Early Adopters Hub

Raising investment

General notes

Calls

Operations

EAH 4.0 - June new stage

Explore

Completing legals

Original Contract prep

Administrative

Basic admin

Director(s) details

i. Full name

ii. Former name, if any

iii. Date of birth

iv. Personal address

v. Place of birth (suburb and state or country)

vi. Directors’ ID:

Unit trust

Name:

Details of unit holders:

i. For individuals, their full name and address

ii. For companies, their name plus ACN and address

iii. For trusts, the name of the trustee and name of the trust and address

Accounting

Requirements from day 0:

Handle the ABN and GST registration

Act as an ASIC agent

Deal with the general accounting

Have the accountant as the registered office for the trustee company, so nothing from the ATO/ASIC gets missed

Commercial/strategic

READ FIRST: Catch all - relevant throughout

Definitions

Investors: Everyone except Yohan and Ben

Executives: Yohan and Ben

EAH: The existing business, Early Adopters Hub PTY LTD: ABN 89 656 133 818

Agreed upon period: Either 4 years from the signing/initiation of the contract, or when the unit trust has equity from 20 genuine startups within it. Genuine is included to ensure there is no possibility of the creation of dummy/shell companies just to fulfil the requirement of 20 startups and is defined as $30,000 (either as cash or effort) having been input into the startup.

Rules

Executives inclusion rule: Unless directly specified, all votes, regardless of percentage required, will only pass if Ben and Yohan are voting in favour of the motion.

2 week window rule: Voting windows will be open for 2 weeks, if one of the party does cast a vote in that time period, the vote shall be deemed as abstained and, thus, the remaining votes shall be considered as scaled up pro-rata.

For the avoidance of doubt and to ensure continuity with ‘Founders inclusion rule’, the exception to the ‘2 week window rule’ is in the case of Ben or Yohan not having voted. In that event, the window will remain open indefinitely.

How does the equity and investment flow?

What is the legal structure?

Recommended: We launch a new LTD, which acts as the trustee. It has limited functionality, meaning that the administrative burden is minimal

Justification: By having a separate entity, it protects the equity that accrues in the unit trust.

How many directors do we want?

Just one - Yohan.

Suggestion is to make decision making at Unit holder level instead of director level.

Justification: There will be some things which are unit holder level specific, so rather than having two levels (director decisions and unit decisions), if we have all based on units, then we can achieve the same thing but with fewer steps.

Note: Andrew recommends 3 directors

How are directors appointed or removed?

Unit holders vote with 50.1% majority.

Justification: The ‘Founder inclusion rule’ ensures that both Yohan and Ben are involved in making this decision, but leaves plenty of space for those that are absent for the decision - this speeds things up, rather than waiting for unanimity.

Issuing of new units?

Two scenarios:

Non-dilution for investors based issuing: if the units are keeping the Investors at pro-rata (thus only diluting the executives), then a 50.1% majority is required to issue new units

Dilution based issuing: 100% unit trust vote. Addendum to the ‘2 week window rule’ - the window will stay open until we’ve received 90% of votes, or the motion will expire after 2 months.

Justification: It’s not fair to dilute investors unless they opt in for it.

Unit holders leaving

Other unit holders have a right to purchase the units of an exiting unit holder at market value before the unit holder is able to sell them to a third party.

Amount of units they are eligible to purchase: When a unit holder exits, the remaining unit holders have the opportunity to purchase the exiting holder's units in proportion to their current holdings (pro rata). Initially, each unit holder indicates the number of units they wish to buy, which may exceed their pro rata entitlement. If the total requested units exceed the available units, the allocation is distributed pro rata among those who requested more.

The trust has the ability to redeem (buyback) the units, but it requires a 100% unit trust vote, with an addendum to the ‘2 week window rule’: the window will stay open until we’ve received 90% of votes. The motion expires after 1 month, allowing the sale to occur after this time.

A unit holder can sell to a third party, but only after it is offered to current unitholders, as per the above stipulation, then they can go to a third party.

Justification: It’s not fair to spend investors returns on increasing their stake unless the majority agrees

Removal of a trustee/vary trust deed

The unit holders can change the trustee with a unit holder 75% majority.

