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.

Industry Insights

Patient capital investment review: one mis-step?

Patient capital is defined as investments that investors expect to hold for a minimum of 3-5 years and possibly up to 15 years depending of the characteristics of the sector.

The UK Government launched a review of Patient Capital earlier in 2017. The Review recently published a consultation document seeking evidence across a range of areas.

Evidence supports the notion that the supply of patient capital in the UK is scarce relative to the USA. Analysis within the recent consultation document suggests that UK venture capital investment would have to double – from £4bn per year to £8bn a year – to match the supply available in the US.

The policy interest in ensuring ambitious businesses can access capital sufficient to execute their growth plans appears well founded. Although growing to scale can be challenging, businesses that are able to have a transformational impact on economic performance - 0.5% of businesses registered in 1998 created 40% of the jobs created by that cohort of businesses over the subsequent fifteen years.

Length of time before exit

The consultation draws attention to analysis that demonstrates growing UK privately-owned businesses ‘exit’ earlier than those in the US.

Whether measured by the time at which they list on an exchange, through an initial public offering (IPO), or executing a trade sale, UK businesses go through fewer funding rounds than their US counterparts.

The supposition within the consultation is that this is evidence of UK businesses exiting before they reach scale, which is damaging to the businesses themselves and to the UK economy.

The inference is that UK firms would benefit from spending longer in private ownership:

“UK firms are on average less developed and have scaled up less on average when they come to major decision points about their ownership structure to support their future plans for growth. This in turn may reduce these firms’ ability to grow to their full potential by limiting their options on future ownership structures.” pp 12

International perspective

It can't be denied that this is all a little puzzling - not least because the US Securities and Exchange Commission’s (SEC’s) Investor Advisory Committee has recently considered evidence suggesting that the longer incubation time before IPO – stimulated by the ready availability of private capital – is damaging public exchanges.

There is a danger that a variation in the structure of capital financing that is beginning to cause concern in the US is advocated as a desirable development in the UK.

One of the principal concerns in the US is that a combination of delisting and delaying IPOs leaves main indices populated by slightly moribund large corporations that will damage market confidence.

However, time series analysis of London Stock Exchange data presented in the chart below suggests the proportion of IPOs on the London Stock Exchange raising less than £100m has fallen since 1995.

This conflicts with the notion that too many UK businesses continue to exit too soon.


Source: GrowthFunders analysis of LSE data

This analysis suggests that a fundamental supposition within the consultation remains unproven. The proportion of IPOs that raise less than £100m is already falling and evidence that that remaining unlisted will benefit business growth is far from conclusive; the rationale for stimulating this through public policy is weak.

How might investors respond?

The UK Government offers investors a range of incentives to invest in early-stage companies. These incentives gradually become less generous as companies become more established; comparing the SEIS with the EIS is a good example.

Venture Capital Trusts (VCTs) offer investors an opportunity to continue to benefit from incentives while investing in companies that have undertaken an IPO and are listed (included a limited proportion on the main indices).

If the UK Government felt that the economy would benefit from companies undertaking more private funding rounds before an IPO, it could seek either to relax existing initiatives so that the tax relief that they offer can be enjoyed for longer, or introduce a new initiative targeted directly at encouraging companies to reach scale before listing.

The evidence for this appears inconclusive - the UK Government may wish to conduct its own tax efficient review before introducing such an initiative.

View our live tax efficient investment opportunities

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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.