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

UK startup investment surge could see business unicorns multiply

Following what has been a challenging period for many an SME and investor alike, emerging from the pandemic recent data suggests the UK startup scene is in its strongest position in decades, fuelling the expectation of record new unicorn companies in the coming years.

A recent study by UK tax-tech firm Ember found that 190,639 new companies were established in the second quarter of 2021 - a period that resulted in the most startups founded in Q2 in British history (averaging at 87 new businesses established per hour).

On course to top 800,000 new startups by the end of the year, 2021/22 is forecasted to break the previous annual record of the most UK startups formed in one tax year, set back in 2018/2019 in which 672,890 new British businesses were established.

Mirrored by equally inspiring investment figures that saw a record £13.5 billion invested into UK startups in the first half of 2021 (almost three times that witnessed a year before), experts predict the UK to be on course for an unprecedented surge in new unicorn businesses (businesses valued at over $1 billion) over the coming years.

In a period of significant opportunity for venture capital investors, analysing the possibility of unicorn potential across the UK’s startup landscape could prove incredibly rewarding, especially given the range of additional tax reliefs investors can come to expect.


The UK's growing unicorn companies

Since 2012 the average time it took for a startup to progress from founding to unicorn status was around four years. However, following the soaring startup creation, innovation and funding figures the UK has noticed over the past 12 months, evidence suggests this period could be shortening.

Of the 105 business unicorns the UK is home to, 20 hit unicorn status in the past 6 months.

To put this into perspective it took 24 years (from 1990 to 2014) for the UK to establish its first 20 unicorn companies, a duration in which - if translated into today’s growth figures - would see 960 unicorns established across Britain over the next 24 years.

Where it is impossible to predict exactly how many ultra high growth startups will emerge over the following months and years, professionals across the industry suggest we could be in the midst of a “unicorn boom” fuelled by growing internal innovation and foreign investment. 

Read More: UK investors are urged to 'swap stocks for startups' by the PM

Stephen Kelly, Chair of industry group Tech Nation, said:

The rate of growth in the U.K. tech ecosystem in the last 10 years has been immense and we are confident that there is more to come. The U.K. now has more ‘futurecorns’ than France and Germany combined, which demonstrates the extent to which the U.K. is leading Europe.

The increased need individuals and businesses have felt for rapid solutions to often unforeseen questions posed by the pandemic over the past 18 months has fuelled unicorn potential further, with agile, adaptive startups being the source of much of the innovation noticed in a 2021 branded by the Financial Times as “the strongest startup boom in a decade”.

Seen especially in the UK tech sector - partly due to accelerated rates of digital adoption and the heightened reliance on technology Covid-19 has intensified - 2021 has proven a standout year for startup funding across the industry. 

Accounting for 11 of the 20 UK unicorn startups realised in the first six months of 2021, the fintech sector specifically has been outlined as a key focus for many experienced investors in the coming years.

Speaking on the topic, Prime Minister, Boris Johnson, added:

Our tech revolution is creating jobs, driving growth and boosting investment across the country. We must continue to research, build and innovate as we cement our place as a world leader in tech and push towards another record-breaking year.


How can investors harness this growth?

In the midst of the highest level of startup investment in British history, and ahead of a 2022 that looks set to be another strong year, the present poses an unwavering opportunity for investors to harness the growth the next wave of UK business unicorns will undoubtedly bring.

Though it’s not always easy identifying Britain’s next $1 billion company or transformative startup venture, identifying the most effective VC tools for minimising the risk and maximising the growth of early-stage investments can give investors the best chance to do exactly that.

The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) often top this list. 

Hailed by The Chancellor as “World leading programmes” the schemes facilitate venture capital investments into promising early-stage companies for private investors, in exchange for an equity stake and a host of generous tax reliefs. 

Two of the most popular VC routes when investing into UK startups, the pair have raised a combined total of £25.4 billion in investment since 1994. 

Though not the only available investment routes targeting high-growth startups, the schemes’ long list of tax advantages (including up to 50% income tax relief, capital gains tax exemption and inheritance tax relief) and focus on the long term growth of individual startups, set them apart from less autonomous, more gradual growth alternatives like venture capital trusts (VCTs).

Read More: EIS vs VCT: which is right for your investment portfolio?

For investors aiming to identify one of Britain’s upcoming wave of ultra-high growth “futurecorns” such details can be key, and are frequently merited by industry leaders throughout the tech sector - not just for their return-generating benefits, but for their impact on the UK SME landscape as a whole.

Ron Kalifa OBE, Government advisor for fintech, and Chairman of Network International, said:

The Enterprise Investment Scheme, Seed Enterprise Investment Scheme and Venture Capital Trusts are called for to level the playing field for fintechs.”  Adding that the schemes would “act as a catalyst in developing a world leading fintech ecosystem. 

Though such venture capital schemes like the EIS and SEIS may target more experienced investors with potentially more ambitious growth goals, regardless of the route right for your portfolio, researching opportunities and vetting investment platforms thoroughly should be a key step in minimising the risks of investing in early-stage companies.

If carried out with diligence and patience, staking a claim in one of Britain’s next business unicorns can become an increasingly achievable feat for many an investor over the following few years.

Download our Free Investing into Startups Guide

GCV Invest is a private investor network for experienced investors, We specialise in providing investors with access to carefully selected investment opportunities with the potential to deliver better returns than traditional investment products.

You can find out more about GCV Invest here.

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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.