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

The Budget 2015: 'Help to Grow' initiative and changes to EIS and SEIS tax incentives

Update: further to the 2017 Autumn Budget being announced, we published a blog post looking at the impact on property and homebuilders, tax efficient investing (specifically the EIS), and Angel investors.

With the day of the general election drawing nearer, all eyes were on chancellor George Osborne as he unveiled his 2015 Budget.

Aside from the abolition of annual tax return and a freeze on wine duty, the chancellor outlined plans for a new programme which will aid growth by delivering up to £100million to businesses which are focused on growth.

Help to Grow

“Help to Grow” promises to provide smaller companies with loans of between £500,000 and £2million each. The idea is that the injection of capital and support supplied by the pilot initiative will help growing businesses to “achieve their potential” as they carry out expansion plans.

Speaking on the announcement, Keith Morgan, CEO of British Business Bank, said: "We know from British Business Bank research that almost half of UK firms (around 46% per cent) want to expand this year yet there is a market gap for smaller businesses seeking finance in the £500,000 to £2m range.

“Growth Loans has been designed to target that market failure in access to finance – we estimate as many as 500 businesses a year might be suitable for a Growth Loan […which] should enable a range of new ideas and approaches that work both for finance providers and the dynamic high-growth smaller businesses that need this essential finance.”

During a pilot run of the “Help to Grow” scheme, for which British Business Bank have published a Request for Proposals, it is hoped that at least £100million of lending capital will be generated using alternative methods:

  1. funds which enable co-investment between private and public money

  2. funds which would invest private money.

Under the pilot, owners of high growth businesses and investors will have the option of debt finance with equity elements or unsecured junior debt.

Join GrowthFunders and become a member

Amendments to EIS and SEIS

During the Budget speech, George Osborne also announced amendments to the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme SEIS, as well as to Venture Capital Trusts (VCTs), which have been introduced in order to “ensure that the UK continues to offer significant and well-targeted support for investment into small and growing companies, in line with new EU rules”.

As three of the most tax efficient investment methods, EIS, SEIS, and VCTs have played a significant role in kick-starting growth in the UK economy through encouraging investment in start up, early stage, and more established businesses. So much so, in fact, that the originally-temporary Seed Enterprise Investment Scheme was announced as a permanent fixture in last year’s Budget.

Bruce Macfarlane, managing partner of MMC Ventures said, “I welcome the government’s continued backing for UK enterprise and investment, and especially the ongoing support for the enterprise investment scheme. The government clearly believes that EIS and VCTs are working as they are also applying that model in the social investing space.”

One of the most interesting amendments was that the requirement that 70% of funds raised under SEIS must have been spent before EIS or VCT funding can be raised has now been removed.

Nick Halstead, CEO of DataSift welcomed the changes, saying, “It’s great to see the Seed Enterprise Investment Scheme and Enterprise Investment Scheme being updated […] It takes a lot of time and effort to raise funding and being able to secure investment concurrently means management teams can spend more time doing what they should be doing – running and building a successful business.”

Other changes to EIS, SEIS, and VCTs are:

  • the introduction of a cap of £15million on the total investment amount small companies would be able to receive from tax-advantaged venture capital schemes,

  • an increase in the maximum employee limit for “knowledge-intensive” companies from 249 to 499 employees,

  • the requirement that companies must be less than 12 years old when receiving their first EIS or VCT investment (except in cases where the investment could lead to a “substantial change in the company’s activity”).

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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.