TOKENBLOQ
GENERAL RISKS FACTORS
The risks of making investments through TokenBloq arise both from the more general risks associated with the nature of the TokenBloq investment platform and the making of investments in early stage technology companies, and from more specific risks related to TokenBloq’s investment in a particular portfolio company. The more general risks include, but are not limited to, those discussed below. For additional information regarding the more specific risks related to the investment in a specific portfolio company please check our analysis for the specific company.
RISKS RELATING TO PRIVATE CAPITAL MARKETS INVESTMENTS
Prospective Investors in the SPVs Should Make Their Own Investment Decisions. The acquisition of securities in a particular portfolio company (each, a “Portfolio Company”) through TokenBloq is expected to occur as soon as reasonably practicable after the closing of the creation of a special purpose vehicle established for the purpose of such acquisition (each such vehicle an “SPV,” and collectively the “SPVs”). Each SPV will invest substantially all of the capital invested in such SPV (other than amounts allocated to the Fee and Expense Amount) in the applicable Portfolio Company alongside TB Investments LP (the investment arm of the General Partner) as well as certain other investors. None of the General Partner, its affiliates or RWA Advisors Inc. (the “Management Company”) shall make any independent investment decision, analysis or recommendation on behalf of TokenBloq with respect to the substantive merits of a potential investment in a Portfolio Company
By executing a Subscription Agreement to purchase limited partnership interests in an SPV (each such interest, an “LP Interest”, and each such purchase, an “Investment”), each investor shall acknowledge and agree that (i) it is not looking to, or relying upon, TokenBloq, including the general partner of an SPV, its general partner and leading up to the ultimate general partner of the SPVs (referred herein together as the “General Partner”) or the Management Company, to make any such investment decision, analysis or recommendation and (ii) it is making its own independent investment decision regarding whether or not to invest in such SPV with the knowledge and understanding that the SPV will invest substantially all of the capital committed to such SPV (other than amounts allocated to the Fee and Expense Amount) in the Portfolio Company alongside TB Investments LP and certain other investors. In the applicable Subscription Agreement, each Limited Partner will give representations regarding the foregoing statements and other key considerations related to acquiring LP Interest. Each acquirer of an LP Interest in an SPV is a “Limited Partner” and collectively the “Limited Partners.”
Prospective Investors Cannot Rely on the General Partner’s or the Management Company’s Due Diligence. While the General Partner, the Management Company or affiliates thereof shall conduct certain due diligence on the Portfolio Companies for purposes of their own investment in the Portfolio Companies, none of the General Partner, the Management Company or their affiliates shall independently verify the accuracy or completeness of the information provided to them, and investors should not rely (i) on the General Partner, the Management Company or their affiliates having verified such information or (ii) on the fact that the General Partner or any of their affiliated entities, has made or plans to make an investment in a Portfolio Company. Consequently, the General Partner and the Management Company cannot and will not assure the accuracy or completeness of this information. In addition, some of the information provided by a Portfolio Company is based on such Portfolio Company’s own expectations, estimates and projections and cannot be relied upon as a guarantee of future performance, as the future performance of such Portfolio Company could differ materially. TokenBloq does not intend to verify the assumptions on which the information provided by such Portfolio Company is based. It is possible that the General Partner, the Management Company or their affiliates shall prepare, may gain possession of or may review additional information relating to a Portfolio Company which is not included on this website and which information is not generally being made available to prospective investors in such Portfolio Company (through an SPV), including financial models, investment committee memos, investment analyses and other similar materials prepared by the General Partner, the Management Company or affiliates thereof in connection with their investment in a Portfolio Company.
Nature of TokenBloq Private Fund Investments. The Portfolio Companies in which the SPVs will invest are likely to face intense competition, including competition from companies and funds with greater financial resources, more extensive development, production, marketing and service capabilities and a larger number of qualified managerial and technical personnel. There can be no assurance that the development or marketing efforts of any particular Portfolio Company will be successful or that its business or fund will be profitable.
Many, if not most of the Funds or Companies in which the SPVs will invest may have a limited operating history or earnings and lack technical, marketing, financial and other resources. These companies may be dependent upon the success of one product or service, investment strategy, or the effectiveness of a manager or management team. The failure of this one product, service, investment strategy, manager or the loss or ineffectiveness of a key executive or executives within the management team may have a materially adverse impact on such companies. Furthermore, these companies may be more vulnerable to competition and to overall economic conditions than larger, more established entities.
TokenBloq’s Investments will include funds and companies at early stages of development, including the early growth stage. Particularly in these earlier companies and funds, a major risk exists that a proposed service, fund or product cannot be developed successfully with the resources available to the Portfolio Company. There is no assurance that the development efforts of any Portfolio Company will be successful or, if successful, will be completed within the budget or time period originally estimated. Limited Partner Investors in our SPVs are subject to these risks, which may include a loss of their investment.
