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.
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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.
GCV
Insights
Raising Capital
Lauren Miller
· 2 min read
· Updated on

An introduction to raising finance: is your business ready for investment?

As an entrepreneur, startup founder or company owner, it's highly likely the thought of raising finance to further your business has, at the very least, crossed your mind.

We all want money to allow us to do more with our ideas, right?

If you have looked into raising finance, chances are you've also felt a little perplexed.

There's so much to consider and understand - and so much phrasing that can have a dual purpose or be interpreted differently - it can lead many to switch off before they've even taken the first step.

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Take the phrase 'first round of funding’ as an example. It's often thought that this means funding that's restricted purely to early stage businesses.

The reality is it covers the first round of funding which has involved selling shares to external investors, as opposed to being self funded, family funded or funded through more traditional methods (think bank loans and overdrafts).

With so much to understand, whilst we're here to chat at any point of the raising finance process, we thought it would be useful to create a series on the raising finance journey - and we're kicking it off at the very beginning of the process.

Asking yourself: are you ready for investment?

One of the biggest mistakes an entrepreneur can make at the outset of their business venture is starting to raise funding - or more specifically, equity-based funding and investment - too early.

Launching a funding round before traction, progress and a demonstrable business plan are in place won’t entice investors to your offer.

It doesn't matter how good of an idea or concept it may be - if you can't prove it works in some way, shape or form, it's going to be really difficult to convince investors to part with their money.

What's more, going for funding too early can make potential investors for future rounds more than a little wary, and potentially lead to a non-closed or part funded round.

These points alone can easily give people the wrong impression of your business, potentially at the very outset of your funding journey.

You need to be able to prove your business works (usually)

It is worthwhile understanding that although the above is generally the rule of thumb, it's not always the case that investors won't invest unless there's clear traction in the business.

In some instances, investors will buy into a concept before there's any tangible business data to report on.

However, these instances are few and far between (investors are often investing in just an idea, and the previous successes of the entrepreneur) and are often reserved for scenarios where a well-known entrepreneur with a concrete track-record has a clear vision.

One of the most notable examples is Elon Musk.

Starting off his career by building a web software company in 1995, Zip2 sold for over $300 million four years later.

Since then, he has gone on to setup various companies, including X.com. One of the world's first online banks, it subsequently acquired PayPal, and then sold in 2002, netting Musk $165 million.

On top of the $22 million he personally made from the Zip2 sale just three years earlier, it quickly became clear that Musk knew what he was doing - and he has had very little trouble securing investment for his companies since (even though one of his companies is currently losing money).  

Ready to move forward?

So, with this understanding, how confident do you feel that your business or concept is at a stage where gaining funding is a tangible process?

If the answer is that you feel you are ready (and have the proof to quantify your belief), that's the first, and arguably most difficult, question answered.

But with there being various different funding stages for businesses to utilise, next up is understanding what the stages are, how they differ and which your business is most suited to at present.

This post is part of our 2017 'introduction to raising finance' series, which gives an insight into the entire process, exploring the individual funding rounds, types of investors, the importance of valuing your business accurately, and much more.

Start to raise investment for your company today

 
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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.