Item 5. Fees and Compensation
A. Advisory Fees
Asset-Based Compensation
The Firm charges a 1.5% per year management fee based on a percentage of net
assets under management.
Management fees are charged each quarter in advance based on the total market
value of the assets in the client account (including net unrealized appreciation or
depreciation of investments and cash, cash equivalents and accrued interest) on the first
day of the quarter. If a new client account is established during a quarter or a client makes
an addition to its account during a quarter the investment management fee will be charged
as of the effective date of the investment management agreement or the date of the
additional contribution based on the value of the assets as of the applicable date and will
be prorated for the number of days remaining in the quarter.
Performance-Based Compensation
S Squared Capital, LLC is an affiliate of the Firm and serves as the general partner of the
Fund managed by the Firm. S Squared Capital, LLC, receives a performance allocation
equal to 20% of the Fund’s net profits for each measuring period. This performance
allocation is subject to a high-water mark, meaning no new performance allocation will be
allocated until prior cumulative net losses have been fully recovered.
If a performance allocation arrangement terminates during a fiscal year: (i) a
performance allocation will be calculated for the portion of the fiscal year up to the
termination date if the account has a net gain for that period; (ii) no performance allocation
will be made if the account has a net loss for that period. Performance allocation amounts
allocated for prior fiscal years are not adjusted.
The Firm and its affiliates may, at their discretion and based on factors such as
account size or the overall client relationship, enter into side letters with certain Clients
granting “most favored nation” terms.
These fees and allocations are not negotiable.
B. Payment of Fees and Allocations
Management fees are billed quarterly, and performance allocations are assessed
annually. Fees are deducted from Client assets or allocated accordingly. The measuring
period is generally the fiscal year, and any earned performance allocation is payable
annually.
C. Other Fees and Expenses
Expenses, including brokerage and other transaction costs that are incurred by the
Fund in connection with securities transactions, are allocated to Clients. The Fund pays
brokerage commissions to broker-dealers. Generally, the prime broker/custodian used by
the Fund does not charge the Fund a custody fee. Where appropriate certain accounting
and legal fees are allocated to the Fund on whose behalf the fees were incurred. Accounting
and legal fees are paid by the Firm as described in the Memorandum. A description of the
Firm's Brokerage Practices is set forth in Item 12.
The Fund pays management fees quarterly in advance and permits withdrawals
quarterly. Investors in the Fund may terminate their accounts on 90 days prior written
notice, provided, however, that if a Client in the Fund withdraws all or part of its capital
account attributable to a particular capital contribution within one year of the date such
capital contribution was made, such withdrawal will be subject to a withdrawal fee of 3% of
the amount being withdrawn.
Management fees and performance allocations may be reduced or waived entirely
for certain of its principals, employees, or former employees.
Neither the Firm nor its affiliates are broker-dealers. As a result, the Firm does not
receive commissions or other compensation in connection with securities transactions.
Item 6. Performance–Based Allocations
Clients are charged both a management fee and a performance allocation. All
performance-based compensation complies with Rule 205-3 of the Investment Advisers Act
of 1940, as amended (the “Advisers Act”). Clients should be aware that performance-based
allocation arrangements may create an incentive for the Firm to make riskier or more
speculative investments than it would under a different fee structure.
Additionally, because the performance allocation is based on net profits, the Firm
may have an incentive to take larger or more concentrated positions in order to generate
higher returns, which could increase risk to Clients. The Firm manages only one Fund and
does not engage in side-by-side management of accounts with different fee structures;
accordingly, the conflict of interest associated with differing allocation arrangements across
client accounts is limited. Clients should be aware that the high-water mark provision, which
prevents collection of performance allocations until prior losses are recovered, does not
eliminate all incentive-related conflicts inherent in performance allocation arrangements.
Item 7. Type of Clients
The Firm provides investment advice to high-net-worth individuals, corporations,
private funds, endowments, foundations, trusts, estates and/or charitable organizations.
Before onboarding a new client, the Firm requires that the prospective investor
demonstrate substantial net worth and reviews with them the nature of the technology-
related securities in which it invests, associated risks, applicable fees, termination rights,
and relevant background information about the Firm.
Prospective clients may invest in the Fund for which the Firm serves as investment
adviser, which generally requires a minimum initial investment of $500,000 unless the Firm,
at its sole discretion, permits a lower amount.