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515 N. Flagler Drive

Suite P-300

West Palm Beach, FL 33401

INVESTMENT PHILOSOPHY

for

Commonwealth Capital LLC

 

Commonwealth Capital has been committed to empowering entrepreneurs on their journey of building their vision through a successfully capitalized business to achieve maximum value at M&A or IPO, since 1998.

 

We position ourselves as the advocate for the entrepreneur in their quest of seeking substantial amounts of capital in the highly fragmented, cutthroat, competitive, confusing U. S. private capital markets. Our efforts are performed by partnering with every level of small business service provider and capital sources from individual investors to the world’s leading Investment Banks seeking quality deal flow to invest in. The entrepreneur benefits through the standardization of process to properly navigate the U. S. private capital markets.  

 

While the securities details of our investment decision-making may be found in this policy manual, it is equally important to understand our philosophies of investment that guide our decision-making, made at our Investment Committee level.

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GENERAL

We seek ownership in sound, quality businesses run by quality people that can compound their earnings rapidly and pursue an ambitious path toward maximum market value through growing revenues and profitability. We focus on market-relevant ideas without a fixed concentration on market types. Throughout our process, we strive to make thoughtful, rational decisions based on our internal research and outcomes of businesses that have successfully completed our entire Financial Architect System™. By doing so, the entrepreneur creates and sells hybrid securities to us and/or our co-investors.

 

At the foundation of our strategy is a belief that if we effectively match investments with businesses that have successfully come through our Financial Architect System™ that are of higher-quality, fully scalable opportunities, then our portfolios should earn a notably outstanding return at liquidity with less fundamental risk over the short, medium and long-term.

 

WE FOCUS ON MAXIMUM LIQUIDITY VALUE

We believe investing through a lens seeking maximum liquidity value with an unusually expert perspective on companies that have successfully completed our Corporate Engineering Conservatory™ means moving us and our co-investors from unpredictable and unseen risks into the realm of understandable and more predictable outcomes. Moreover, investing in companies that have manifest value through the successful completion of our program means investing in the management and model of companies that are on a clear trajectory of profitability, growth and market success. Wall Street has proven throughout its history that those companies that have achieved the highest financial success at exit were properly engineered at their earlier stages, typically through institutional investor participation. However, the vast majority of entrepreneurs will not receive institutional investor capital nor participation in proper corporate engineering.  Our Corporate Engineering Conservatory™ serves as surrogate for those entrepreneurs.

WE'RE SELECTIVE

Entrance into our Commonwealth Capital Income Fund-I (CCIF-I™) is not a foregone conclusion for every company that completes our Financial Architect System™. We believe that founders who genuinely grasp the rationale in securities and proper financial modeling to GAAP compliancy and Wall Street standards, will make every possible effort to meet our investment matching criteria and qualifications. As such, we leave it up to the graduating entrepreneurs of our Financial Architect System™ to decide on the path they wish to take in obtaining the private market capital necessary for their company. When a company applies, and following our Investment Policy Statement, our Investment Committee will conduct its review, and any such application will be appropriately decided. 

TEAM APPROACH

Since our formation in 1998, Commonwealth Capital has never invested from an ivory tower, nor ever will. The securities, financial, legal, regulatory, accountingand M&A industry expertise of our Investment Committee members and Company leadership, extend well over 200 years in aggregate. While we have taken full advantage of the advance of technology with our platform across automation, intelligence, decentralization, and predictive analytics, every investment decision we make from our Commonwealth Capital Income Fund-I is ultimately made through a humanistic approach and team action. While we each bring diverse backgrounds and experiences, we share our company principles and values in seeing every entrepreneur's success and the joint success of all our partnerships. This unique convergence of thought, expertise, and opinion around a single set of values results in the best possible outcomes of asset assignment for investment.

Philosophy
INVESTMENT POLICY STATEMENT

for

Commonwealth Capital Income Fund I

 

I.      Purpose

The purpose of Commonwealth Capital’s Investment Policy Statement (IPS) is to establish guidelines for the investable assets to be included (the Portfolio) in our VC Fund; Commonwealth Capital Income Fund-I, LLC (CCIF-I).  This document shall apply to the Investment Committee, as well as all Investment Consultants and/or Fund Managers hired to assist with the management of the Portfolio. We may invest directly in companies that have pre-qualified for inclusion into our VC Fund; Commonwealth Capital Income Fund-I, LLC (CCIF-I) buy purchasing the securities they have created through matching programs as outlined below.

II.     Investment Tenets

The basic tenets upon which the Investment Policy Statement is based include the following protocols:

  • Filtration is accomplished through the Financial Architect System™.

