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Early Adopters Hub - Investment

Mission driven, quality deal flow, at a great stage and price

Purpose

The purpose of this document is to articulate the financial opportunity being presented by Early Adopters Hub to provide you, as the reader, with all necessary information to allow you to ascertain if this is an investment opportunity that you would like to partake in, or if you require further information.

Structure

For ease, we have separated the document into two parts:

A summary with provides a concentrated thesis, for quick reference

An in-depth expansion of each area

How to use

Please use this document however you see fit, reviewing the aspects that are most critical to you.

We welcome any feedback, additional questions, or requests for clarifications.

Next steps

Upon successful commitments being achieved to reach the target investment threshold, much like a Letter of Intent, this document will serve as the guiding document for the formation of the legally binding operating contract/agreement that Early Adopters Hub will be operating with for a minimum of the next 2 years.

Summary and Investment Thesis

The purpose of an investment is to invest capital to generate a positive return.

Generally speaking, all investments are variations of the same thing: utilising capital (human or financial) to create value, and by creating value, money is generated, and almost universally, the more capital at risk, the higher reward is possible.

All investments will have some form of thesis at their core which explains why they believe they can achieve this.

As an investor, disseminating the validity of a thesis is critical to generate positive returns across your range of investments.

This section aims to articulate what we believe and why we believe it.

The goal is to give you, as transparently as possible, a clear picture of whether you agree with our thesis.

This should allow to decide if you agree that applying your capital to this investment will generate positive returns which are high enough to overcome the risk and opportunity cost of deploying your capital through other vehicles (risk-adjusted returns).

All additional sections of this document then break down these topics in much more detail, attempting to answer any ‘what if’ questions you may have.

Our thesis

Power law plus - It's the backup, not the strategy

The Misconception of Luck-Based Investment

Investing purely based on the Power Law, which implies a reliance on luck and survivorship bias, is an inadequate strategy. This approach might give the illusion of effectiveness due to the few outliers that succeed, but it is fundamentally flawed.

Power Law Plus: Our Approach

Our strategy, termed "Power Law Plus", aims to go beyond mere chance. We focus on building a robust minimum portfolio that accounts for various risks. By doing so, even if some assumptions are incorrect, the portfolio still has the potential to capture those rare, successful outliers. However, our goal is to exceed just getting lucky; we aim for a more analytical and strategic approach to investment, as detailed below.

Unicorns just happen - You can't predict or nurture

The reality of unicorns

The emergence of unicorns, companies valued at over $1 billion, is an unpredictable and uncontrollable event. It's a common misbelief that one can identify or nurture a startup to become a unicorn. The earlier in the journey, the greater the fallacy is.

There is simply too much complexity and uncontrollable and unexpected variables (unknown unknown) to be able to predict which startup will become an outlier success.

Our stance on unicorns

We don’t engage in the futile effort of predicting unicorns which goes against common wisdom of most VCs.

Instead, our focus is on fostering successful businesses overall. Unicorns, if they occur, are a by-product of this process, not the primary goal.

Reduce Failure Rate - Maximising returns by minimising 0s

Minimising failures: A core strategy

A crucial part of our investment strategy is to reduce the failure rate of our investments. We understand that not needing to rely on unicorns as major fund returners is possible if we effectively minimise investment failures.

Maximising returns through risk management

By concentrating on reducing losses and failures, we enhance our overall returns. This focus allows us to help each startup maximise their chances of success and provide more consistent and reliable investment outcomes.

Graphical representation

Below are several graphs which demonstrate how our thesis performs against the traditional ‘unicorn’ focused power law approach.

As you’ll see - the largest difference is in the initial failure rate: we believe that unicorns cannot be manufactured, thus these numbers remain constant in both scenarios. But, as you can see, our thesis of reducing failure rate leads to a significant increase in value creation, leading to far surpassed returns, thus outperforming and de-risking the model.

Note: for illustrative purposes, the graphs/data are based on 1,000 startups.

Graphs v1 - stats together on single graph

⁠

Graphs V2 - stats on separate graphs

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Get in early - Price matters and significantly mitigates risk

Our investment philosophy emphasises the significance of accessing equity at the beginning of the startups’ journey and is a pivotal part of our strategy. This early entry not only ensures we gain a larger share of the equity, but also ensures that our efforts yield the maximal impact - the earlier we are in the process, the more leveraged that impact becomes.

