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Wall Street Funding Solutions For Main Street Companies




The PrincipalProtector Strategies and Procedures


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There are strategies that can help investment professionals invest in new ventures and get results that are more predictable and less volatile.

If you were investing in a new venture and had the option of buying one share of stock for ten dollars with principal protection or two shares with no protection of principal, what would you do? Take the protection or the risk?  Venture Funding Advisors (VFA), using the PrincipalProtector™ principal protection strategy, makes that option possible because they provide financial insurance that can guarantee to return an amount equal to 100% of the principal invested in an equity or debt funding.

The PrincipalProtector™ Principal Protection Strategies

PrincipalProtector™ utilizes guaranteed insurance products as collateral to enhance debt and equity funding transactions for investment professionals and entrepreneurs. The strategies provide a hedge or principal protection allocation model. The strategies provide investment professionals and lenders with asset allocation tools that return an amount equal to their principal loan or investment in speculative funding arrangements, real estate transactions or business transactions. Here are just a few of the strategies available to clients.

Irrevocable Insurance Trust Strategy

An irrevocable insurance trust has proven to be an effective estate-planning tool and can also provide principal protection for investment professionals while facilitating the acquisition of capital for entrepreneurs. Generally, when using a trust for principal protection, one-half of all monies raised through the debt/equity funding is directed into the applicable Irrevocable Insurance Trust.

This money is used to purchase contracts of insurance that provide a fixed guarantee from top rated insurance companies.  The lender(s) or investment professional client(s) providing the funds is usually the initial beneficiaries of the respective Irrevocable Insurance Trust.  The terms of the guarantee are fixed upon funding of the trust and are non-contestable during the guarantee period.  At the end of the guarantee period, the trust distributes the proceeds to all parties that hold or own a beneficial interest.

The Guaranteed Contract of Insurance held in the trust is owned entirely by the lender(s) or investment professionals’ client(s). The beneficial interest in the trust has immediate value on the day the trust is funded. With assignment provisions, the beneficiary has the capacity to borrow against or transfer outright the beneficial interest at any time during the trust period. The trust period and maturity is dependent on the rates provided by the insurance company at the time of funding.

When providing a loan with the Insurance Trust, the lender receives multiple benefits based on the fact that the loan will be at least two times the traditional amount. The increased loan provides the lender with additional earnings from interest and additional asset value from the increased loan. In addition, since the lender also owns the interest in the trust, the lender may have approximately 50% more asset value than under a traditional loan at the time of funding. 

The Insured Collateral Strategy

The Insured Collateral Strategy is used primarily to provide collateral to guarantee a loan in a debt transaction. Investment professional clients or institutions, brought forth by either the Client Company or investment banking firm, purchase guaranteed contracts of insurance (GIC) which mature in 10 - 12 years. They are insured/protected against

loss of their principal plus they may actually receive gains from accumulated tax deferred interest accumulation. The annuity underwritten by an A.M. Best Aa or better insurance company is subsequently assigned to a bank as collateral, whereby the bank will lend approximately 50% of the face value of the contract of insurance to the client company.

The assignment of the annuity to the bank is on a deficiency basis, whereby the guaranteed contract of insurance can never owe back to the bank an amount greater than the original loan amount less payments received (interest and principal). Cash value withdrawals may be made by the insurance policy holder up to 10% per year, which can either be taken in cash or used to keep the bank loan current should the company have a problem keeping it current.

Normally the guaranteed contract of insurance is for 10 - 12 years and written on a "bullet/end of term" basis. This structure, given investment returns of approximately 7% allows the client to obtain 100% of their investment principal, not withstanding their stock holdings.

The GIC purchasers can negotiate with the client company for a fee or revenue share for basically providing the collateral to the bank or lender that is making the loan to the client company.

Normally, this transaction will cost the client company no stock or less stock as compared to a straight equity transaction.

The benefit to the client company is that they are able to "reach" capital sources on a debt basis that would otherwise not be available to the company, and on cheaper terms. This is an excellent device for risk adverse investment professionals, bridge financing, or permanent forms of financing.

The paragraphs that follow outline the common steps for determining and structuring a PPT Strategy that is most appropriate for your situation.