Long-Term Investment. The Investments are long-term investments. The inherent nature of seed and early-stage investing dictates a significant length of time between the initial investment and realization of gains, if any. Early-stage investments, if successful, typically take five years or more from the date of investment to reach a state of maturity where disposition is possible. Investors must be able to bear the economic risks of an investment in the LP Interest for an indefinite period of time.
Lack of Diversification. Each SPV will typically invest in a single Portfolio Company or Fund, generally, in the commercial real estate, private equity, venture capital, private credit, or other industries and will be dependent upon such Portfolio Company or Fund’s performance. The performance of each SPV will be directly linked to the performance of the Portfolio Company or Fund in which it invests and the SPV could be severely impacted by adverse developments affecting such Portfolio Company or Fund and/or the industry within which such Portfolio Company or Fund operates.
Reliance upon Portfolio Company Management. Although the General Partner will generally seek to secure representation on the board of directors of Portfolio Companies and hopes to develop a good working relationship with the management of such companies, each SPV is not expected to have an active role in the day-to-day management of the company in which it invests. To the extent that the senior management of a Portfolio Company performs poorly, or if a key manager terminates employment, the SPV invested in such Portfolio Company could be adversely affected.
Lack of Control. TokenBloq generally will seek to locate and structure investments so that it will have some level of control over Portfolio Companies, at least as to vote on major corporate decisions. However, TokenBloq expects that the SPVs will hold minority interests in most companies and, therefore, may have limited ability to protect their position and investment in the applicable Portfolio Company. Generally, as a condition to any investment, TokenBloq will seek to obtain special rights and protective provisions, which will be negotiated at the time of the acquisition of securities in the Portfolio Company. There can be no assurance that TokenBloq will be able to obtain such protective provisions, or that such provisions, if obtained, will be effective.
Limited Partners Will Not Have any Direct Interest in the Portfolio Company. The offering of LP Interests in various SPVs does not constitute a direct or indirect offering of interests in the Portfolio Companies. Limited Partners will not be equity holders of a Portfolio Company, will have no direct interest in a Portfolio Company and will have no voting rights in a Portfolio Company or standing or recourse against a Portfolio Company. Moreover, none of the Limited Partners will have the right to participate in the control, management or operations of a Portfolio Company, or have any discretion over the management of a Portfolio Company by reason of their Investment.
Illiquid Investments. The Portfolio Companies in which TokenBloq expects to make investments will initially be privately held. As a result there will be no readily available secondary market for the SPVs’ interests in such Portfolio Companies, and those interests will be subject to legal restrictions on transfer. Therefore, there is no assurance that TokenBloq will be able to realize liquidity for such investments in a timely manner, if at all. Unless a Portfolio Company subsequently succeeds in obtaining approval from the relevant authorities to list its shares on a recognized exchange, this avenue to liquidity will not be available to TokenBloq, which must then rely on other means to achieve liquidity, such as acquisition of the Portfolio Company. In addition, if a Portfolio Company goes public, the SPVs may be precluded from selling their shares in the public Portfolio Company for some time after such Portfolio Company’s initial public offering. It may be difficult for TokenBloq to value the interests of the SPVs in privately held Portfolio Companies.
Limited Operating History. Information contained on this website relating to the performance of prior investments made and managed by certain of the shareholders of the General Partner is not necessarily indicative of the future performance of the SPVs and Portfolio Companies.
Risks of Certain Dispositions of Assets. In connection with the disposition of securities in Portfolio Companies, the General Partner, on behalf of an SPV, may be required to make representations about the business and financial affairs of such Portfolio Company typical of those made in connection with the sale of any business. It may also be required to indemnify the purchasers of such securities to the extent that any such representations turn out to be inaccurate. These arrangements may result in contingent liabilities, which might ultimately have to be funded by the Limited Partners based on their pro rata Investment in the applicable SPV.
Distributions In-Kind. Although unlikely, the General Partner may cause an SPV to distribute its securities in a Portfolio Company or other non-cash property. Any such distribution could put downward pressure on the price of a Portfolio Company’s securities and could reduce or eliminate such SPV’s influence in the Portfolio Company’s affairs. Further, distributions in-kind upon dissolution of an SPV may result in the receipt by investors of highly illiquid unregistered securities. An investor that receives assets other than cash from an SPV may incur substantial costs and delays in converting those assets to cash.