Don't invest in ideas - Only validated ideas can be part of the portfolio

We firmly believe in the principle that while ideas are abundant, only those that have been validated and tested in the real world hold value. Our process rigorously screens for startups and, thanks to our network of accountants and the proprietary processes we have developed, we ensure that we only move forward with startups that demonstrate tangible progress and market validation.

Traditional incubators/accelerators/VCs will prompt ideas that should simply not exist as there is no market need and drain resources and focus away from the startups that are tapping into a genuine gap or pain in the market.

This approach significantly reduces the risk of investing in mere concepts and focuses our resources on ventures with proven potential.

Unprecedented capital efficiency - Better valuations, less dilution, lower need for continuous raises

Our strategy aims to foster capital-efficient startups. This efficiency means that startups in our portfolio are more likely to succeed with fewer funding rounds, allowing early investors to retain more equity. By accelerating startup growth in the right direction and providing focused guidance, we create positive feedback loops that enhance the overall value and efficiency of our investments.

Niche focus - Compounding knowledge, network, and partnerships benefits

Specialising in a specific niche (accounting) affords us several advantages. First, it gives us access to high-quality deal flow, making us a go-to destination for startups in our specialised area. This focus is not just about selecting the right startups; it's about cultivating an ecosystem where startups benefit from our deep knowledge, extensive networks, and strong partnerships. This environment significantly boosts the chances of success for these startups, as they leverage our specialised expertise and connections.

Objectives and future vision

Our short-term objective is to build a portfolio of 15 to 25 startups over the next two years, establishing a solid track record and validating our investment thesis. This approach differs from seeking unicorns, as our focus is on reducing failure rates rather than banking on rare, high-value successes. By monitoring and comparing our failure rates to industry standards, we aim to prove the effectiveness of our strategy within a reasonable timeframe.

Looking ahead, our long-term goal is to scale our approach, potentially expanding into new geographies and verticals, and to raise a substantial fund to support a larger portfolio of 50 to 100 startups. This expansion would enable us to provide more comprehensive support to startups, further increasing our equity stakes and enhancing their chances of success.

Goal of investment and opportunity

After nearly 4 years in operation, Early Adopters Hub (hereon referred to as EAH) has positioned itself as the number one place for accountancy based startups to received support, early validation, de-risk their journey and most importantly, increase their chances of success.

Having proven the value provided to startups, the next stage of EAH’s evolution is to start to exchange their support, business practices proven playbook with the startups in exchange for equity. By inviting our network of accountants to join us in this journey, we can create complete alignment among all parties.

In short, we have a goal of supporting 15+ startups in exchange for equity over the next two years, and by doing so, we believe that we can turn any investment in EAH into an estimated return ranging from 4-38 times initial investment (over an 8 year period), thus significantly beating the majority of alternative asset classes/investment opportunities.

Investment terms

We are seeking $500,000-750,000 AUD in exchange for 30-40% of our Early Adopters’ Hub SPV.

These funds will be utilised over a 2 year period following the strategy outlined in this document.

In short, the purpose of the funds is to obtain 5-10% equity in each of 15-25 qualified startups, generating a sizeable return for investors.

All exits and other positive cash inflow from the startups (e.g. dividends), will be paid directly to shareholders on receipt.

It is important to bear in mind that it typically takes 6-8 years on average to see exits from businesses, so investors should begin the process not expecting to see any returns any early than this.

Why an SPV?

Creating a new entity has a multitude of benefits, most importantly, it allows us to offer a much higher volume of equity (30-40%) than we would have been able to offer in the existing business.

Every part of our approach has been engineered to de-risk the process for all parties involved. Whilst we are confident that we will deliver what we set out to, by offering a higher level of equity, we feel we are operating with integrity from day 0, giving our investors the best possible chance of a positive return and additionally sharing in the upsides ensures we are all aligned to the same goal.

There also are additional significant legal and tax benefits - by using a tax transparent vehicle, it means that investors can benefit from their local tax incentives and minimising the amount of cross boarder accounting etc.