  • Preliminary Due Diligence is accomplished through our matching program, which is specifically designed to further our due diligence as the friends and family of the issuers invest, further assuring the integrity of the principals of the issuing company.

  • Secure the investment amount through liquidation rights as much as possible;

  • Return of the investment principal as quickly as possible;

  • To obtain a positive rate of return on the investment;

  • Diversify our investment portfolio holdings;

  • Introduce portfolio-company to broker dealers for engagement to further assure deflection of securities compliance from portfolio company onto the broker dealer.

III.      QUALIFICATION: INCLUSION ONLY INTO COMMONWEALTH CAPITAL INCOME FUND I

Prior to the pending official offering of securities, the portfolio-company candidate must have produced the required securities-offering document to the specifications outlined within this document, as well as internally within the instructions of the Production Component within the Financial Architect System.™

After that accomplishment, the portfolio-company candidates that  choose the OPT-IN protocol for inclusion into the firm’s VC Fund, Commonwealth Capital Income Fund-I and have achieved a Diagnostics Rating which is acceptable to our firm’s Investment Policy Committee, the portfolio-company candidate shall go through a final due diligence checklist to be presented to, and voted on, by the Investment Policy Committee for inclusion into Commonwealth Capital Income Fund-I.

If approved for inclusion, the Executive Director of the Investment Policy Committee shall contact the portfolio-company candidate for executing the proper agreements for Commonwealth Capital Income Fund-I inclusion. Since our process of producing and selling hybrid securities, that take a first or forward lien position on the portfolio-company candidate’s assets, can save the portfolio-company candidate up to 70% of the Common Class A Voting equity, due to the proper construction and issuance of those hybrid securities, we feel entrance fee for inclusion into our VC Fund is more than reasonable. In addition, this policy puts our firm’s motivation directly aligned with the founders’ motivation for the portfolio-company’s successful exit with the least amount of equity dilution possible.  Therefore, if invited for inclusion into our Commonwealth Capital Income Fund-I, the portfolio-company candidate shall sell Commonwealth Capital:

  • 2% of the Authorized Common Equity, whether denoted in Common Class A Voting Shares “shares” (CORPS) or Common Class A Voting Membership Units “units” (LLCs) at a price of $0.01 a share or unit, no matter the size of the pending securities offering;

  • Ten Thousand U.S. Dollars’ worth of Note(s), RFC(s), Share(s) or Unit(s) of the securities to be issued at a price of $0.01 a Note, RFC, Share or Unit, to be sold through the subsequent bona-fide securities offering, no matter the size of the pending offering.   

 

IV.    QUALIFICATION:  A DIRECT CASH INVESTMENT

Once the portfolio-company candidate has been included into Commonwealth Capital Income Fund-I, it becomes a Portfolio Company. Once the Portfolio Company has raised a minimum of $250,000 from personal and professional investor contacts using the securities-offering documents, produced within the Financial Architect System™ to one of the following two specifications, the Portfolio Company becomes eligible for consideration by Commonwealth Capital’s Investment Policy Committee for the capital matching program. The capital matching program currently matches up to a minimum of $250,000 or maximum of $500,000 of the securities offered, AS SPECIFIED BELOW:  

V. INVESTMENT OBJECTIVES & CONSTRAINTS

A.  ROYALTY FINANCING CONTRACTS (RFCs)

Objective. To invest in Royalty Financing Contracts as defined within the Financial Architect Seed or Development Capital Producer™.

  • Security. First Lien on Accounts Receivable.

  • Expected Return: Two (2) times the investment cost basis within 36 months.

  • Minimum Amount of the Royalty Financing Contract Offering: $1,000,000.

  • Minimum Matching CCIF-I Commitment: $500,000.

  • Maximum Matching CCIF-I Commitment: $1,000,000.

B.  CONVERTIBLE NOTES with COMMON EQUITY KICKERS

Objective. To invest in 1-year Senior Secured Seed Capital Convertible Note “Notes” with Common Class A Voting Equity Kicker as defined within the Financial Architect Seed Capital Producer™.

  • Security. First Lien on all Assets.

  • Interest Rate. Notes to pay an annual interest rate determined by the Long-term composite 10-year U.S. Treasury Bond Rate plus 3% or more at the time of Note issuance, payable quarterly.

  • Maximum Maturity. Notes, issued by the company, are to mature no more than 1 year from the date of the Seed Capital Convertible Notes offering’s original start date.

  • Expected Return: Projected annualized ROI 20% or more.

  • Minimum Amount of the Note Offering: $1,000,000.

  • Minimum Matching CCIF-I Commitment: $250,000.

