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.

Raising Capital

Why investors won't invest in your startup

As you make the decision to move forward from bootstrapping your business and raise pre-seed or seed funding for your startup, it’s important to prepare properly.

Attracting investment isn't as easy as just asking people for money. Your business has to be in the best possible shape - it has to be investor-ready.

Below, you'll find links to some articles I've gathered together which offer a multitude of reasons why investors won’t invest in your start up.

6 Signs No One Is Going To Fund Your Startup

Lucas Calson

Calson’s main message is that although you may want investment, your start up doesn’t automatically “deserve” it. The word “deserve” here is used in terms of how much high growth potential the business shows.

Most investors are looking for the “next big thing”; something which will give them a fantastic return on their investment. Some businesses can deliver this and others can’t, what separates one from the other is their potential (which is made up of any number of elements, including the team, revenue streams, exit strategy, and ability to understand what the customer wants).

My favourite point from this post was: “You don’t deeply understand your customers: often a founder thinks an idea is clever and doesn’t evaluate it further.”

If an idea doesn’t eventually benefit a paying audience, it isn’t a great idea in an investor’s eyes. You need to have a (potential/target) customer base for your product or service, because if you don’t, who will buy or use it? Meaning, where will your money come from, how will your business grow, and when will an investor receive his ROI?

Read the full article here.

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10 Good Reasons Not to Seek Investors For Your Startup

Tim Berry

Whilst this article focuses on the pros of bootstrapping rather than seeking investment, one point which stuck out for me and is relevant to this post was the idea that “if it’s not scalable, forget it”.

Similarly to the previous post, most investors are interested in their ROI. Therefore, when building their portfolios, they look specifically for businesses which are scalable and show high growth potential. If yours isn’t or doesn’t, it most likely will not attract investment.

Click here to read the full article.

10 Reasons You’ll Never Raise A Dime For Your Startup

Eric T. Wagner

Wagner works as a mentor at an online entrepreneurship academy and has met countless entrepreneurs who struggle to find/raise the funding they need to set up their startup. As he says, regardless of how you decide to raise finance: an equity crowdfunding platform, VC fund, or a bank, there are a list of common reasons investors will choose to avoid your investment opportunity.

My favourite from this list was number 7: “You’re not coachable”. Believing in yourself and your business or idea is fantastic, but doing so to the point where you refuse to listen to outside feedback could damage your growth and investment potential. Being passionate is not the same as ignoring sound suggestions from sector experts.

Why Business Plans Don't Get Funded

Akira Hirai

Although this piece focuses on why business plans don’t get funded, as oppose to businesses “full stop”, for a lot of investors, the Business Plan is one of the first points of contact they will have with you and your start up.

Something we hear regularly from businesses owners is the claim, "We have no competition". As Hirai writes, “To say that you have no competition is one of the fastest ways you can get your plan tossed - investors will conclude that you do not have a full understanding of your market.” Remember - competition is proof that a real market exists.

Competition doesn’t just come in the form of direct, but also indirect and replacement/substitute, too. I recently wrote a post on the different types of competition your business is facing,  which you can read here.

Click here to read the full post.

16 Reasons Why They Will Not Invest In Your Startup!

Ahmed Mohsen

This post has some great suggestions for things which will discourage potential investors. The one which caught my eye straight away was number 11: “Lack of interest from OTHER investors”, which is why you should have primed your own network/customers/user base prior to thinking about raising capital.

If you start to build interest in advance, your own network can get involved, showing that the fund raise has momentum, and this can often help you unlock further funding from angels and VCs.

No one wants to be “the first” to put their money in, but if they see that you have traction from your own network (which can include friends, family, and customers) they will be more likely to take a closer look at your offering. We talk about this more here. 

25 Reasons I Will Not Invest in Your Startup

John Rampton

Rampton speaks from experience and delivers a number of excellent points, including the importance of getting the valuation of your business right. As he says, “Figuring out the value of your startup can be a challenge” but if you believe the company to be worth ten times more than an investor does, he will most likely look for something else.

When calculating the value of your business, it is good to base it on both the past and potential future, as well as other similar businesses. We offer you some pointers in this post.

If you’ve tried to raise capital previously and have been unsuccessful for a reason not covered here, please let us know what it was by leaving a comment at the bottom of the page and help other entrepreneurs steer clear of the same mistakes.

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.