Summary of investment mandate

The below are our overall guiding principles - all decision making over the next two years will be based on achieving the following:

Maximise our equity ownership per startup: Aiming for an average holding per startup of 10%

Increase deal flow: Get as close as possible to 25 startups, to minimise risks via diversification

Maximise chances of startup success: Ensuring every startup we have equity in is best positioned to succeed

These are the levers we can use to achieve the goals and ensure full alignment with our investors - by following these, we maximise return on investment. They are rigid enough to ensure clear goals, but also provide us flexibility to adjust our decisions and future plans according to changing market conditions, opportunities or emergent strategic advantages.

Methodology - How do we achieve our goals?

Background - how we established our methodology and solution

Identifying the problem

At the beginning of our journey, almost 4 years ago, we spent a long time hypothesising what makes businesses fail. During the first 2 years, we experimented with a variety of different hypotheses to answer that question.

Through the 200+ startups that we’ve evaluated and experimented with, we solidified our final hypothesis and identified one key pivot point which cause startups to fail:

No market need.

Whilst this might seem obvious, a 90% startup failure rate would prove otherwise.

So how is something, which appears so obvious, being missed by so many?

Access and methodology - most startups don’t have access to their target audience. Those that do, typically have no experience how to conduct robust research. Often, the very foundational assumptions that their business is built upon are left without validation, and the way the products are shaped are not clearly aligned with a genuine market need.

They fall prey to asking leading questions and focusing on affirming their preconceived notions, rather than seeking the challenging, yet essential feedback needed.

Furthermore, the ethos of 'move fast and break things' has often been misinterpreted and used as an excuse/mechanism to avoid real conversations with customers. Thus they lack the deep market insight required to launch a successful and sustainable business with long term prospects.

All of this leads to situations where businesses start, and maybe even raise funding (due to charismatic or well connected founders), but simply, they shouldn’t exist. They don’t make sense, and there’s no market for them. Due to failures in the above (ignoring or misinterpreting the market needs), they don’t realise this until far too late in the journey.

Our solution - a combination of the right network and the right methodology

Having identified a critical variable in startup success, we then set about building a solution, honing it and getting it to the point we are at now - where we can confidently (based on historic data) hypothesise that our methodology yields a significantly higher success rate for early stage businesses.

We do this in two primary ways - connecting startups with potential clients who represent the market from day 0, and giving startups frameworks that act as guardrails to minimise distractions and mistakes.

Network: We developed a network of the most forward thinking accountants in the world to validate startup ideas, shape their products, implement their products and become their first influential champions.

This forces startups to prove their idea from the very beginning and focus their efforts on identifying genuine pain points in the market rather than nice to haves. This ensures they get validation of their direction before committing months of wasted effort moving in the wrong directions.

This forces startups to prove their idea from the very beginning, thus, catching the businesses that have no market at the earliest possible stage, allowing them to either pivot, minimising wasted resources and wasted effort spent in the wrong direction, or stop their journey as they have invalidated their business’ hypothesis.

Frameworks: Even with clarity from clients on what to build, there are an astonishing number of ways for founders to get distracted and make mistakes. This exhausts crucial and limited resources that startups often can’t recover from.

By giving founders frameworks to follow, we significantly reduce the failure rate from avoidable mistakes by sharing the learnings from failures along the way. Details of these frameworks are included in the subsequent sections.

To see the benefits of our system in action, please see the

Case Studies⁠

section later in the document

Reach/attraction - where do we find startups to work with?

Having established ourselves as the world’s leading accountancy startup hub, we are in the privileged position where the majority of the startups we vet/work with, come to us.

These leads come from our brand awareness, which has been cultivated via our LinkedIn content, word of mouth, events, and mainly referrals from our network of accountants.

Furthermore, we have cultivated strong trust, integrity and credibility in our brand. We have done this by being consistent and strongly adamant that the trust of our accountants is sacred (often sacrificing short term revenue), and doing what’s best for our startups to achieve their long term goals (also often sacrificing short term revenue for that end).

As we are seeing startup founders proactively reaching out/completing our (fairly extensive) evaluation, we can confidently say that we have clearly successfully identified a need, and have positioned our offering in a way that resonates with accountancy startup founders - it seems reasonable to suggest that we have achieved product market fit.

With this being the case, our next stage would be to increase our marketing efforts: we know that our message resonates with our target market, thus, we simply need to increase our exposure to ensure that all prospective accountancy startup founders are aware of us from the beginning of the journey.