  • Maximum Matching CCIF-I Commitment: $500,000.

  • Interest Rate. Notes to pay an annual interest rate determined by the Long-term composite 10-year U.S. Treasury Bond Rate plus 3% at the time of Note issuance, payable quarterly.

  • Maximum Maturity. Notes, issued by the company, are to mature no more than 1 year from the date of the Seed Capital Convertible Notes offering’s original start date.

C.  CONVERTIBLE PARTICIPATING CUMULATIVE CALLABLE PREFERRED EQUITY

Objective: To invest in Convertible Participating Cumulative Callable Preferred Equity as defined within the Financial Architect Development Capital Producer™.

  • Security. First Lien on all Assets. Use of Proceeds from Preferred Equity offering is to retire any and all debt.

  • Stated Dividend Rate. Notes to pay an annual interest rate determined by the Long-term composite 10-year U.S. Treasury Bond Rate plus 2% or more at the time of Note issuance, payable quarterly.

  • Minimum Call Protection Date. The Convertible Participating Cumulative Callable Preferred Equity minimum Call protection date must be no less than 4 years.

  • Expected Return(s). Projected annualized ROI 20% or more on Call assumption, 30% or more on assumed company sold Private Market Valuation; and or 40% or more on assumed company sold Public Market Valuation.

  • Baseline Amount of the Preferred Equity Offering: $5,000,000.

  • Minimum Matching CCIF-I Commitment: $500,000.

  • Maximum Matching CCIF-I Commitment: $1,000,000.

IMPORTANT NOTE: All IRR calculations are easily accomplished simultaneously with the CapPro™ within the Financial Architect® program chosen.

 

D.  INVESTMENT POLICY CONSTRAINTS: The Portfolio is also subject to the following constraints:

  1. Geographical Reach. The Portfolio shall only invest in U.S. based companies.

  2. Mandatory Securities Offerings. The Portfolio shall only invest in companies that management believes can conduct two consecutive securities offerings in compliance with federal and state(s) securities laws, rules and regulations.

  3. Financial Projections. The Portfolio shall only invest in companies that project a breakeven point by year 3 in their pro forma financial projections.

  4. Additional. The Portfolio shall only invest in companies that agree to the following:

    • Fiscal Year: Unless otherwise agreed to in writing by Commonwealth Capital, the fiscal year and fiscal quarters for the portfolio-company shall be based on a normal calendar year.

    • Accounting: During the period of Note holding, the books and records of the portfolio-company shall be compiled by a certified public accounting firm and audited once the Preferred Equity financing has closed. Annual, as well as quarterly financial statements are to be sent to Commonwealth Capital within 30 days of the close of each period.

    • Corporate Governance: Portfolio company shall hold normal annual shareholders’ meetings, which will include preferred equity holders. Commonwealth Capital does not request a board of directors (corp.) seat or managing member (LLC) position.

E.  Description of Responsibilities

The responsibilities of each party involved in managing the portfolio are defined below:

  • Investment Committee:  Each Investment Committee Member shall attend monthly portfolio meetings through online video conferencing or as otherwise specified by Commonwealth Capital.  The Investment Committee shall provide written investment instructions to the Fund Manager, who shall implement the instructions.

  • Fund Manager: Fund Manager shall follow the written directives of the Investment Committee.

  • Fund Manager: Fund Manager shall manage Fund Manager’s department within the budgets as established by Commonwealth, and in relative concert with the pro forma financial projections, as amended from time to time by Commonwealth.

 

F.  Fiduciary Duty

In seeking to attain the investment objectives set forth in the Investment Policy Statement, the Prudent Investor Rule shall apply, which states that the Investment Committee is under a duty to Commonwealth Capital Income Fund I to invest and manage the Portfolio as a prudent investor would, as described below:

  • The exercise of reasonable care, skill, and caution that is applied to investments not in isolation but in the context of the Portfolio and as part of an overall investment strategy, which should incorporate risk and return objectives reasonably suited to the Portfolio.

  • In making and implementing investment decisions, the Investment Committee, directed through the Fund Manager, has a duty to diversify the Portfolio unless, under the circumstances, it is prudent not to do so.

  • In addition, the Investment Committee must:

    • Conform to fundamental fiduciary duties of loyalty and impartiality;

    • Act with prudence in deciding whether and how to delegate authority and in the selection and supervision of agents (i.e., Investment Consultants and/or Fund Manager[s]);

    • Incur only costs that are reasonable in amount and appropriate to the management of the Portfolio and in relative concert with the budgets within the pro forma financial projections, as amended, by Management of Commonwealth Capital.

