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

Startup investing: the importance of a strong management team

To attract investment, startups must show they have the leadership talent to unleash their potential.

No matter how ambitious their vision, without the right people at the top they will struggle to even get off the ground. The management team’s performance directly influences your investment.

Do those behind the business have what it takes – individually and collectively – to grow from your hard-earned funds? Do warning signs emerge under your thorough questioning?

Startup management teams are rarely the finished article. You are not looking for a fully stocked corporate boardroom befitting a City empire. Certain gaps can be overlooked until further in the enterprise’s journey.

But there are a number of key traits investors generally want to see from day one.

A clash-free zone

Active startup investors keen to play their part in driving the business forward will regularly meet with the management team. Even hands-off investors in the shadows will speak to them from time to time.

Personality clashes are not conducive to successful investor / startup relationships. Investors should really have some form of rapport with the people they back. After all, the journey to an exit could realistically take five or 10 years.

Read More: 5 reasons angel investors choose to invest in startups

Relationships between members of the management team must also be healthy. This doesn’t necessarily mean a perfectly harmonious group of people who agree on everything. Questioning decisions and strategy is important in the battle to win over customers and crack markets.

Every member of the management team offers a different perspective on a particular challenge - it is when two management team members are consistently pulling in different directions that startups can veer off course.

Doing it for the right reasons

In 2014, the Harvard Business Review coined the phrase “entrepreneurship porn” to describe the false pretences that lure some people into the arena. Entrepreneur Morra Aarons-Mele wrote about the “airbrushed reality in which all work is always meaningful and running your own business is a way to achieve better work/life harmony”.

Often startups are merely set up to give the founders autonomy and freedom from the ‘nine to five’. But, as Aarons-Mele explains in her article, true entrepreneurship can be at odds with these ideals. "Starting a company doesn't mean being freed from the grind; it means that the buck stops with you, always, even if it's Sunday morning or Friday night," she writes.

The more the startup grows, the less freedom and autonomy the founders are likely to have. Instead of a responsibility to one boss in the job they left behind to go it alone, they are responsible for an entire workforce, and answerable to customers and investors.

The other obvious attraction to becoming an entrepreneur is the chance to get rich. Such motivations are perfectly legitimate in the early days, but without some greater mission, they're unlikely to keep the founders interested for the years it takes to reach a sale, merger or IPO. More enduring startup goals could be to innovate, disrupt or create jobs and opportunities, for example.

Relevant experience

The stereotypical startup entrepreneur is perhaps a tech-savvy 20-something built in the mould of Facebook founder Mark Zuckerberg.

But a recent study by US-based research university MIT suggests that the average age of a successful startup founder is actually 45.

Researchers reported that founders with three or more years of prior work experience in the same industry as their startup were 85 percent more likely to launch a highly successful enterprise than those with no experience.

Experience both in the relevant sector and in business generally is reassuring to potential investors, although it offers no guarantee of success. A young management team’s innovative new take on a stagnant industry may be so compelling that it offsets their lack of experience - but most savvy investors demand some track record of success in business.


Two skills-based considerations of the startup investor are:

  • Does the management team have the skills to execute its plans?
  • If not, is it aware of these gaps and is planning to fill them in future?

Every business has different skills requirements. Sophisticated investors will be adept at assessing what these are and testing whether they are on board within their prospective investments.

No definitive startup skillset exists, but many have tried to define it. Among them is Bernd Schoner, author of ‘The Tech Entrepreneur’s Survival Guide’.

In his book, he describes the six personalities he believes are vital ingredients in the startup’s founding team.

They include the "prima donna genius" which every startup needs, the "superstar" who busily completes key tasks, and the "clear leader" who steps up when tough decisions need to be made.

The other three roles are the "sales champion", the "industry veteran" with the inside track on how things are done in the relevant sector, and the "financial talent" to track numbers and keep risk in check.

Certainly, technical, leadership and sales skills are widely considered essential startup management team attributes, whilst another desirable quality is a willingness to adapt, learn and take on new ideas.

Most investors will have valuable expertise and experience in business, and startups willing to take on advice and change things that aren’t working are more likely to succeed.

Market knowledge

When major corporations misread the market, their vast resources and agility usually enable them to quickly recover. Take Microsoft for example.

It missed out on the mobile computing revolution that rival Apple enjoyed, with CEO Steve Ballmer even dismissing the iPhone’s chances of market domination in its early days.

Yet Microsoft today is reaping the rewards of its foray into cloud computing and its smartphone misread is well behind it.

Read More: Why do so many investors invest in startups?

For most startups, no such luxury exists. Failing to understand the market and deliver exactly what it demands can kill the business before it has even reached break-even point. The management team should have analysed the market from every possible angle before they attempt to move into it.

Market knowledge should also include an understanding of how the market is likely to develop or change in future. This enables the startup to second-guess the next moves of the market incumbents and any emerging competitors.

Understanding the startup’s management team

The people at the helm of the startup are the ones who will navigate it to success - if they’re the right people to do so. Being passionate is important, but it’s just one quality. Investors need to have confidence that the team is skilled, experienced and knowledgeable, and will not only do as much as they possibly can to see success, but will have the understanding of what actually needs to happen to achieve it.

And with the most successful startup teams the most open and honest, as an investor, ask questions. Go in-depth. Look for the weak spots. Do as much as you possibly can to understand and appreciate the team, as ultimately these are the people who will be securing the return on your investment.

Download our Free Investing into Startups Guide

Driving Growth.
Creating Value.
Delivering Impact.

Backed by

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.