Financial Instrument – Trust Fund

Investment focus – Fund investment strategy shall be focused on innovative high-growth early stage companies

Investment range – Fund may start investing early in the seed stage of the company development and have the potential to
follow on in next rounds. However, it could also participate directly in A-rounds, provided appropriate
opportunities occur.
Up to 20% of the total fund size in any single investee (fund Advisory Board approval needed in case the limit needs to be exceeded).

Eligible investees – The investment shall support the following:
a) Establishment of new enterprises;
b) Early stage-capital (seed capital and start-up capital);
c) Expansion capital;
d) Capital for the strengthening of the general activities of an enterprise;
e) Realisation of new projects;
f) Penetration of new markets or new developments by existing enterprises.

The investment may cover: (1) investment in tangible assets or intangible assets, and (2) include the costs of transfer of proprietary rights in enterprises provided that such transfers take place between independent investors.

The investment shall be newly originated (not a refinancing). The investments shall be expected to be financially viable.

Investment period – No longer than 5 years from the first closing of the fund.

Type of financing – Equity and / or quasi-equity

Fund duration – 10 +1 +1 years (with extensions being subject to an investor or Advisory Board approval)

Fund manager’s commitment – At least 2% of fund size, to be decided as an alignment tool between investors and the manager, to be assessed against fund operational economics and broader financial position of the manager’s team.

Management fee basis – Typically paid on the committed capital during the investment period and on the invested capital (acquisition cost of the active portfolio of the fund reduced by the acquisition cost of the fund’s investments that have been sold, written-off or written-down) thereafter. Alternatively fixed-fee for the post investment period could be considered. The period through which the management fee is paid after 31 December 2026 cannot exceed six years. Selection of funds through this Call for Expression of Interest constitutes a selection through a competitive tender for the purposes of Article 13(6) of EC Regulation 480/2014. As a result, the management fee caps referred to in Article 13(2) and (3) of said regulation do not apply if the outcome of the Call for Expression of Interest proves the need for higher management fees and costs.

Management fee and cost cap – Manage-ment costs and fees to be paid after 31 December 2026 shall not exceed 1.5 % per annum of the invested capital, calculated pro rata temporis from 31 December 2026 until repayment of the investment, the end of the recovery procedure in the case of defaults or 31 December 2031, whichever is earlier.

Distribution cascade – The Trust Fund may benefit from state aid – non-pari-passu incentives for private investors in form of capping the net return on Elysian Green investment at 6% p.a., for the benefit of private investors. In such cases, the incentives would be provided by the FoF only, whilst the EIF co-investment will not (i) be subordinate to any private investors; (ii) contribute to providing any preferential treatment to private investors or (iii) receive any extra return from the FoF investment. The return on EIF’s co-investment would remain neutral to this arrangement.

A pari-passu distribution cascade for all investors is also not excluded. The non-pari-passu versus pari-passu structure has some implications on other fund parameters, including
as highlighted in this termsheet. The fund manager is invited to highlight it’s preference in the proposal, and the choice between the two options, depending on the specific transaction and the need for creating incentives for private investors, will be finalized by end of the selection process, to be specified in the Operational Agreement. In case of equal proposals, pari-passu is always preferred as long as it doesn’t hamper successful private fundraising.

Compliance – Clear procedures for KYC/AML and integrity checks on the sourced private investors and management of conflicts of interest shall be implemented by the fund manager in line with requirements of national legislation.

Prohibited types of investees and activities – Investments in following types of investees and activities shall not be supported:
(a) the decommissioning or the construction of nuclear power stations;
(b) investment to achieve the reduction of greenhouse gas emissions from activities listed in Annex I to
Directive 2003/87/EC;
(c) the manufacturing, processing and marketing of tobacco and tobacco products;
(d) undertakings in difficulty, as defined under Union State aid rules;
(e) investment in airport infrastructure unless related to environmental protection or accompanied by
investment necessary to mitigate or reduce its negative environmental impact;
(f) Investments that are to be supported shall not be physically completed or fully implemented at the
date of the investment agreement signature;
(g) The investment shall not finance pure financial activities or real estate development when
undertaken as a financial investment activity and shall not finance the provision of consumer
finance;
(h) The share of an investment that is dedicated to the purchase of land cannot exceed 10% of the
principal amount;
(i) The investment shall not be used to pre-finance a grant;
(j) The investment shall not be affected by an irregularity or a fraud;
(k) Refinancing and/or restructuring of existing loans and leases are not eligible;
(l) The investment shall not refinance or restructure an existing loan;
(m) The investment shall not finance ineligible expenditure;
(n) The investment shall not finance expenditure items that receive support from another ESIF or EU
instrument, or support from the same ESIF instrument under another operational programme.

