Last updated: 31 March 2023
Estimated reading time: 2 min
Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
1. You could lose all the money you invest – If the business you invest in fails, you are likely to lose 100% of the money you invested. Most start-up businesses fail.
2. 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 here or via the following URL link: https://www.fscs.org.uk/check/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 firm, FOS may be able to consider it. Learn more about FOS protection here or via the following URL link: https://www.financial-ombudsman.org.uk/consumers.
3. You won’t get your money back quickly – Even if the business you invest in is successful, it may take several years to get your money back. You are unlikely to be able to sell your investment early.
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.
If you are investing in a start-up business, you should not expect to get your money back through dividends. Start-up businesses rarely pay these.
4. 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 anyone to do well.
A good rule of thumb is not to invest more than 10% of your money in high-risk investments. Read more about it here or via the following URL link: https://www.fca.org.uk/investsmart/5-questions-ask-you-invest.
5. The value of your investment can be reduced – 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.
If you are interested in learning more about how to protect yourself, visit the FCA’s website here or via the following URL link: https://www.fca.org.uk/investsmart.
Please find the PDF version here.
Investors play the role of pillars for a business startup and there are many investors available in the startup business market. All startup investors have different terms, policies, and investment criteria.
Before dealing with any investor, you must know about all their capital rules and expectations they have for your business.
Here are five ways you can find an investor for your business startup:
To find out which of these methods will suit your skill-set and your business model specifically, let’s take a closer look below.
Venture capitalists are investors who provide private money to grow a business and are not part of any investment organization nor do they provide investment through a partnership. They have their own money to invest in the start-up business, and in-return get a profit, according to the predefined rules set.
One of the biggest advantages to approaching venture capitalists, especially if you’re early in your startup journey, is that they are easy to contact. Some websites provide the facility to ask for investment from these investors, alternatively you can track down and contact potential VCs on LinkedIn.
If the CV considers your business to be profitable and they feel they can add value to your business, they will likely invest.
There are many online fundraising platforms from which you can find investment. These platforms offer loans for businesses, crowdfunding or donations and are designed to be incredibly user-friendly and accessible to a wide range of audiences.
Some of the most popular fundraising platforms include:
My recommendation is to focus on one or two platforms, populating them with as much data, branding and activity as possible rather than trying to cover as many platforms as possible. This is how you get noticed.
Social media is a fantastic source of business advertisement both in generating sales and in generating brand awareness. Both of which a potential investor will want to see.
In similar fashion to fundraising platforms, if your goal is to raise investment, focus on fewer social media channels than trying to cover every single one.
In similar fashion to raising your series A, an investor will be browsing your Instagram to see traction. They will want to see some evidence of people caring about your product and your brand. If they don’t, this may well be the first and final place they consider your business for investment.
Traction can be best demonstrated through a number of ways:
Don’t hold back and allow your LinkedIn feed to be a timeline of your startup’s achievements. Transparency is key here, and potential investors will be looking for success statistics and engagement from stakeholders. These can be posted on your personal and business LinkedIn profile.
Posting the following on your LinkedIn feed will bode well with investors:
Before investing in a new business, investors check the business plan. If investors find your business plan shows a clear value offering and traction metrics, then they will surely invest in your business.
Your business plan should be strong enough financially and offer realistic exit points so that investors do not doubt the loss of their investment.
Tip: Investors like to invest in businesses that have high chances of profit, therefore it is vital that your business can demonstrate market demand and show early revenue generation.
Equity financing is an investment method, where a person invests in your business for a share in the business. You can easily access equity investors online or from your friends and family. This investment method can be an effective way to enhance your business.
Choose investors and an investment method carefully, because if you want to enter into a partnership with any investor, there are different rules to be followed and they will get profits according to the shares they have in your business.
However, if you want to be the only owner of the business, then avoid investors who look for a partnership, i.e, venture capitalization and equity financing are not suitable.
At Velocity Capital, we invest in digital-first direct to consumer companies with unstoppable founders. Does this sound like you? Get in contact with us to find how we can provide early stage capital funding to your business, and view our current investments to see who we’ve worked with so far.
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Investing in start-ups and early-stage companies involves risks, including illiquidity, lack of dividends, loss of investment and dilution. It should be done only as part of a diversified portfolio. There is no assurance that the investment objectives of any investment opportunity will be achieved or that the strategies and methods described herein will be successful. Past performance is not necessarily a guide to future performance and the value of an investment may go down as well as up.
The investments are targeted exclusively at investors who understand the risks of investing in early-stage businesses and can make their own investment decisions. Any pitches for investment are not offers to the public and investments can only be made through Sapphire Capital Partners LLP as the fund manager. Neither Velocity Capital Advisors Limited, Sapphire Capital Partners LLP nor any of their members, directors or employees provide any financial, legal or tax advice in relation to the investments and investors are recommended to seek independent advice before committing or if they have any doubts as to the appropriateness or suitability of such an investment in relation to their specific circumstances.
Investments made in investee companies via alternative investment funds may be covered by the Financial Services Compensation Scheme (FSCS). For more details, please contact us or refer to their website: https://www.fscs.org.uk.