Catching them at the beginning of the journey is critical for several reasons, chief of which are:

We can provide the highest level of impact: As demonstrated in the previous section, the majority of founders target markets that don’t exist, or products/services that shouldn’t exist. By supporting their journey at this stage, we can provide the maximum amount of value from day 0.

Earliest stage means highest equity: As a company grows in value, its equity becomes more expensive. By being there as close to the founding as possible, we are eligible to a higher stake at the best possible valuation, thus leveraging our time and resources most effectively and efficiently.

Whilst the specifics of this marketing effort are out of the scope of this document, we can briefly state that they will include larger scale events, initiatives for our community of accountants and alumni startups, paid promotions, competitions, and partnerships.

Additionally, we have had a significant burden in the process of converting prospective startups: we were charging fees. With the inclusion of our new equity model (taking a percentage of the business in lieu of fees), we remove that barrier, and can vastly increase our conversion rates.

Finally, the new addition of our Investment Syndicate service, in which we will support our founders in accessing investment from our trusted network (which includes their target customers, who also invest), we feel we have the trifactor (users, capital, and expertise) which maximises potential success, and makes our offering to startups more valuable than ever before.

The engagement process - from introduction to presentation

To enable us to vet startups, as per the subsequent section (

Vetting/screening⁠

) the objective of the initial conversations is to explain how we work, what we offer and, most importantly, ascertain enough information from the founders to enable us to decide if we do/do not want to work with them.

The process:

We start with an initial conversation - we detail how we work, what we offer and what we charge (equity or pricing).

In the next stage, we perform a deep dive to enable us to learn what problem they are solving, who the founding team is, what their motivations are, what stage they are at, and much more.

This starts with a comprehensive evaluation form, followed by a call in which we challenge them on their assumptions, their character, and their ambition. We use this data to rank them according to our matrix (see

Vetting/screening⁠

). We also establish the specifics of what they require from our program, for instance, interviews with X number of accountants, questionnaires, value proposition testing, product testing.

If the startup has successfully passed our screening matrix, we then start preparation to present the startups’ details to our accountants to get their feedback. This part of the process is critical - as discussed in the previous section, founders left to their own methods are at risk of corrupting the research/market validation process and are liable to influence the opinions due simply being charismatic, compelling, and/or being too good of a salesperson.

We standardise the data from the startup, giving the accountants a succinct and honest view of each startup in a format that allows like-for-like evaluation. This significantly reduces bias and allows for a more accurate analysis of whether there is truly a market for their startup.

This is a comprehensive document, detailing all of the information we have established so far. As you can see from

these examples⁠

, it includes: videos from the team introing themselves, product overview (including pain points, target market, problem), competitive landscape details, ideal customer profile, differentiators, stage (MVP, revenue generating etc), funding, and commitment required from accountants.

At any stage of this process, we are looking for any sizeable reasons to rule out startups and we do not present anyone to our accountants until we are confident of a baseline of quality.

This process is tied in with the subsequent section, Vetting and screening, please proceed to this section to understand what criteria leads to startups being excluded, and why that exclusion first approach is a cornerstone of our hypothesis.

Vetting/screening - converting that information into a filter

As we move to remuneration being based on equity, one of the single biggest levers of our success will be our ability to prioritise only working with the best businesses and founders. Fortunately, having vetted more than 200 startups/founders in the last 3.5 years, we have developed processes and honed skills, making us extremely well prepared for this task.

Our approach is two-fold, firstly, we evaluate startups/founders using our bespoke ‘Founder Matrix’, which consists of more than 25 unique aspects. The founder(s)/startup are scored on each of these and this gives us the ability to efficiently rule out founders that display too many ‘red flags’.

It’s important to note - we operate on a rule out basis, not a rule in - as per Nassim Taleb’s wise words (

summarised helpfully here⁠

), it’s much easier to predict what won’t work, than what will work - anyone can get excited about ideas, the real skill is the ability to accurately say no.

To elaborate, most VC firms base their approach on the ‘

Power Law⁠

’ - that is, by simply having enough in their portfolio that one will strike it big enough to generate the return for the whole fund. Due to the volume they target with this approach, they’re required to keep their involvement and acceptance criteria in each startup minimal (there isn’t time to vet and nurture extensively).