The PrincipalProtector™ strategy (PPS) was developed to help provide safety and security for investors investing in new or emerging companies. This strategy encourages investors to invest in ventures that they previously would have avoided because of the risks involved. Entrepreneurs that have utilized similar PrincipalProtector™ strategies have found it easier to raise capital because of the benefits offered to investors.

What is the PrincipalProtector™ Strategy (PPS)?

The PPS does not use surety bonds, bank guarantees or some type of dubious foreign insurance leverage instrument often referred to as a Form 4081. The PPS is based upon the concept of setting aside a portion of invested capital to provide a hedge, or insurance, against loss or total loss if a venture is unsuccessful. The capital that is set aside is sometimes referred to as a sinking fund. This sinking, or side fund, is invested in insurance products that offer a fixed and variable rate of return that will enable this fund to eventually grow to an amount equal to the original principal investment.

In the past, investment bankers utilizing this sinking fund concept have invested these side funds in zero-coupon bonds and other conservative fixed products. Although these strategies offer an attractive asset allocation model there are several disadvantages. The first is if the fund is not structured or segregated properly it is subject to bankruptcy or attack by creditors and it lacks tax favorable portability or transferability for exchange or option purposes. Second, the investment products utilized in the sinking fund either provide low yields to maturity or they are subject to current taxes or accretion… all of which extend the time period of the fund to reach the required or desired maturity value.

The concept of setting something aside, or establishing a reserve or accumulation fund as a form of insurance is nothing new. The first recorded case of a hedge or reserve fund is told in Genesis 41:46-54 where Joseph stored up grain in Egypt during the years of plenty to provide for the years of famine. Investment professionals have been using reserve funds to provide additional security for investors and credit enhancement for lenders for some time.

Note:  The Rule of 72 goes back to Biblical days told in the Gospels of story The Parable of the Talents where the master gave his servants money and the servants were instructed to “do business” with the money entrusted to them.  The element of time was applied, as the man goes to another country, stays a long time, and then returns.  It states two of the servants doubled the money his master entrusted to him.

So what makes the PPS unique?

The PPS is unique because it utilizes a trust and insurance collateral to segregate and/or guarantee the value of the side fund or loan. The funds are invested in guaranteed contracts of insurance offered by top-rated Aa and better insurance companies rather than lower yielding products that are subject to greater market risk. The PPS also offers transfer options that provide significant benefits for investors and entrepreneurs.

What is a trust?

A trust is a fiduciary relationship in which property is held by one or more persons for the benefit of one or more persons. The person creating a trust is generally called the grantor. The grantor typically executes a trust document and transfers property to the person who will be responsible for administering the terms of the trust who is called a trustee. The person for whose benefit the trustee administers the trust is called a beneficiary. The property held in trust is often called the trust corpus or trust assets.  The trust may provide for management of property, accumulation or distribution of income to beneficiaries, distribution of trust assets to beneficiaries, withdrawal powers for beneficiaries and other powers of appointment.

The grantor typically creates a trust by executing a trust document and transferring property to the trustee. The trust is created for the benefit of beneficiaries.

A trust must have a trustee of legal capacity.  A trust must have assets; that is, it must hold property.  A trust must have a custodian of the assets such as a bank or other legal entity.  A trust must have one or more beneficiaries of legal capacity or the trust does not come into existence. A beneficiary may be either a specified person, a member of some ascertainable class of persons, or a charity.

How does the PrincipalProtector™ Insurance Trust Strategy (PPS) work?

The trust document, which explains the responsibilities of the parties, is a legal document.  At the investor's option, an entrepreneur utilizing the PPS agrees to set aside a portion of an investor's investment and deposit it into a trust which purchases guaranteed contracts of insurance. The insurance contracts guarantee to pay the investor an amount equal to his or her principal investment in a specified number of years whether or not the entrepreneur's company succeeds or fails.

Unlike zero-coupon bonds and other financial instruments, guaranteed contracts of insurance offer tax-deferred accumulation and higher yields thereby accelerating the trust's growth. A custodian or bank holds the trust, and the investor’s beneficial interest in the trust is not subject to bankruptcy or creditor claims of other investors, the entrepreneur or the company issuing its shares. Additionally, the beneficial interest in the trust can be transferred to accommodate a number of investor-entrepreneur benefits without liquidating the guaranteed contract of insurance and precipitating unfavorable tax consequences.

