Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.
Risk Summary

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

  • You could lose all the money you invest
  • Most investments are shares in start-up businesses or bonds issued by them. Investors in these shares or bonds often lose 100% of the money they invested, as most start-up businesses fail.
  • Checks on the businesses you are investing in, such as how well they are expected to perform, may not have been carried out by the platform you are investing through. You should do your own research before investing.

You won't get your money back quickly

  • Even if the business you invest in is successful, it will likely take several years to get your money back.
  • The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
  • Start-up businesses very rarely pay you back through dividends. You should not expect to get your money back this way.
  • Some platforms may give you the opportunity to sell your investment early through a 'secondary market' or 'bulletin board', but there is no guarantee you will find a buyer at the price you are willing to sell.

Don't put all your eggs in one basket

  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. A good rule of thumb is not to invest more than 10% of your money in high-risk investments. Learn more here.

The value of your investment can be reduced

  • If your investment is shares, the percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.
  • These new shares could have additional rights that your shares don't have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

You are unlikely to be protected if something goes wrong

  • Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker.
  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA's website here.

For further information about investment-based crowdfunding, visit the crowdfunding section of the FCA's website here.

Investing Capital

Can you invest for impact and still see a financial return?

In my last post, I explored the topic of whether investing into SEIS or EIS eligible-opportunities can reduce your tax bill to zero.

There are so many 'ifs and buts' in our industry, I particularly enjoy looking into scenarios like this. It allows me to gain a perspective that you wouldn't generally receive just by looking at, for example, investing into the Enterprise Investment Scheme.

As such, today I wanted to explore another scenario; one that I believe crosses the minds of many investors in this space - and that's whether it is possible to still make a financial profit when you invest in opportunities primarily for impact.

A guide to tax efficient investing - download your copy

What is impact investing?

Let's start at the beginning.

Impact investing is a relatively new term to the investment industry, even though it's been happening to some extent naturally throughout the history of investing.

In essence, it is the act of investing into a company that has the primary purpose of making a positive impact socially, to the environment, or within society.

Having been a phrase that's seen more traction in the US than most other parts of the world, it's thanks to high profile entrepreneurs and investors such as Elon Musk that wider attention is being brought to the term ‘impact investing’.

A perfect example of an impact investing opportunity, Musk’s technology company Tesla is focused on producing sustainable energy in the form of solar for the world.

Similarly, Google are working on unique projects that will have a global impact - Project Loon, for example, has the aim of providing internet to everyone on the planet, including previously unreachable ‘no internet’ zones.

Interest in the idea of impact investing has been growing over the years, and as a company we really do feel this is a great thing.

After all, if you had the option to make a real difference, I personally feel most people would at least take the time to find out more about the opportunity.

The risk vs return of impact investing

With most investments there is a level of associated risk. This is an accepted fact amongst investors, and sometimes these risks can be greater than others, something that's particularly the case with brand new startups or companies that have only been operational for a short amount of time.

It's for this reason why you should always seek professional, financial advice before making investments, and only make investments with money you can effectively afford to lose - whilst the purpose of investing is to see growth over time, this doesn't always happen.

Likewise, however, the risk of investing can pay off to a considerable scale.

Take Uber as an example. Having $200,000 invested into it back in August 2009 (just months after the company's inception in March 2009), the company's popularity rocketed over the years, and now has a valuation of over $69 billion.

It's important to point out this doesn't mean every new company that appears is going to see the same levels of success as Uber, but there are undoubtedly many more that will.

So, if we look back at the original question of whether impacting investing can return a financial profit to investors, the reality is it undoubtedly can.

There are obviously numerous considerations to make, but if we break it down into whether an investment into a company that has a focus on making an impact on the environment, society or socially can see a positive financial return, the answer is yes.

But what's arguably more important to appreciate is financial return isn't the only outcome of an impact investment.

The investment you make can actually be making a true difference in the world, and being a part of a company that solves a genuine problem can be a real highlight as an an individual - and if the company you invest in goes on to thrive financially, many impact investors would simply class that as an added bonus.

Impact investing tax reliefs

If we look at impact investing into newer, earlier-stage companies, these companies can also offer very generous tax incentives for investors.

When making full use of schemes such as the Seed Enterprise Investment Scheme (SEIS) or the Enterprise investment Scheme (EIS), investors can benefit from some of the most generous tax reliefs currently available in the UK - with SEIS, for example, you could claim up to 50% of your investment back on your income tax bill.

As with any investment into EIS or SEIS, there are conditions that need to be met, but for the most part these will simply happen naturally for many investors into such schemes - holding your shares for at least three years, for example.

The importance of diversification

One of the most important points to consider when building an investment portfolio is diversification.

By taking an active approach to diversification, you mitigate the risk of your investment portfolio, as you don't rely on what could, for example, either be a small number of investments in total, or conversely, a large number of investments all within the one industry.

Given the nature of impact investing (a company can have the primary focus of making a genuine impact almost regardless of their industry), it generally offers a great chance to get involved in multiple opportunities across a wide range of sectors.

This itself is a great way to mitigate your risk of losing your investment and potentially maximise your return.

Investing in multiple opportunities will also give you the chance to have a really diverse investment portfolio, with some really interesting companies and organisations in there.

How do you find impact investment opportunities?

Sometimes these investment opportunities can be hard to come across, especially if you are completely new to the investment market.

Platforms such as ours in GrowthFunders exist to provide investors with high quality co-investment deals.

Our investment opportunities are carefully selected and undergo thorough due diligence to ensure they are the best possible investment opportunities for our investor network.

There are some truly fantastic companies out there that are driven to make a true difference, and when they look to raise investment, our aim at GrowthFunders is to support them through the process.

Offering truly great impact driven investment opportunities to our investor network, we genuinely aim to work with the investee companies through the entire investment readiness process, so to ensure they are presented to our investors in the best possible way for both parties.

A guide to tax efficient investing - download your copy

Uber image courtesy of Mark Warner

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Creating Value.
Delivering Impact.

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Growth Capital Ventures (GCV) is backed by funds managed by Maven Capital Partners, one of the UK’s leading private equity and alternative asset managers.