Our founder matrix gives us a repeatable and ‘like-for-like’ method for screening prospective startups/founders. Most startups will fail, by aggressively screening at the earliest stage with our bespoke and proven process, we believe we can sizeably impact the success rate of our venture.

Secondly, we have a significant advantage in that our network of accountants also provide a second stage of screening and validation that represents the market incredibly early in the process. Even if the founder is ‘perfect’ on paper, we subsequently present their idea to the accountants. If they are uninterested in the business/offering, we can immediately rule the startup out, having only invested the minimum of time into them.

This two-tier screening method, gives us two significant benefits:

An understanding of whether the founders are well suited to the opportunity

Evaluation of whether a market actually exists for this product/service/startup

Thus ensuring that the startups that successfully pass these two stages are extremely well vetted, have some level of customer validation, and thus, we believe this will yield a higher win rate than a standard investor screening process.

It is this unique mechanism that enables us to get equity in startups at the riskiest stage that offers the biggest reward, while mitigating and eliminating a lot of the risk (a stage that for investors can rarely justify the risk-adjusted returns of making a direct investment)

On-going collaboration - how we maximise the chance of success

Whilst vetting startups dramatically increases the blended success rate of our portfolio as a whole, the collaboration and value that we add is the second most important lever that we have available. By supporting the startups in ways that are unavailable to them outside of the Early Adopters Hub (facilitating and expertly moderating conversations with their prospective customers) and comprehensive frameworks to guide the process and avoid common mistakes, we can further increase the portfolios overall win rate.

Facilitating engagement with prospective customers - the accountants

Startup founders have a wide ranging variety of different skills, one that we have observed that they are frequently lacking is how to maximise the benefit from research calls with their prospective customers.

This often leads to whole business models built on top of, at best, weakly validated assumptions, and more often based on assumptions they didn’t even realise they’d made.

Given our experience in this area, our step by step process ensures that they achieve the best possible insights from their conversations with accountants.

We start by appropriately preparing for the conversations e.g. ensuring the agenda is clearly mapped out, setting expectations, and explaining from our extensive experience, how to maximise the value from the sessions.

Then, during the session, we moderate the discussions, keeping the conversation unbiased, ensuring objectives are met. Frequently, there will be situations where a founder has been ambiguous, asked a question poorly (or simply not dug deep enough), focuses too much on hypothetical future behaviour (”Would you pay for this? Would this be valuable?”) or likewise, an accountant hasn’t answered the question fully.

Given our extensive experience running these sessions, we are now painfully aware when this occurs. Our experience, and feedback from founders and accountants alike, shows that this has unearthed incredibly valuable insights, often mitigating several erroneous paths that founders were considering going down.

Asking the right questions in the right way is a skill that takes a lot of experience and understanding of best research practices. When this is lacking and the foundation of a startup is built upon inferior research, the long term result is often failure.

Once all engagements have been completed, we provide comprehensive, unbiased notes and third-party opinions on the discussions, thus giving them an invaluable way to determine if their interpretation of the advice was correct.

The aforementioned is another area we have observed, and have been told by our startups, that we have added significant value. Conversations with several accountants leads to a lot of qualitative and quantitative data. Not all founders are appropriately prepared to analyse this information and may draw incorrect conclusions. Our depth of experience allows us to help analyse this data, challenge their assumptions and help them to draw appropriate conclusions. We are also able to be unbiased, which is hugely beneficial. As with previous stages, this stage ensures we continue to identify any red flags as early as possible.

Finally, we conclude with a summary call, revisiting our initial objectives and ascertaining whether or not we achieved what we set out to, and to understand from the founder what additional work or service we can provide to further support them and maximise their chance of success. It’s not uncommon at this stage for startups to draw the conclusions that their assumptions/hypotheses have been disproven and they decide to disband, or significantly pivot.

We’ve been told by many of the startups that we’ve supported that this process wildly exceeded their expectations and was demonstrably valuable for their businesses.

Methodologies

Alongside our aforementioned facilitated engagement process of mediating discussions between the startups and accountants, when receiving equity for our service, we also provide significant strategic support in the form of a host of proprietary frameworks and processes. These guide them over an extended period of time with a clear goal: accelerate the process of achieving a strong product-market fit, ensuring a strong foundation for future growth.

Comprehensive playbook

This playbook provides guiding principles to take startups through our four main steps in our framework: Idea validation, concept validation, product validation, market validation.

