Every once in a great while, something happens in life when things come together in a way that you just know the timing is perfect, the situation is ideal, and it’s time to act quickly.

The General Partner believes that this is one of those times. In today’s world, when politicians from both parties and a technology billionaire all agree and move swiftly to create the QOZ program to create an incentive to deploy capital gains in economically distressed areas of the United States, it is a unique event. Add in the fact that investors have significant capital gains and are now highly incentivized to deploy some of that capital into the most distressed areas of our country, and it is indeed a special time to be ideally located with the knowledge and expertise to act.

The Pearl Fund intends to provide investors unique access to private venture capital opportunities, identified and evaluated by an experienced team of successful entrepreneurs, while offering investors an opportunity to take advantage of a full suite of tax benefits offered under the 2017 H.R. 1, known as the Tax Cuts and Jobs Act (the “TCJA”). The General Partner will manage the Fund as a Qualified Opportunity Zone Fund and target early-stage, high-potential businesses that operate in federally Qualified Opportunity Zones. The Pearl Fund’s priority will be the growth of investors’ capital and realization of maximum tax benefits.

The Pearl Fund’s investment objective is to achieve capital appreciation through equity investments in companies located in areas designated as Qualified Opportunity Zones (“Investments”). The Fund intends to deliver market-leading investment returns (10X+) to investors by identifying promising investment opportunities, providing innovative capital solutions, and actively contributing seasoned management expertise to maximize long-term performance and value. The Fund’s portfolio will focus on early- and growth-stage companies that display the potential to scale effectively and are positioned to dominate a given market, and target an exit potential.

The Fund is targeted specifically for investors who want to leverage the tax benefits on capital gains from Qualified Opportunity Zone businesses, while benefiting from the potential upside of an early stage venture fund with the intent that all Portfolio Companies qualify as Qualified Opportunity Zone Businesses (“QOZBs”).

Note that, as with all investment funds, venture investing carries risks, and the Fund’s ability to achieve its return objectives is not guaranteed.

An investor can receive up to three tax benefits by investing capital gains in a QOF.

The first is temporary tax deferral on the capital gains reinvested in a QOF on a timely basis. The deferral lasts until the date the taxpayer’s interest in the QOF is sold or exchanged, or until December 31, 2026, whichever comes first.

The second benefit is a 10 percent step-up in basis for capital gains invested in a QOF if the investment is held for five years. The basis is increased an additional 5 percent for any investments held for seven years. This step-up in basis means taxpayers can exclude up to 15 percent of their reinvested capital gains from their taxable income recognized when the investment is sold or exchanged or on December 31, 2026.

Finally, QOF investors can permanently exclude from taxation any capital gains that accrue on their investment in a QOF, if the investment is held for at least 10 years, by making a special election to step up the basis of the investment to 100 percent of its fair market value on the date it is sold or exchanged.

Unique Portfolio Access: Access to a diverse portfolio of early-stage deals. Sources for investment opportunities stem from extensive personal networks of investment partners, educational institutions, and corporate entities as well as the “New Lab” at the Brooklyn Navy Yard. The General Partner will emphasize areas where its management team possesses, or has access to, specific industry, market, or technology expertise. Moreover, The Pearl Fund is establishing the country’s first OZIncubators ™, which are expected to contribute significantly to the Fund’s access to potential Investments.

Active Investment Management: The Fund will take an active approach from initial investment through successful exit that leverages the expertise, relationships, and operational experience of the General Partner to reduce risk and maximize value. The General Partner is committed to providing more than just money to drive the success of Fund portfolio companies.

In selecting investments, the General Partner’s management team will identify successfully expanding companies with disruptive technologies and significant market size potential. The General Partner’s management team will deploy investors’ Capital Commitments, as described herein, and will take an active approach to assist Portfolio Companies by leveraging their experience and deep network of industry professionals to provide operational expertise, industry knowledge, and valuable contacts to build value and shorten the path to a successful exit.

The General Partner believes success in early- to expansion-stage Portfolio Companies requires more than just sufficient capital, but must also include a focus on great leadership teams, industry experience, actively managed strategy and planning, and clear execution plans. The General Partner believes this comprehensive approach should generate above-market returns.

Targeted investment categories of Portfolio Companies include seed and early stage, pre-revenue, first investments, up to an “A Round” with co-investors as growth capital, Confidential Copyright © 2019 The Pearl Fund www.thepearl.fund info@thepearl.fund capital for acquisitions, and capital to solidify balance sheets. The Fund intends to require a board seat (at least through the respective entity’s A Round) in its portfolio investments and receive preferred equity with a liquidation preference.

Investment Size in Portfolio Companies: The Fund has no specific minimum amount of its Investments in the Portfolio Companies. However, the General Partner anticipates investments ranging in size from approximately $250k to $1 million with a maximum anticipated of $2 million per Investment. The General Partner will seek to invest in Portfolio Companies that it believes are capable of achieving an enterprise value on exit of 10X the initial valuation. The General Partner intends to invest in Portfolio Companies that will be QOZBs. The General Partner’s management team will take an active approach in assisting portfolio company management by providing operational experience and sharing efficient capital deployment practices.

Due to The Pearl Fund’s goal, as a qualified Opportunity Zone fund, of maximizing investors’ tax incentives provided under the TCJA, a number of unique terms apply:

• The Fund duration/term will be at least 10 years. Investors who hold their investment in a QOF for at least ten years are eligible to receive a step up in basis equal to the fair market value of the investment when sold. Thus, investors who hold the QOF investment for at least 10 years do not recognize any gain from the appreciation of the QOF investment when it is sold.
• Once the 10-year holding period has been met, the Fund will strive to manage investor exits through the sale of the Fund. Limited Partners may be required to sell their Interests under certain circumstances described in the Limited Partnership Agreement. To achieve maximum opportunity zone benefits under current guidance, some exits may extend past the 10-year requirement. Regardless, proceeds from the sale of the Fund will be distributed to the General Partner and the Limited Partners in accord with the distribution waterfall in the Limited Partnership Agreement.
• If the General Partner determines it is in the best interest of the Fund’s performance to sell, exit, or dispose of an investment before the 10-year window, the GP has the right to do so, but will endeavor to do so in a way that also maximizes the available tax advantages pursuant to Qualified Opportunity Zone regulations in effect at that point in time.