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. Take 2
mins to learn more.
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?
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.
• 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.
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 any one to do well.
• 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.
When you invest in young, small companies that qualify for the Enterprise Investment Scheme (EIS) you could generate significant returns if the company prospers.
But that’s far from certain. Investing in this
kind of business is risky and many will fail. Therefore, to encourage
investment and to temper some of the risk, the government offers generous EIS tax reliefs:
The Scale-up EIS fund is one of two EIS funds from Fuel Ventures. It seeks to make investments into early-stage digital businesses operating in three key areas: marketplaces, platforms, software as a service. The fund is managed by successful entrepreneur-turned-investor Mark Pearson.
The second knowledge-intensive (KI) approved EIS fund from Parkwalk Advisors, looking to back patented technology with commercial potential coming out of UK universities. Because of the ‘KI approved fund’ structure, the investment date for tax relief should fall in the current tax year.
VC-backed, award-winning geofencing technology keeping workers safe in rail and heavy industries. Launched in March 2023, Tended’s technology is currently used across the rail industry by leading organisations, including Network Rail and Siemens.
The British Robotics Scale-Up Fund looks to invest in the most promising companies from the British Robotics SEIS Funds in the manager’s view. This offer will target businesses operating purely within the UK robotics sector, with a particular emphasis on automation technology.
Foresight Group has joined forces with WAE: the result is the Foresight WAE Technology EIS Fund. The fund invests into early-stage, unquoted companies that are developing disruptive technology and pioneering innovations, which can benefit from WAE's technical, engineering and commercial expertise.
Mercia EIS Fund seeks early-stage businesses with disruptive technologies operating in specialist sectors including healthcare, software, and deep tech. It has a focus on the Midlands and the North of England.
The fund is managed by Parkwalk Advisors, one of the UK’s most active investors in university spinouts with more than £400 million assets under management. The fund looks to back patented technology with commercial potential from UK universities. Parkwalk also manages funds in conjunction with the technology transfer departments of the universities of Cambridge, Oxford and Bristol, as well as Imperial College.
Launched in 2014, the University of Oxford Innovation Fund offers Oxford alumni and investors opportunities to invest in early-stage science and technology companies, usually as they spin out of Oxford University.
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