The Prudent Investor Rule is based on the following five basic principles:

  • Sound diversification is fundamental to risk management and is therefore ordinarily required of the Investment Committee;

  • Risk and return are so directly related that the Investment Committee has a duty to analyze and make conscious decisions concerning the levels of risk appropriate to the purposes, distribution requirements, and other circumstances of the Portfolio;

  • The Investment Committee has a duty to avoid fees, transaction costs, and other expenses that are not justified by needs and realistic objectives of the Portfolio;

  • The fiduciary duty of impartiality requires a balancing of the elements of return between production of income and the protection of investment principal;

  • The Investment Committee has the duty and the authority to delegate as prudent investors would.

 

G.  Conflicts of Interest

Any person or organization involved in the oversight or management of the Portfolio (a Covered Party) should adhere to the following guidelines regarding conflicts of interest:

  • No person on the Investment Committee, including the Fund Manager, shall have a direct or indirect ownership interest in any portfolio-company candidate prior to funding.

    • Direct interest shall be constituted by an ownership interest in a portfolio-company or portfolio-company candidate by an Investment Committee Member (or intimate or extended family members) or trust on their behalf.

    • Indirect interest shall be constituted by an ownership interest in another entity that has an ownership interest in a portfolio-company or portfolio-company candidate by an Investment Committee Member’s (or intimate or extended family members) or trust on their behalf.

 

H.  Asset Allocation Guidelines

The Portfolio’s asset allocation strategy, including permissible asset classes and applicable guidelines, is described below.

  • Strategic Asset Allocation: Strategic Asset Allocation based on expected returns, volatility, and the unique risk of each portfolio company and candidate. There is no allocation based on any specific criteria or need of any individual investor in the Fund.

  • Tactical Asset Allocation: Tactical Asset Allocation: Strategic Asset Allocation based on expected returns, volatility, and the unique risk of each portfolio-company and candidate. There is no allocation based on any specific criteria or need of any individual investor in the Fund.

  • Asset Class Constraints: The weighting of each asset class shall be constrained within +/- 20 % of the Strategic Asset Allocation targets.  This constraint serves as a trigger to rebalance the portfolio, as well as a constraint within which tactical shifts to the portfolio must remain.

  • Rebalancing:  A rebalancing of the portfolio shall take place if the weighting of any asset class is outside of the Asset Class Constraints, annually or when prudent.  A rebalancing of the portfolio should bring the weightings of each asset class listed above back in line with its Strategic Asset Allocation target, unless there has been a tactical change within an asset class, for which the rebalancing shall bring the weighting back to the target Tactical Asset Allocation for that asset class.  Various costs of rebalancing will be considered prior to rebalancing the entire portfolio.

 

I.  Asset Class Definitions

U.S. Fixed Income: Non-Investment Grade Debt

  • Eligible Securities:

    • Seed Capital Convertible Bridge Notes with Equity Kickers

  • Excluded Investments:

    • Debt in mineral extraction companies – as they are not eligible for Regulation D Rule 504 or Title III exemption from registration.

    • Any company involved in improper use of media, film, press or otherwise determined by the Investment Policy Committee. Improper use would include but not necessarily be limited to: pornography, political propaganda, etc.

 

J.  Monitoring Portfolio Investments & Performance

  1. The portfolio company shall prepare an annual report and quarterly performance reports, which should include the company’s financial performance, with the appropriate financial statements compiled by a CPA firm, and securities compliance report addressing all applicable guidelines defined in the Investment Policy Statement and prepared by portfolio company’s securities lawyer.

  2. Fund Manager(s) may be terminated for any of the following reasons:

    • Collusion with any portfolio company that is in conflict with any of the provisions of the Investment Policy Statement.

    • Breach of any provision within this Investment Policy Statement.

    • Breach of any provision within the Executive Compensation Agreement in regard to portfolio-company confidentiality. 

 

K.  Investment Policy Statement Review

  1. Any of the following shall trigger a review of the Investment Policy Statement:

    • A change to the Fund’s Investment Objectives.

    • In the absence of any change to the Fund’s Investment Objectives, the Investment Policy Statement shall be reviewed by the Investment Policy Committee annually.

 

INVESTMENT POLICY STATEMENT SUBJECT TO CHANGE AT MANAGEMENT’S

SOLE DISCRETION AND WITHOUT NOTICE.

– END OF INVESTMENT POLICY STATEMENT –

 

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For further information, please email support@commonwealthcapital.com. We are always available to help guide your efforts in participating in our programs.

[1] IRR calculations per the CapPro™ in use within the Financial Architect System™ program chosen.

Policy Statement
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