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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.

• A good rule of thumb is not to invest more than 10% of your money in high-risk investments.

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.

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Free guide: How to invest in startups

From creating the first chocolate bar to inventing ATMs and the world wide web, Britain has a rich, centuries-long history of innovation. Startup companies are the country’s growth engine, the lifeblood of the economy.

A crucial factor to keep that engine running are the investments thousands of private investors make every year to help them get off the ground and scale up.

Why invest in startups? What tax benefits are there in investing in such companies?

Download your free guide and find out:

How you could improve your chances of backing a winner
What type of tax incentives the government offers
How you could potentially get up to 50% income tax relief
How you could potentially halve a capital gains tax bill
What the main risks are

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A word of caution: the investments described are only for experienced investors. They invest in small companies, which are by nature riskier than their larger counterparts. You should not invest money you cannot afford to lose. Remember, tax rules can change and benefits depend on circumstances. This free guide is not advice or a personal recommendation, but it explains the main facts you need to know, so you can decide if these opportunities are for you. If you are unsure, please seek advice.

Free guide: How to invest in startups

A crucial factor to keep that engine running are the investments thousands of private investors make every year to help them get off the ground and scale up.

Why invest in startups? What tax benefits are there in investing in such companies?

Download your free guide and find out:

How you could improve your chances of backing a winner
What type of tax incentives the government offers
How you could potentially get up to 50% income tax relief
How you could potentially halve a capital gains tax bill
What the main risks are