Investing in unlisted companies, particularly start-ups and early stage businesses can be rewarding however, it also involves a number of risks. This risk warning is to ensure that you understand the risks involved. This risk disclosure is not exhaustive and does not and cannot highlight all the risks involved. You should conduct a level of your own due diligence and seek third party advice from an appropriately qualified independent financial adviser prior to making any investment in light of your personal circumstances. The information contained herein is not intended as investment advice or an offer to buy or sell any investment. It is intended as a guide to enable you to conduct additional research into the potential risks and rewards of investment in SEIS and EIS businesses.
Trendscout doesn’t take responsibility for any inaccuracies herein or for any decision to invest as such a decision is conducted on an unadvised, execution only basis, which is based on your assertion that you are appropriately experienced to fully understand the risks involved. Furthermore, Trendscout doesn’t take responsibility for any assertions, recommendations, opinions or obligations that any third-parties you may subsequently deal with.
Loss of Capital
All investment carries a degree of risk. You should be aware that start-ups and early stage business carry a high level of risk and may fail. You should accept the possibility (prior to making any investment) that if this occurs, you will lose all of your investment. You should therefore not invest more money than you can afford to lose without having to alter your standard of living.
Start-ups, early stage and unlisted businesses carry a high risk of illiquidity. This means that you may not be able to sell part of or all of your investment and could be locked into the investment with little or no ability to redeem or liquidate your money. Often investment in illiquid businesses require a management buyout or stock market listing in order to achieve an exit for early stage investors. If a business fails before such an event, you will lose part or all of your investment. You should not invest more money than you can afford to lose without having to alter your standard of living.
Start-ups, early stage and later stage businesses may not be in a position to make dividend payments as advertised. Investors may be required to wait several years for a dividend if they receive a payment at all. You should accept prior to investment that this is a possibility, as is the business failing, in which case you will lose all of your investment. You should not invest more money than you can afford to lose without having to alter your standard of living.
Investments made 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 then your investment may be diluted as a result which will devalue your investment.
Generally speaking diversification, or the spreading of your investments across a number of different investments is seen as a positive risk management strategy because you are spreading the risk. Investing in start-ups, early stage and unlisted companies 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 disperse risk you should consider investing 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 strongly consider only investing a small percentage of your investment capital into this type of investment which is liquid and has a high degree of failure risk.
You should conduct your own research or seek guidance form an independent financial adviser prior to making any investment. Please visit our website for a full risk disclosure.
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