The trustee can vary the trust deed, given there is a unitholders agreement with a 50.1% majority.

Justification: Recommended by our lawyer. Note for investors, this document will constitute the basis for the unit holders’ agreement, which almost always supersedes the trustee deed - we have structured this in a way that the trustee is mostly administrative.

Management decision approval

The following management decisions are handled by the executives and, therefore, do not require a vote:

Equity negotiations with startups

Exiting a startup

For the avoidance of doubt (since we have no intention of these acts and given the nature of the unit trust), the following will not be allowed, unless called to vote and achieving a 100% unit holder agreement:

Taking on debt in excess of $5,000 AUD

Justification: The reason the investors are investing in the business is that they trust EAH to create opportunities to access equity in the startups they are working with. Thus, giving the executives autonomy over the decision making is the pragmatic thing to do. The alternative, requiring a vote, could slow decisions down considerably, and the investors may not have exposure to all the information, thus leading them to block decisions that they are unclear on.

Restraints

All parties are required to abide by the following:

Do not disclose any confidential information about the state of equity of any of the startups, or EAH.

Whilst not bound by non-competes, all parties are not to engage directly with competitors in a way that would be deemed as detrimental to either EAH or any of the unit trusts’ startups.

Not to defame EAH, or it’s unit trust startups, publicly or privately.

Additional considerations/clauses we’d like to include

Purpose and use of investment: For the avoidance of doubt, the objective of all activities and the investment, both within the unit trust and within EAH, are all focused entirely on the creation of equity within the unit trust, for the agreed upon period.

Therefore, any activities undertake by EAH are to be clearly in service to this objective.

Examples of these activities that EAH may partake in are below, however, this list is not exhaustive:

Incubating their own startups, a la a startup studio: However, to protect the investors, once these startups achieve a point of viability (defined as generating more than $10,000 of revenue), they must become their own legal entities.

Launching another ‘vertical’: EAH currently only operates in the accounting ‘vertical’. If there is a viable business case to replicate the existing EAH model and operate for startup founders in a different vertical (such as legal, financial planning, B2C, etc), then this shall be permitted. But, only under the previously mentioned proviso - the purpose of this expansion would be to increase access to equity based deals, both directly (trading services for equity), and indirectly (trading services for cash, which will be used for other equity generating activities).

Expanding to another territory: EAH currently operates predominantly within Australia and the UK. If there is a viable business case, expansion of the existing EAH business to another territory (e.g. USA, Canada etc), is permitted, as long as it is solely with the purpose to achieve the objectives.

Additional areas: As new opportunities emerge, it should be possible for EAH to pursue them but, to protect investors by making it explicit: these ideas must serve to further the overall objective of the contract - to generate significant returns for the unit holders.

Note - there may be a business case for launching these verticals or expansion to another territory under a different legal structure such as setting up new LTD companies to access certain benefits (e.g. having a UK LTD may reduce costs/complexity, partnership opportunities with other entities, to access funding/grants). In this case, to protect investors, any businesses will be bound by this contract in the same way that EAH is - to exclusively work towards the overall objective of generating equity in the unit trust. In the case of any conflicts between the two contracts, the governance of this contract will prevail.

Restricted activities - additional protection for investors:

Excessive salaries or dividends for the executives (defined as above $150K AUD per person in the first year, and $300K for subsequent years, with it possible to increase this level with a 75% unit holder vote)

Engaging in deals which enable the executives to benefit at the expense of the investors (e.g. creating a contract between companies to extract cash from EAH in a way that does not directly benefit the unit trust)

Restricting/controlling revenue generation: to mitigate a scenario where the executives are incentivised to turn EAH in a revenue generating business (as opposed to an equity generating business), any profit above $1M per year will be distributed to unit holders.

Justification: In a scenario where we’ve discovered that, for whatever unforeseen circumstance, EAH cannot generate meaningful/valuable equity in startups to provide a return on investment, but yet the business is doing extremely well from a revenue perspective, there needs to be a mechanism to ensure investors see a benefit from this pivot.

At the end of the four year period, the executives will be required to make a decision: extend the period, switch to revenue generation as the goal (as per the above), or shut down, or come to another conclusion with 90% voting consensus.

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