The eligible investees shall not have a substantial focus on one or more Restricted Sectors. Such Restricted
Sectors are as set out in the “Guidelines on the EIF Restricted Sectors” published on the EIF website.

Place of business of SMEs – Fund shall only invest into enterprises that have an establishment or branch in EU.

The resulting investments by the invested enterprises that have an establishment or branch in Estonia should be primarily located in EU.

Private Investors – Private Investors shall be deemed to be any investors which (i) are economically and structurally independent from the fund manager, and from any entities and/or individuals connected thereto, (ii) are economically and structurally independent from the eligible beneficiaries where an Investment is made, and from any entities and/or individuals connected thereto, and (iii) in the reasonable determination of the Fund Manager, are normal economic operators (i.e. investors operating in circumstances corresponding to the market economy investor principle in a free market economy, irrespective of the legal nature and ownership structure of such operators, to the extent that they bear the full risk in respect of their investment). Upon the creation of a new company, private investors, including the founders, are considered to be independent from that company.

Reporting – The fund manager shall provide Estonian Finance Inspection (FI) with periodical information in a standardised form and scope as per Invest Europe (formerly known as EVCA) guidelines for reporting, in compliance with FI regulations, as tobe specified in the Operational Agreement.

Monitoring and Audit – The fund manager and the investee companies shall agree to keep records as required under FI rules and to allow and to provide access to documents related to the Financial Instrument for the representatives of the European Commission (including the European Anti-Fraud Office (OLAF)), the Court of Auditors of the European Communities, EIF, Managing Authority and any other authorised bodies duly empowered by applicable law to carry out audit and/or control activities. To that effect, the fund manager shall include appropriate provisions in each investment agreement.

Fund’s due diligence before investments – The fund manager will make investment decisions based on each investment’s business plan, which should contain product description, turnover and profitability calculations and forecasts, previous assessment of project viability, as well as each investment’s clear and real exit strategy.

Additional features of the Financial Intermediary – The fund manager will manage the fund based on commercial principles. Investors’ representatives shall be appointed in appropriate advisory committee structures to review inter alia fund corporate governance. In the management of the fund, the fund manager shall apply best practices, inter alia considering guidelines developed by Invest Europe and ILPA, and shall perform controls as required by the public nature of FoF investment.

Fund Manager – The fund manager must be independent and must be in a position to take the management and investment decisions independently, in particular without the influence of investors, sponsors or any other third party which is not integrated in the structure. The fund manager will typically comprise a team of experienced professionals, acting with the diligence of a professional manager and in good faith, operating according to best industry practices, complying with professional standards issued by the FI or other equivalent organisation.
Preferred fund managers shall have a strong network and partnership with international players.

Additional requirements – When selecting a financial intermediary, the selection panel shall satisfy itself that this intermediary fulfils the requirements of Art. 7 of Delegated Regulation 480/2014.
The fund manager shall ensure compliance with applicable law, including rules covering the ESIF and relevant national law and regulations, state aid, money laundering, the fight against terrorism and tax fraud. The fund manager, may, in line with its internal rules and procedures and particularly in the cases where fraudulent behaviour is suspected, be required to perform monitoring checks at the level of the investee companies. The fund shall not be established and shall not maintain business relations with entities incorporated in territories, whose jurisdictions do not cooperate with European Union in relation to the application of the internationally agreed tax standards and shall transpose such requirements in its contracts with final beneficiaries.
The fund shall comply with relevant standards and applicable legislation on the prevention of money laundering, the fight against terrorism and tax fraud to which they may be subject. Funds (and subintermediaries) shall not be incorporated in territories whose jurisdictions does not co-operate with the EU in relation to the application of internationally agreed tax standards. Each applying Financial Intermediary may inquire about the status of a particular jurisdiction with EIF.

The fund manager shall refer to EIF Policies, in particular:
– Anti-Fraud Policy;
– EIF restricted sectors;
– Policy on Offshore Financial Centres & Governance Transparency;

published on the EIF website.

The fund will be required to return amounts invested which become affected by irregularities. For irregularities affecting amounts invested by the fund into target SMEs, the fund will be required to apply all applicable contractual and legal measures with due diligence for the purpose of recovering the relevant amounts.