Tern Regulatory News (TERN)

2 March 2022

Tern Plc

("Tern" or the "Company")

Participation in the Sure Valley Ventures UK Software Technology Fund alongside the British Business Bank

Tern Plc (AIM:TERN), the company focused on value creation from Internet of Things ("IoT") technology businesses, is pleased to announce that it has agreed to participate in a new venture capital fund, the Sure Valley Ventures UK Software Technology Fund (the "New SVV Fund") alongside the British Business Bank (the "BBB") and other investors.

Highlights

· Tern's participation in the New SVV Fund will provide the Company with early-stage access to additional entrepreneurial technology businesses, in line with its strategy of developing synergistic IoT technology companies to generate shareholder value.

· The principal investor in the New SVV Fund is the British Business Bank, an investment arm of the UK Government. The first close of this fund will amount to £85 million, with the BBB investing up to £50 million and other investors, including Tern, investing up to £35 million over the 10-year life of the fund.

· Tern will initially invest approximately £90,000 in the New SVV Fund on first close in order to fund the New SVV Fund's first investment which has already been identified. Tern has committed to invest up to £5 million in total over the 10-year life of the New SVV Fund, which would equate to a c.5.9% interest in the fund. The Directors believe they will be able to fund investments into the New SVV Fund from the Company's ongoing available resources.

· The New SVV Fund will invest in a range of private UK software companies with a focus on companies in the immersive technology and metaverse sectors, including augmented and virtual reality, artificial intelligence, the IoT and security.

· The New SVV Fund will be guided by the same team that has led the Sure Valley Ventures Fund ("SVVF") which, to date, has been highly successful in achieving a number of cash realisations from, and upward revaluations of, companies in the SVVF portfolio.

· The profit share arrangements within the New SVV Fund are designed to encourage the involvement of investors alongside the BBB, meaning that Tern and the other non-BBB investors would expect to receive a significantly enhanced share of the total return generated by the New SVV Fund compared to industry standard.

· Al Sisto, Tern's CEO, will sit on the New SVV Fund's 'Investor Committee' alongside the BBB and others. The Directors believe Tern's participation in the New SVV Fund will provide exposure to additional attractive early-stage technology companies, new investor relationships, additional technology insight and potential business development opportunities.

· This investment is expected to enable Tern's shareholders to gain exposure to a number of exciting, fast growing venture capital investments with the expectation of an enhanced return which would otherwise be difficult for such investors to achieve.

Commenting Al Sisto, CEO of Tern, said:

"We believe participation in the New SVV Fund is an excellent way to broaden Tern's exposure to exciting early-stage private UK technology companies with a modest capital commitment, whilst delivering a number of other potentially significant benefits to Tern and its shareholders. In addition to the attractive financial returns we envisage from our participation, we believe that it will provide important technology insights, assist with business development and increase our network, thereby significantly enhancing the Tern ecosystem."

Background

The Sure Valley Ventures team has a track record of developing a portfolio of technology investments, delivering both cash returns and a steady flow of upward revaluations of the portfolio companies. SVVF currently comprises 14 investments and is now moving from an investment to a realisations phase. The Directors believe that the New SVV Fund represents an attractive investment opportunity for Tern given the SVVF's historic track record and provides an appropriate opportunity for Tern to broaden its exposure to early-stage private UK technology companies. This is particularly the case against the background of a significant cornerstone investment by the BBB and the potential to achieve enhanced returns as a result of the New SVV Fund's profit share structure.

The BBB

The BBB is the largest domestic backer of venture capital funds in the UK. Established in 2006, the Enterprise Capital Funds ("ECF") programme helps those looking to operate in the UK market to raise venture capital funds specifically targeting early-stage small businesses believed to have long-term growth potential.

The ECF programme combines private and public money to make equity investments into high growth businesses. The aim is to increase the supply of equity to UK growth companies and to lower the barriers to entry for fund managers looking to operate in the venture capital market.

The BBB specifically invests alongside venture capital funds on terms which improve the outcome for those private investors when those funds are successful in order to encourage venture capital funds to operate in a part of the market where smaller businesses may not be able to access the growth capital they need.

Other fund managers that have been involved with the BBB ECF programme include Dawn Capital, Notion Capital, Amadeus Capital Partners, IQ Capital, and Episode 1.

Details of the New SVV Fund

The New SVV Fund is expected to complete its first close with total investment commitments of £85 million, of which £50 million is being committed by the BBB with the balance of £35 million being committed by other investors, including financial institutions and family offices (together the "Private Investors"). The total investment commitment may, however, increase to £95 million, with the Private Investors committing to invest up to £45 million. Tern's investment commitment of £5 million will, however, not be required to increase in these circumstances.

Tern's investment commitment over the life of the New SVV Fund will be drawn down in tranches as and when funds are required for investment over the 10-year life of the fund. However, any realisations of the New SVV Fund's investments will be distributed to investors at the time of realisation (as is common with funds of this nature) therefore the return on this investment is expected to be received throughout the life of the fund.

The New SVV Fund will invest in a range of private UK software companies with a focus on companies in the immersive technology and metaverse sectors, including augmented and virtual reality, artificial intelligence, the IoT and security.

The BBB invests alongside venture capital funds on terms which are designed to improve the outcome for the Private Investors when those funds are successful in order to encourage venture capital funds to operate in a part of the market where smaller businesses may not be able to access the growth capital they need. As a result, the Private Investors can benefit from significant enhanced profit share arrangements compared to what might otherwise be available for similar investment funds.

The New SVV Fund has been created under the partnership, Sure Valley Ventures Enterprise Capital LP (the "Partnership"). The Partnership has been constituted under an agreement between Sure Valley General Partner Limited ("GP") and Sure Valley Ventures Founder LLP ("FP") to carry on the business of an investor and, in particular identifying, negotiating, making, monitoring and realising investments and to carry out all functions and acts in connection therewith.

Shard Capital AIFM LLP has been selected by the GP to act as the Alternative Investment Fund Manager ("AIFM") of the Partnership and has been appointed by the Partnership to (i) admit investors to the Partnership and thereafter to operate the Partnership and manage its investments, and (ii) act as AIFM (as defined in the Alternative Investment Fund Managers Directive (AIFMD)) to the Partnership.

Sure Valley Ventures Limited has been selected by the GP to act as investment advisor to the Partnership. The role of Sure Valley Ventures Limited shall include sourcing investors and deal flow for the Partnership, advising the Manager on making investments, and arranging deals in investments for the Partnership. If Sure Valley Ventures Limited or another Associate of the General Partner becomes an Authorised Person permitted under the Financial Services and Markets Act to act as Manager of the Partnership, it is intended that Sure Valley Ventures Limited or its Associate (as applicable) shall be appointed as AIFM of the Partnership.

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