The PPS eliminates the worst-case investment scenario... full loss of principal with no return or income. It enables investors to have the best of both worlds...safety and potentially significant returns from new venture investments. Additionally, the flexibility of the trust allows for numerous exit strategies by the investor. These options and benefits encourage investors to invest in ventures that heretofore they might have avoided.

The PPS offers flexibility

Once established, the trust flexibility provides for the assignment of beneficial interest, assignment of trustee, change in custodian and early exit strategies.

Some of the many early exit strategies include a stock exchange option for investors, a deferred compensation option for entrepreneurs and early trust distribution options for the benefit of both parties.

“The real genius of the program is a provision that lets investors opt out of the trust and double down on their investment at the original share price if the start-up looks like it's going to succeed. It almost sounds too good to be true."  Well-known Broker Dealer from an Investor’s Business Daily article.

How can I use these strategies?

You could develop strategies similar to the PPT and implement a trust and purchase guaranteed contracts of insurance or you can utilize our consulting services and save a lot of time and money. Over two years and $2 million went into developing and perfecting the documents and procedures for the PPT and the due diligence requirements and approval of the regulatory authorities, the financial services industry and the media have been met.

You might be able to do it a little cheaper and a little faster than $2 million and two years, but are you willing to face the hassle of dealing with regulatory issues and authorities? But why spend your time trying to reinvent the wheel and dealing with regulators when our professionals can help you implement the right principal protection strategy and give you the marketing and sales support you need to start your funding process in about a week for only $5,000. We can also help you structure your funding deal with a private or public placement memorandum with a highly marketable deal structure.

Additionally, we can save you the time and expense of finding a trustee, third party administrator, custodian and insurance provider. We also help investors save money on trustee, administration and custodial fees. 

Our PrincipalProtector™ Trust offers a turnkey principal protection strategy in a fraction of the time and at a fraction of the cost that you could do it for on your own. It just makes sense to utilize the PPT proven strategies in funding transactions. We want to help investors and entrepreneurs get together.

We are helping investors and entrepreneurs to fund new ventures 

Investors and entrepreneurs have successfully utilized the PPT to fund new ventures, and the program has been featured and recognized in the financial media and promoted by Inc, Fast Company, Entrepreneur and The Wall Street Journal. 

Jed Graham in a December 19, 2001 article in Investor’s Business Daily said, “The plan gives ultimate safeguard: money-back guarantee. And now, despite the risk-averse funding climate, the  program, is already helping start-up firms raise cash.” 

The program is also appealing to Angel investors, venture capital firms and investment professionals. Bruce Blechman, co-author of Guerrilla Financing and founder of The Capital Institute, America's largest financing advisory firm for small business says, "The program is the first I've seen that takes the risk out of risk capital.”

The PrincipalProtector Program connects entrepreneurs and investors

By proactively promoting and informing investors of the options they have through the utilization of the PPS, we significantly increase the funding resources for entrepreneurs and provide new investment opportunities for investors.  No other organization has as powerful of a proven strategy to serve as a compelling catalyst in bringing entrepreneurs and investors together.

The PPS strategies are being exclusively marketed and distributed by Venture Funding Advisors (VFA)

VFA consultants and affiliates also serve as investment banking advisors and provide funding products, tools and resources for new ventures and opportunities for investors. By implementing an PPT strategy a business can get connected to an international network of capital resources or investment opportunities.

Insurance Trust Implementation Procedures

What is the PrincipalProtector™ Insurance Trust Strategy

The PrincipalProtector™ Insurance Trust strategy offers a financial capital protection product that provides an insurance guarantee and utilizes the formation of a collateral trust backed by insurance to guarantee a loan or an amount equal to the principal investment in a financial transaction.  The PrincipalProtector™ program offers investors and lenders safety or a guaranteed return of principal when investing in speculative funding arrangements, real estate transactions or business transactions.

Generally, one half of all monies raised through the debt/equity offering by an PrincipalProtector™ client company is directed into the applicable Irrevocable Insurance Trust.  This money is used to purchase the Contract of Insurance that provides the guarantee.  The lender(s) or investor(s) providing the funds will be the initial beneficiaries of the respective Irrevocable Insurance Trust.  The terms of the guarantee are fixed upon funding of the trust and are not contestable during the guarantee period.  At the end of the guarantee period, the trust distributes the proceeds to all parties that hold or own a beneficial interest.

