Investing money in unlisted companies (particularly start-ups and early stage businesses) can be very rewarding, however it also involves a number of risks.
The purpose of this risk warning is to ensure that you, as a potential investor, understand the risks involved. If you choose to invest through the Growth Capital Ventures platform, there are five important considerations you need to understand and accept;
Start-ups, early stage and later stage may fail, and if you invest in a business the Growth Capital Ventures platform, you accept that if a business fails you will lose all of your investment. You should not invest more money through the platform than you can afford to lose without having to alter your standard of living.
The investment opportunities on the Growth Capital Ventures platform are private unlisted companies and will be of limited liquidity. Currently there is no secondary market for any investments made through the Growth Capital Ventures platform. Investors in unlisted companies may normally expect to sell/realise their investment when and if the company floats on a publicly listed stock exchange, or is bought by another company, which often takes a number of years from initial investment.
Unlisted companies particularly start-up and early stage businesses rarely pay dividends. If they do pay dividends then the level will depend on the success of the investee company which may take some years to achieve, if at all. Companies have no obligation to pay shareholders dividends and generally investee companies will reinvest profits to grow and build shareholder value. This means that if you invest in an unlisted company through the platform, even if it is successful you are unlikely to see any return of capital or profit until you are able to sell your shares in the investee company. Even for a successful company, this is unlikely to occur for a number of years from the time you make your investment.
Any investment you make through the Growth Capital Ventures platform may be subject to dilution. This means that if the company raises additional equity funding in the future, it will issue new shares to new investors and the percentage of the business you own will decline. Any new shares may also allow for certain preferential rights to dividends, sale proceeds and other matters. If such rights are exercised by new investors this may work to your disadvantage. If the investee company grants options (or similar rights to acquire shares) to connected employees, service providers or certain other parties/individuals then your investment may diluted as a result.
Investing in unlisted companies (start-ups, early stage and established) should be done as part of a diversified investment portfolio. Not every type of investment will be appropriate for every investor. To spread and therefore alleviate risk you should invest smaller amounts in multiple businesses. Investing in unlisted companies, particularly start-ups and early stage, is a high risk/high reward investment strategy and you should invest the majority of your investment funds in safer, more liquid assets.
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