From our experience, we have identified a few key areas that need to be taken into account alongside product development. These areas are often just as crucial for success, yet frequently neglected/ignored by most founders.

Pricing: Clear strategy and structure that enhances the value proposition, rather than becoming a blocker for adoption.

Messaging and positioning: Having a clear and differentiated value proposition that resonates with ideal customers segments is vital. Accounting tech startups operate in an incredibly noisy space and simply saying a solution saves time, replaces spreadsheets, eliminate manual process gets completely lost.

Customer success: Having a clear customer journey, which guides the process of engaging with clients from the very first interaction, through sales process, onboarding, activation, implementation and long term success is absolutely vital alongside any product.

Brining it all together, it’s critical for startups to have a clear plan in the form of a timeline which details the minimal amount of resources needed at each stage. This ensures they have clear, achievable goals and objectives that move the startup forward, ensuring an optimised balance of speed vs resources.

This enables incredible capital efficiency.

Ultimately, the beauty of these frameworks is that they can be adapted to each individual startups’ unique journey, allowing flexibility when circumstances are different, opportunities come up or market trends change.

Best practice education

We have a comprehensive library of best practices on a range of topics that we proactively review with founders according to the different stages they are at.

These include: how to conduct market research, articulate long term goals and vision for their startup, pricing strategy, building a customer journey, and many more.

The goal of these resources is to enhance the value of everything we do with startups but, more importantly, it develops a “muscle memory” of the best practices at the very foundation and culture of their startup, thus insuring they become a core facet of how the startup operates in the long term.

A detailed overview of all our frameworks and resources is available in the appendix.

Additional critical success factors

Maths and the ‘Power Law Plus’ model

A traditional VC firm relies almost exclusively on the power law (

definition⁠

) to generate returns for their investors - see Seedcamps’

pitch deck⁠

, which demonstrates that 90% of their value comes from 15% of their startups.

In our model, we focus on the ‘Power Law Plus’ - our hypothesis is that we can add more value to businesses as they pass through our process, thus significantly increasing the success rate of our businesses.

However, almost acting as back up, the number of startups we are targeting to include in our portfolio ensures that we will benefit from the power law as well. Let’s walk through a comparison.

Ideally, we are targeting 20 businesses, with an expected success rate of 30%. If we are unable to achieve the forecasted success rate, the commonly acknowledged average rate of success for startups is 10% and $41M is the

average exit rate⁠

, to be further conservative, we will reduce this further and set it at ~$28M (see spreadsheet in appendix for exact). Thus ensuring that, even in our conservative scenarios, we have enough businesses in our portfolio to generate a positive return on investment, just based on the power law alone.

How is this possible?

Each investor will receive such a sizeable share in each investment that, even with just a 10% exit rate from startups, there will be enough funds to generate a positive returns for investors.

In short, just power law alone should ensure that we generated positive returns. If our hypothesis of being able to improve the success rate of the businesses we work with is true (thanks to the vetting process, the on-going value we add, our positioning within the market, and our access to deal flow) we are poised to generate far higher returns.

See the ‘

Risk and Reward Analysis⁠

’ section below for figures.

Early access - comparative case study

YC is possibly the most well known accelerator - what made it different? The calibre of support given to each founder was unprecedented. Now, 18 years later, the network within the YC community is unmatched, in both its breadth and depth.

By supporting businesses right at the very beginning of their journey, there are two significant benefits:

You access equity before it has a valuation, thus getting the largest amount at the cheapest price

Your time/money/effort has the highest possible impact

Likewise, by positioning ourselves similarly to YC, with a unwavering focus on adding value to startups, we will make the most possible impact and convert our time provided to startups into equity, thus generating a better return on investment than any cash investment could.

Bringing it all together

Throughout the above, we’ve established:

Where we started and why we do things the way we do

How our brand is already extremely well positioned and our reputation is ensuring we achieve high quality inbound startup founders

How we perform qualitative analysis on prospective founders/startups, and convert this into a valuable ‘rule-out’ screening process, further strengthened by the accountants analysis of prospects

How we further increase the success rate of our cohorts by ensuring the maximum benefit from the engagements between founders and accountants

How the ‘Power Law Plus’ and YC style value adding acts as a ‘backup’ on our operations, further increasing our chances of success

Combining all of these aspects, we believe that we have a clear case and a proven track record as to how we plan on delivering on our hypothesis of being able to identify and support startups to achieve a higher than average success rate and thus, generate market beating returns for our investors.

