The underinvestment into Australian innovation and more particularly, female founders or gender diverse leadership teams reflects a market inefficiency that investors can take advantage of through this Fund.

The best and smartest women are increasingly moving away from traditional roles into innovation, medicine and finance and are creating new emerging businesses. This underscores a future where disruption and innovation by women entrepreneurs will continue and become a more defined investment thematic, especially as women influence more than 85% of household decisions5. Acorn Capital and Scale Investors believe there is significant market potential for investors to back these early stage investments.

The business case for investing in women is supported by a compelling body of research that consistently tells the same story – companies with women in leadership roles perform materially better6. The research shows that gender diverse leadership drives higher return on equity, higher return on invested capital, higher return on sales, greater innovation and higher employee retention. Yet many female entrepreneurs report difficulties in accessing financing due to structural inefficiencies, unconscious bias and implicit gender bias reflecting how current capital markets for these companies are relatively poorly developed and underserved.

This Fund is the first of its kind in Australia to target high quality, tax effective returns from attractive innovation driven companies that support gender diverse leadership teams.

STRATEGY OVERVIEW

Acorn Capital and Scale Investors believe there is an opportunity to deliver attractive returns due to structural inefficiencies resulting in limited access to finance for early stage companies, especially female-led ones.

This Fund seeks to match companies with gender-diverse teams to the venture capital funding they need to grow. The Fund will seek to invest in high quality innovative Australian companies with gender diverse leadership teams at the early to expansion stage of development and will target returns greater than 20% pa.

It is intended that the Fund will apply for registration as an Early Stage Venture Capital Limited Partnership7 that will make eligible investments under the Venture Capital Act 2002 (Cth) (VCA).

4 https://www.gemconsortium.org/report/50012
5 https://girlpowermarketing.com/statistics-purchasing-power-women/
6 https://www.businessinsider.com.au/companies-with-women-in-leadership-roles-perform-better-2016-6?r=US&IR=T
7 Subject to receipt of registration pursuant to the Venture Capital Act 2002 (Cth)

UNIQUE FEATURES OF THE FUND

Acorn Capital and Scale Investors believe the Fund is attractive for the following reasons:

Market Leading: An investment approach that is the first of its kind in Australia

Investing in high growth companies with gender diverse management and ownership to unlock better economic outcomes

Provides investors with exposure to a subset of the investment universe that is otherwise difficult to access

Leverages Scale Investors’ network of female-led businesses, investors and skills

Provides access to a manager, in Acorn Capital, with a proven track record in unlisted and early stage investments with 49 completed investments since 2009 with an average IRR of approximately 25%

Specific focus on the early to expansion stage of development, where returns are highly attractive, but capital providers are limited

ESVCLP investment structure that can take advantage of tax benefits. It is intended that the Fund will apply for registration as an ESVCLP. In the event that such registration is granted by Innovation Australia, the Fund will make VCA-eligible investments, which will be capital gains and income tax free and invested capital will receive a 10% tax offset

ACORN CAPITAL’S TRACK RECORD OF SUCCESS AND INVESTMENT EDGE

The Fund’s strategy will allow it to access differentiated investment opportunities. Acorn has significant experience investing in private emerging growth companies. Since 2009 it has invested more than $200m in 49 private companies with 29 achieving liquidity events9. The average duration of Acorn Capital’s unlisted investments is approximately 2.7 years and the estimated aggregate annualised internal rate of return on investments that have reached liquidity is approximately 25%8.

PROVEN TRACK RECORD OF SUCCESS

OVER $200 MILLION INVESTED SINCE 2009

49 UNLISTED INVESTMENTS

29 LIQUIDITY EVENTS

25% IRR(2)

Acorn Capital historical distribution of IRR’s8 on unlisted investments that have reached liquidity

ACORN’S INVESTMENT EDGE

STRONG &
DIVERSE DEAL
FLOW

Powerful networks, industry access, team experience and limited competition.

LEADING
TEAM

Acorn has a large team with a strong investment track record. In house technical capability. A team that has been together for multiple years.

CAPABILITY
& FOCUS

Public & private market experience. Ability to access and assess investment metrics across listed and unlisted companies to identify opportunities and determine value.

8 Unaudited, calculated using a Zero-Base Time IRR method, which assumes that all the relevant investments were completed at the same time. The calculation is before any fees and costs. Under existing investment mandates, the Manager has the ability to hold unlisted investments that become listed investments on an ongoing basis in the listed portfolio, accordingly to attribute the performance of unlisted investments the VWAP on the first day of the IPO is used as the measure of cash flow received on liquidity
9 Acorn Capital estimates as at 30 June 2019

CORE INVESTMENT TEAM and investment committee

The Core Investment team is also supported by the depth of Acorn’s highly experienced and successful Portfolio Manager team.

KEY FUND TERMS

Investment Period 4-year investment period (with optional 1-year extension) with the intention to return capital by year 7 and an orderly liquidation of any remaining investments thereafter.

Fund Size ~ $30 million.

Investment Manager Acorn Capital Limited.

Number of Investments 8-12.

Follow on Investments Permitted to keep sufficient reserves for follow on investments.