The guarantee provided under the PrincipalProtector™ strategy is a Guaranteed Contract of Insurance held in a collateral trust that is owned entirely by the lender(s) or investor(s).  The beneficial interest in the trust has immediate value on the day the trust is funded.  With the assignment provisions, the beneficiary has the capacity to borrow against or transfer outright the beneficial interest at any time during the trust period.  Generally the trust period will be for a period of 10 – 12 years, for the doubling of funds to occur.  The duration is dependent on the growth of the funds.

When providing a loan with the PrincipalProtector™ strategy, the lender receives multiple benefits based on the fact that the loan will be at least two times the traditional amount.  The increased loan provides the lender with additional earnings from interest and additional asset value from the increased loan.  In addition, since the lender also owns the interest in the trust, the lender may have approximately 50% more asset value than under a traditional loan at the time of funding.  Equity investors may also receive the beneficial asset valuation treatment when the Insurance Trust secures their investment.

Steps involved in Implementing  the PrincipalProtector Insurance Trust Strategy

PrincipalProtector Strategies Consulting Agreement is completed and the appropriate fee is paid. Upon receipt of the Strategies Consulting Agreement and payment of the consulting fees, VFA will prepare the applicable PrincipalProtector Trust Agreement. 

The consulting agreement is an agreement between the company receiving the funds (borrower) and VFA  Any other party that is involved in the transaction that is not an employee of the company/borrower must sign an PrincipalProtector confidentiality agreement.  This applies to lenders, intermediaries and advisors such as attorneys and accountants. 

VFA or its affiliate shall receive due diligence information about the company receiving funds.  Such information shall include business plans, draft loan agreements (if a lender), offering documents and subscription agreements (if equity), collateral information (if debt) and any other pertinent information that will be needed to conduct a presentation to the Fund.

For a lending transaction, the company that is borrowing the funds will have to demonstrate that there is sufficient collateral (temporary or permanent) available to make the initial loan.  This information shall be required as part of the due diligence information.  After the loan is closed, the proceeds will be used to fund the Guaranteed Contract of Insurance that is placed in the collateral trust with the lender as beneficial owner.  Upon funding of the trust and the purchase of the insurance, the collateral used to close the loan may be released (or reduced if needed to protect the lender for payment of interest).

For a lending transaction, VFA or its affiliates shall provide the lender with addendum provisions that need to be included in a loan document in order to authorize the Insurance Trust implementation and to discuss the treatment of any principal payments made by the company receiving the funds.

VFA shall make an application for the Guaranteed Contract of Insurance to the insurer.  The presentation shall include the due diligence information obtained from the client. Insurance Companies providing products for the PrincipalProtector Insurance Trust Strategies are rated “excellent” or better by insurance rating bureaus, have in existence sufficient reinsurance arrangements to cover any Insurance Trust transaction and must be members in the appropriate State Insurance Guaranty Fund.  The lender or the investor will receive any requested due diligence information regarding the Insurance Company to be used in the transaction.

In general, when the presentation to the insurance company includes sufficient due diligence information, the review and acceptance by the insurance company may be completed in as little as 72 hours and possibly less.  Generally, the presentation will be conducted at the end of the lenders review process.  VFA or its affiliates will work with the lenders during the process to make sure that terms of the loan and terms of the trust arrangement included in the PrincipalProtector Strategy are consistent

The Insurance Company providing the Guaranteed Contract of Insurance that will be placed in the trust will issue a commitment letter to the lender or investor within 24 hours prior to fund closing. The commitment letter shall detail the terms of the Guaranteed Contract of Insurance including the duration, the amount needed to fund the trust and the amount paid at maturity.

VFA or its affiliates shall coordinate any necessary communication needed between the insurance company and the lender or investor.  All questions concerning the details of the PrincipalProtector Strategy and trust implementation will be addressed prior to closing.  No funds will be transferred until the lender/investor understands the transaction and signs a statement to that effect.  The statement will be attached to the appropriate trust agreement as Schedule A.

Prior to closing, the Trustee of the applicable Irrevocable Insurance Trust shall establish a bank account at the lender’s institution or at a location as directed by the party providing the funds.

Prior to closing, the Trustee shall be listed as an authorized representative to provide any instructions to the escrow agent that handles funds at the time of closing.

