• Appropriate return on investment;
• Return of Capital;
• Risk management and mitigation strategies;
• Sensible Fee Structure;
• Term of Investment;
• Investment Liquidity; and
• Significant Investor Visa.
Because of the non-traditional profile of the Fund it is considered an alternate investment, falling broadly into the private equity category.
However, private equity investments are highly speculative in nature and are normally for capital gain purposes. The Fund is designed to be an alternate source of franchise funding and utilises equity holdings as an important component of its unique risk mitigation strategy. As such the Fund is considered to have a much lower risk profile than private equity funds.
Although the risk profile of the Fund is equivalent to, or lower than, that of direct small business lending, Elcano’s projections calculate an Internal Rate of Return as representing at least an appropriate return on investment for the risk profile of the Fund.
Because the return of principal is in the best interests of the Franchisee Operator, so as to keep their cost of investment to a minimum, to retain ownership of the Franchisee Entity, and to retain the value of their own investment into the Franchisee Entity, there is a high likelihood most Franchisee Operators will exercise their rights to redeem the Coupon Class shares via a share buy-back as soon as practicable.
Where a Franchisee Operator defaults on their obligations under the investment and the Fund receives majority ownership in the Franchisee Entity it will either (with the Franchisor):
1. Continue to run the Franchisee as a going-concern; or
2. Sell the Franchisee to another Franchisee Operator.
Both options allow for a residual value from which to recoup the investment.
The Fund applies a low Management Fee and Performance Fee tied to a high Hurdle rate.
Investment term, which is dependent on the terms of each Unit Class offered, can be as short as four years or up to seven years duration. The debt nature of each investment pool means that a Unit Class term can be set and completed with reasonable assurance as there is no need to wait for an exit event, as is the case with venture capital or private equity investments.
The unitised nature of the Fund permits the ability for investors to resell their units. Elcano will be working to establish a secondary market for units via the Franchise Marketplace. Other securitisation options will also be investigated.
The Elcano Franchise Fund 1 meets the compliance standards so as to be able to receive the Venture Capital/Private Equity investment component of the Significant Investor Visa requirements.
Please Note: The following information for the Elcano Franchise Fund 1 represents broad details of the structure of the fund. These details may vary for each unit class offering of the Fund. Due diligence should be undertaken before making an investment into the Elcano Franchise Fund 1.
1. Recruitment of franchisees was identified by 77% of franchisors as a significant challenge, making it the largest challenge for franchisors (Asia-Pacific Centre for Franchising Excellence 2013, Franchising Australia 2012, Franchise Council of Australia)
2. Asia-Pacific Centre for Franchising Excellence 2013, Franchising Australia 2012, Franchise Council of Australia.