Reliance on the General Partner and Management Company. The General Partner, the Management Company or affiliates will have exclusive responsibility for managing the SPVs’ activities, and the Limited Partners, in their capacity as such, will not be able to make decisions in the management of the SPVs. Additional partners may be admitted to the General Partner in the future, existing partners may withdraw, and the Limited Partners will have no power to prevent any specific person from being admitted to, or withdrawing from, the General Partner or affiliate thereof. The General Partner, and, consequently, TokenBloq, will rely exclusively on the efforts and expertise of the General Partner, the Management Company and their affiliates. In the event that the current shareholders of the General Partner are no longer engaged in the active day-to-day management of the General Partner or its affiliates or otherwise, there is no assurance that TokenBloq will be able to locate further investments or successfully realize any existing investments. The loss of one or more of the shareholders of the General Partner could have a material adverse effect on the operation of TokenBloq and the SPVs.
Absence of Effective Remedies Against the General Partner. There can be no assurance that adequate remedies will be available to any Limited Partners if the General Partner fails to perform its duties, and the applicable governing documents of an SPV affords such Limited Partners with limited rights to remove the General Partner. The governing documents of the SPVs include provisions for exculpation and indemnification of the General Partner and its respective partners, members, managers, officers, directors, shareholders, employees and affiliates. Therefore, Limited Partners may have more limited rights of action than they would have absent such limitation.
Restrictions on Transfer and Withdrawal. There will be no public market for the LP Interests. In addition, the LP Interests are not transferable except with the consent of the General Partner. Limited Partners may not withdraw capital from the SPVs. Consequently, Limited Partners may not be able to liquidate their investments prior to the end of an SPV’s term. In addition, the LP Interest shall not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”) or any other applicable securities laws, and such laws will further restrict a Limited Partner’s ability to transfer Interests in the SPVs.
Certain Litigation Risks. The General Partner and affiliates thereof will be subject to a variety of litigation risks, particularly if one or more of the Portfolio Companies in which the SPVs invest, face financial or other difficulties during the term of such SPVs. Legal disputes, involving any, or all of the General Partner, the Management Company, their partners or its affiliates, may arise from the foregoing activities (or any other activities relating to the operation of the SPVs or the General Partner and/or any affiliate thereof) and could have a significant adverse effect on the SPVs. For example, it is anticipated that the General Partner, the Management Company, their affiliates or other representatives may actively assist Portfolio Companies in differing capacities (including by serving as officers, directors, or advisors). While this provides the SPVs with more opportunity to positively influence a Portfolio Company’s success, it can also lead to greater exposure of the SPV’s assets. In the event of a dispute arising from any of the foregoing activities (or other activities relating to the operation of the General Partner and/or any affiliate thereof), it is possible that the General Partner, the Management Company or any of their affiliates may be named as defendants. Portfolio Companies may have insurance to protect directors and officers, but this insurance may be inadequate. Under most circumstances, the applicable SPV will indemnify the General Partner and its affiliates for any costs they incur in connection with such disputes to the extent such SPV is able. Beyond direct costs, such disputes may adversely affect the SPV in a variety of ways, including by distracting the General Partner and the Management Company and harming relationships between certain SPVs and their Portfolio Companies or other investors in such Portfolio Companies.
Service on the Board Of Directors. Representatives, affiliates of the General Partner or other investors may serve as directors of certain of the Portfolio Companies in which the SPVs invest. Such service, especially in light of the law (depending on jurisdiction) relating to corporate governance and scrutiny of corporate boards, could expose the General Partner and its partners and affiliates to regulatory action and/or claims by Portfolio Companies, their security holders and their creditors. While the General Partner intends to manage the SPVs in a way that will minimize exposure to these risks, the possibility of successful claims or adverse regulatory actions cannot be eliminated, and such events may have a significant adverse effect on specific SPVs.
In their capacity as directors of Portfolio Companies, such persons will be subject to fiduciary and other duties to the Portfolio Company on whose board they serve, which duties may on occasion conflict with the best interests of the investors investing through TokenBloq. For example, TokenBloq’s ability to sell the publicly traded securities of a Portfolio Company may be limited if any of such persons are in possession of material nonpublic information relating to such Portfolio Company.
Industry Specific Terminology. Prospective Limited Partners are cautioned that certain terms and phrases of common usage within the venture capital and private equity industry may be misleading to those unfamiliar with such usage. In particular, individuals who participate in the management of a fund often are referred to, in a colloquial sense, as “general partners” even though they are not actually general partners of any partnership. Prospective Limited Partners are reminded that the SPVs will be limited partnerships, that the General Partner of the SPVs will be limited partnerships, that their general partner and its general partner will also be entities, and that the individuals directing the management of TokenBloq through the General Partner of affiliates thereof will be members or shareholders of such entity or entities. With respect to all matters involving industry specific terminology, prospective Limited Partners are urged to consult with their own legal and other advisors.