Upon closing of the loan, the first funds to be transferred under any arrangement shall be the amount needed to fund the trust acquisition of the Guaranteed Contract of Insurance.  The appropriate amount (that is determined prior to closing) is transferred to the Trust Bank Account.  The funds are immediately transferred to the Insurance Company’s bank account via wire transfer.  Assuming that the funds are received by 10:30 AM EST by the Insurance Company Bank, the Contracts of Insurance and the related guarantee will be effective upon receipt. 

Upon confirmation of the receipt of the appropriate funds by the Insurance Company, the Insurance Trust and Guaranteed Contract of Insurance is in place.  As such, other funds will be distributed according to prearranged terms.  Such other funds shall include IH fees, custodial fees, administration fees, bank fees, other broker fees and any other prearranged fees.  The net funds remaining shall be available to the borrower in accordance with the terms of the loan agreement.

Immediately after the closing, VFA or its affiliates will contact the insurance company in order to receive formal documentation regarding the Guaranteed Contract of Insurance.  The Custodian of the Assets will maintain the actual Guaranteed Contract of Insurance in the Trust.  The Custodian of the Assets shall be responsible for handling all funds that are received at maturity.  Such funds shall be distributed to beneficiaries at the time of distributions in accordance with the trust terms and at the direction of the Trustee and Third Party Administrator.

IH will provide all beneficiaries of the trust with a copy of the Guaranteed Contract of Insurance, trust agreement with the pertinent Schedule A and any other pertinent information supporting the beneficiary’s beneficial interest in the trust.  The beneficiary shall also receive information concerning the assignment provisions and assignment procedures.

In a situation where there is a sole beneficiary, the beneficiary shall have the ability to request changes in the Trustee.  Depending on the facts surrounding the transaction and the appropriate parties involved, there may be a possibility to change the Custodian of the Assets of the Trust.  Any of these changes would occur after the initial close of the transaction.

Participating Subordinated Guaranteed Convertible Debenture

The PrincipalProtector™ Convertible Debenture (IHCD) is a funding instrument that offers guarantees and opportunities for investors while providing a variety of flexible financing options for entrepreneurs seeking capital.

The IHCD alleviates issues regarding the need to raise multiples of capital because funds raised in excess of working capital provide the collateral for retiring the debenture (paying off the loan) or converting it to equity.  Additionally, if interest on the debenture is structured as a participation in revenues, both the investor and the company are afforded attractive cash flow options.  Specifically, the investors can benefit from increases in revenues while the company is not strapped with interest payments during startup or during the absence of revenues.  A win-win situation.

Investor Benefits

+ Virtually no risk plus high yield potential
+ Guaranteed return of principal -  loan

+ repayment is guaranteed by the
+ PrincipalProtector™ Trust.
+ An assignable interest in the debenture or
+ collateral value of the trust.
+ Competitive interest earnings or participation
+ in revenues which provides immediate cash
+ flow.
+ Convertible to common stock in the event of
+ sale or IPO.

Entrepreneur Benefits

+ Debt not equity.
+ Loan is paid off by PrincipalProtector™ Trust.
+ No loss of control.
+ Subordinated to bank debt which does not limit
+ other borrowing or financing.
+ Payment of interest at a guaranteed rate or
+ flexible rate as a percentage of revenues.
+ Investor equity triggered only by sale or IPO of
+ the company.
+ Does not limit additional stock or equity
+ offerings


For More Information on Products, Services and
Schedule of Fees, Contact:

James R. Nash
Venture Funding Advisors, LLC
jrnash@VFundAdvisors.com

fax: (888) 853-9387

Venture Funding Advisors, LLC (VFA) does not sell securities or provide documents for use in the sale or solicitation of securities. Any materials provided or produced by VFA and its affiliates for use by clients are examples and specimens for illustrative purposes only.  Clients are advised to have all documents reviewed by qualified legal counsel. VFA, its affiliates and alliance partners make no guarantees or warranties express or implied that VFA clients will obtain any funding as a result of the use of its products or services

Note:  PrincipalProtector Trust is a 2nd generation product licensed under InvestorProtector International, Inc.
and a wholly owned and exclusive product of Venture Funding Advisors, LLC

 

 

"Investment Banking & Business Development Solutions"

 


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