Risk and reward analysis

Reward - upside return potential

By accessing startups at their earliest stage, we acquire equity at the lowest possible price. This maximises our return when an exit occurs.

According to generally accepted

research⁠

, the blended failure rate of startups is 90%, and the

median exit value is $41M⁠

Our hypothesis is that we will increase the success rate in our portfolio via these processes that we have have developed, and proven, over the last 3.5 years:

Reduce failure rate via our proprietary comprehensive analysis matrix and market validation methodology

De-risk and maximise success via mediating, interpreting, and channelling customer interactions and feedback into actionable insights

Support in providing access to early adopters, thus further validating startups, and subsequently supporting them in their fundraising

By doing this, we are confident, we can dramatically improve the startups’ success rate and reach our targeted minimum success rate of 40%+.

Below is a graph demonstrating the profit we predict to return in three scenarios:

Conservative: We hit the 40% success rate and a median exit value of each startup at $28M = 5X ROI for investors

Expected: A 50% success rate and a blended $26M exit per startup = 10X ROI for investors

Optimistic: Outperforming our prediction with a success rate of 70% and a blended exit of $31M per startup = 27X ROI for investors

Important note - whilst these ROIs are indeed impressive, it’s worth remembering that startups typically taken 6-8 years to exit, and will be dispersed over that time period.

To examine our maths and variables, please feel free to make a copy of

this spreadsheet⁠

so you can adjust the numbers and ‘stress test’ scenarios.

⁠

Risk - downside potential and mitigations

Critical consideration - unfortunately luck plays a role in all outcomes

When presenting an investment proposition, it’s important for all parties involved to be fully aware of the potential risk in a project. In this case, as with any investment based on early stage businesses, risk of loss full capital invested is possible.

Reward is the flip side of risk - generally speaking, the more at stake, the more can be gained. This opportunity presents asymmetric risk - your downside is capped at 100%, but your upside is unlimited. The question you have to be able to answer for yourself is: “am I okay with risking this full amount for the prospective upside return”.

Whilst we will do everything in our power to make this venture a success, the reality is that, as with any investment, unforeseen circumstances and, quite simply, bad luck can and do play a significant role in every outcome (see

Fooled By Randomness⁠

for a detailed explanation).

For instance, we have put forward our expected returns based on our historic data, experience and industry knowledge. Whilst we are confident in these predictions, each variable has an effect on the outcome and can lead to a negative return, if our hypotheses turn out to be incorrect.

Risk factors and how we mitigate them

Risk

Mitigation

Unable to attract enough deal flow

Our track record demonstrates more than enough deal flow from previous years

Fewer startups exit than predicted

Our comprehensive offering of network, vetting, ongoing support and more should enable us to minimise this occurring

Exit value is smaller than anticipated on exit events

A healthy/significant enough deal flow should compensate/overcome any shortfall

Luck

By ensuring significant deal flow, the power law should minimise the effects of bad luck

⁠

Unknown unknowns

⁠

The largest area of risk - as it’s unknown, it’s impossible to mitigate - if it weren’t unknown, it wouldn’t be a risk. Adaptability, resilience, attention to detail and the power law are our best defense

There are no rows in this table

⁠

Case studies and existing portfolio

To be added

Legal aspects

Objectives

Create a legal structure which protects potential upside of the existing EAH business. For instance, by creating a new legal entity, we could enable a larger equity share in the new structure to be sold without impacting the future prospects of EAH: this is a two year project and is separate from future endeavours.

Ensure the cash is available for EAH existing operations to enable the business to continue functioning as it is (thus adding value in a way that enables EAH to generate these investment opportunities).

Suggested structure - hypothesis 1

EAH launches a tax transparent United Kingdom Bare Trust SPV, as per

the method used by Odin⁠

. This ensures a tax transparent vehicle, enabling UK and Australian investors to receive any returns in their own tax jurisdiction.

Investors would then pay their funds into the SPV, receiving a portion of the equity in exchange. The remaining equity would then be assigned to EAH.

The money would then be transferred as a grant from the SPV to the existing EAH business.