Compensation Arrangements. An affiliate of the General Partner and the Management Company may receive carried interest from the SPVs. Although the General Partner and its affiliates will also be investing in the SPVs, this compensation arrangement may create an incentive for the General Partner and the Management Company to make decisions regarding the investment in a Portfolio Company that are riskier or more speculative than would be the case if this arrangement were not in effect. In addition, the compensation arrangement may create an incentive to overvalue the Investment, including in the unlikely event of a distribution in-kind, for purposes of calculating the carried interest.
By investing in an SPV or several SPVs as Limited Partners, the Limited Partners acknowledge that the General Partner’s entitlement to carried interest shall be based on the performance of each SPV (without taking into account the performance of any other SPV); i.e., the General Partner’s entitlement to carried interest shall be calculated on a non cumulative “deal-by-deal” basis.
Pandemics and COVID-19 Risks. The recent outbreak of the novel COVID-19 or “coronavirus” (also known as novel coronavirus or coronavirus disease 2019) pandemic presents unique, rapidly changing and hard to quantify risks to the investment activity. The pandemic has prompted local, state and national governments across the globe to announce “social distancing” recommendations or orders, “shelter in place” mandates, quarantines, advisories, restrictions or outright prohibitions on travel to and from certain countries (and within countries) and prohibitions on certain business activities (other than “essential business activities,” the definition of which is sometimes ambiguous and varies from jurisdiction to jurisdiction). Such government actions, coupled with the high level of public fear over the spread of the virus and growing concerns about the ability of local health systems to respond to the crisis, have resulted in a sudden and significant decline in global and regional commercial activity, as well as steep declines in major stock market indices. Some economists believe that the U.S. economy, as well as the economies of other countries, may already be in a recession, with high unemployment rates likely to be experienced at least over the short-term. The full economic fallout from this world health crisis may not be known for months and it is possible that global and regional economic conditions may worsen, and worsen significantly, before improving (the timing and extent of which improvement cannot be predicted). Governmental intervention to shore up national economies, such as the U.S. Coronavirus Aid, Relief and Economic Security Act which was recently signed into law (and is available only to certain U.S. businesses), may mitigate some of the near-term, more acute economic issues presented by the pandemic and may help to stabilize domestic and global capital markets to some degree but there are limits to the abilities of central governmental authorities to use governmental funding and monetary policy to ward off all of the economic consequences of the pandemic, particularly if the period of time needed to contain the virus is protracted. Although there is reason to believe that the COVID-19 outbreak may be contained over a reasonable period of time, there can be no assurance regarding how long it will take to reduce global infection rates and it is possible that, once the virus appears to have been contained and restrictions on social and commercial activities have been relaxed, there may be one or more future outbreaks that may be as serious, or potentially more serious, than the current outbreak. In the meantime, global equity, bond and credit markets have been, and will likely continue to be, significantly adversely affected.
RISKS RELATING TO SECURITIES LAWS
Securities Law Matters. The LP Interests are not and will not be registered under the Securities Act, or any other securities laws, including state securities or blue sky laws. The LP Interests will be offered without registration in reliance upon the Securities Act’s, and any other applicable securities law’s exemption for transactions not involving a public offering. Limited Partners will be required to make certain representations to TokenBloq and to the General Partner and each SPV, including that they are acquiring LP Interest in each SPV for their own account, for investment purposes only and not with a view to its distribution.
TAXATION
General. Investment in the SPVs and the realization of Investments may give rise to tax consequences depending, inter-alia, on the jurisdiction, tax status and other circumstances of each particular prospective investor. EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT ITS TAX ADVISORS WITH RESPECT TO THE U.S. FEDERAL TAX CONSEQUENCES, AND ANY OTHER POTENTIAL TAX CONSEQUENCES UNDER THE LAWS OF ANY STATE, LOCALITY OR OTHER RELEVANT TAXING JURISDICTION ARISING FROM THE HOLDING OR DISPOSAL OF AN LP INTEREST.
Legal, Tax and Regulatory Risks. Legal, tax and regulatory changes could occur during the term of an SPV that may adversely affect such SPV or the underlying Portfolio Company and its investment results, or some or all of the Limited Partners. In that regard, an SPV may be adversely affected as a result of new or revised legislation, or regulations imposed by the SEC, U.S. Department of Treasury, other U.S. or non-U.S. governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. An SPV or some or all of its Limited Partners also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become law. Compliance with any new laws or regulations could be more difficult and expensive, and may affect the manner in which an SPV conducts its business. New laws or regulations may also subject an SPV or some or all of its Limited Partners to increased taxes or other costs.