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.
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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.