Possible issues, or clarification required

Would the grant and equity being given to EAH trigger any tax events?

How would reassure investors/make it legally sound that equity would definitely flow into the SPV, rather than EAH harbouring it?

Any issues for Australian investors to be holding a UK entity?

Suggested structure - hypothesis 2

EAH simply sells equity in its existing business, with the clear intention that this is a standalone project - at the end of the two years, the intention is that this company will become dormant and a new company will be formed to enable a larger fund/next steps

Possible issues, or clarification require

What are the tax implications for UK investors in this scenario?

Return on investment - how returns will be distributed

To be confirmed, based on the above. Baseline notes as follows:

Exits will be dispersed as they are received. For instance, if we are to receive dividends from one of the businesses within the portfolio, these will be distributed to all shareholders, pro-rata. Likewise for an exit event of one of the portfolio businesses.

At the end of the two year period, we will complete one of three options:

The business unit containing the equity will continue as a ‘ghost entity’ - maintaining paperwork to ensure legal entity remains, so that distributions can continue as they are.

If the model proves extremely successful, the entity will seek to raise further funding, thus increasing its reach and expanding its operation

The business unit will be sold to a private equity fund, or similar - important note, the strict parameter to enact this is that each investor receives a minimum of 2X return on their investment. Any offers at a lower value than that will be rejected.

Protection

How we protect the shares in the startups we hold

Minority protection will be in place to ensure our shares are treated the same as the founders, this will be done in a few way, most notably by having our shares be the same share class as the founders. Additionally, to future proof this arrangement, we will include provisions which restrict the startup from altering our class without our written consent. Finally, we will ensure we have drag along rights, which means that any sale offer must be offered to us as well (ensuring our shares are included in any exit events).

This simplified description of our three prong approach ensures that we always will be treated as the same way as the founders, removing the risk of fowl play, and ensuring we partake in any exit event.

Furthermore, on a company level, we will ensure that there is no capability for us to remove any of the shares we hold from the investment vehicle - these will be locked within the registered business until an exit occurs, or the founder dissolves the business.

Additional notes for call with lawyer

What are next steps to take this to completion? For instance, letter of intent to act as hard commitment? Then what after that?

How will we ensure minority protection in the companies we are acquiring equity in?

Conclusion and next steps

Following this document, if anything requires additional clarification, or if you need any additional information before being prepared to commit, please let us know.

If you have all information required, the next steps are as follows:

We will provide you with an LOI (letter of intent) template, this document details the above in a succinct format. It’s purpose is to articulate what we are setting out to achieve and how much you are prepared to invest.

Once we have received all letters of intent, we will establish the legal paperwork to provide full and final details of the legally binding agreement between us.

Once these documents have been signed, money can be transferred, and the deal is done.

Approximate timeline (subject to speed of signatures): 3-6 weeks from receiving completed LOIs.

Subsequent to this, we will provide informal updates as and when a significant event occurs, and formal updates quarterly.

This document has to balance both those who desire intensive detail, as well as those who prefer brevity. As such, it’s likely that some questions may remain unanswered. Therefore, we welcome any feedbacks or questions on this document.

Appendix

Financials

By visiting

this link⁠

, you can access the financial modelling we have completed. To make changes/interact with the variables, you can make a copy of the sheet.

A brief description of the contents:

ROI Summary Tab - Aptly named, this provides a summary of the investment, including several variables which (when you have copied the sheet) can be adjusted to model different scenarios.

Portfolio Modelling Tab - This provides a detail breakdown of what the portfolios may look like in action. It also includes a comparison ‘unicorn approach’, which is so you can see how a traditional VC fairs in comparison to our model.

Uniform startup details (gamma boards)

Here two examples of the types of startup information we provide to our accountants for their analysis. The value of these are explained in detail in ‘

Vetting/screening⁠

’ section of the document

In short, they allow the prospective customers (the accountants) to validate businesses in a way that is devoid of corruptive influence from the founder (as founders are incentivised to try and ‘sell the dream’, rather than present the reality). It also ensures like for like comparison

Example one -

A collection⁠

⁠

Example two -

Spotlight on 445⁠

⁠

Offering, playbook, evaluation process steps

Note - if content is not immediately visible, zoom out to locate content

⁠

Best practice education and resources

Note - if content is not immediately visible, zoom out to locate content

⁠

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