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

Sir Elton John, the investor: a case study for investing in your passion

One of the most recognisable names in the world, Sir Elton John first came into the music industry in 1967 and has been at the centre of it ever since.

Selling over 30 million albums to date and having over fifty Top 40 hits - culminating in a total of 169 million unit sales - such statistics have made him one of the best-selling music artists of all time.

Known for being extremely charitable, Sir Elton invests both money and time on a regular basis to raise funds for causes that are close to his heart.

A perfect example of this can be seen with his annual ‘White Tie & Tiara Ball’, hosted at his home in Old Windsor, Berkshire to raise money for his own AIDS charity.

Yet whilst Sir Elton is known around the world for his music and charitable giving, not many are aware that he is also an avid investor.

A passion for investing

Starting his investing career in the mid-1970s, Sir Elton is an avid football fan and has followed Watford since he was a child.

Becoming the club’s chairman and director in 1976, he is seen as being pivotal to the club’s success in the late 1970s and early 1980s, investing considerable sums of money that saw the team grow, expand and succeed, rising three divisions to the highest tier at the time.

Behind Watford when they reached the FA Cup final in 1984, three years later he sold the club - only to purchase it back a decade later in 1997.

Having remained as club president since the first sale, he is no longer a majority shareholder, but continues to have a considerable financial interest in Watford, something that saw him have a stand dedicated to him in 2014.

Investing in your industry...

Over the years, Sir Elton has invested in a range of physical assets related to his passion, including cars and pianos, but it was no real surprise when it was announced he had invested in the US startup Gobbler.

A cloud collaboration tool aimed at media creators, Sir Elton invested £1.75 million in 2012 into the then “hottest tech startups in LA”.

Giving users the ability to backup, transfer and organise their files and assets, Sir Elton is in the company of his peers at Gobbler - both John Legend and One Direction’s Ryan Tedder have also invested and / or publicly supported the company.

...and outside of it

Whilst football and music are clearly Sir Elton’s primary focuses, he took a step outside of his comfort zone in 2017 when it was announced he had invested in “the cultural artificial intelligence data platform” Qloo.

In essence, Qloo gathers a whole host of publicly available data, digests it and subsequently uses it to provide insights into consumer tastes on everything from dining right through to fashion.

Raising $6.5 million in their latest round, Sir Elton formed part of this alongside AXA Strategic Ventures - and subsequently joined the likes of Leonardo DiCaprio, who invested a year previously in a $4.5 million funding round.

Tax efficient investing for everyone

Sir Elton may not have an extensive, public investment portfolio, but it’s clear from those investments that are public, he’s confident in his abilities and does the most important thing any investor can do - take advice, consider the opportunity and don’t jump in.

We’re strong advocates of tax efficient investing at GrowthFunders. However, even with the lure of tax reliefs such as 50% income tax relief when investing in SEIS opportunities, taking advice is always strongly recommended.

Seasoned investor or not, investing in startups is generally seen as a higher risk, higher return strategy - and whilst the returns can be great, the associated risks need to be fully understood and appreciated.

By his investments, it’s clear Sir Elton has done his homework, and continues to see a positive financial return away from his esteemed music career.

This post is part of our UK celebrity investors series. You can find our introductory post to the series here.


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