Investing money in start up companies creates the opportunity to see a substantial return on the money invested however it also involves a number of risks. The purpose of this Risk Policy is to ensure that you, as a potential investor, understand the risks involved. If you choose to invest through Growth Capital Ventures, the risks that you need to be aware of and accept include, but are not limited to:
1. Loss of Capital
Many start up companies fail. The chances are greater that you will make a loss on your investment rather than make a gain and you could lose all the money that you invested. Do not invest more money than you can afford to lose without having to alter your living standard.
2. Exposure to Fluctuating Economic Conditions
In an economic downturn low levels of economic growth have the potential to stifle start up companies and their potential for success.
3. Lack of Operating History
The majority of companies looking for Investment on Growth Capital Ventures are relatively new to the market place and therefore have relatively insubstantial operating/financial histories from which future performance/revenue potential can be deduced.
4. Limited Liquidity
The investment opportunities on the GrowthFunder and GrowthPlaces websites will be of Limited Liquidity meaning that there is no secondary market on which to trade your investment. Even if the business is successful, it is unlikely that you will be able to sell/realise your investment unless it floats on a stock exchange or is bought by another company, which is unlikely to occur for a number of years, if at all.
5. Lack of Dividends
Start up companies rarely pay dividends as they are growth orientated businesses. Even if the start up is successful, you are unlikely to see a return until the company undergoes a liquidity event (i.e. the sale of the company or an initial public offering).
6. Dependence on Directors
The nature of the start up company means that its success is largely a product of its director's strategy and vision to meet the company's investment objectives. Start up companies registered on Growth Capital Ventures have the added advantage that their directors are able to take advice from, and utilise the expertise of the Founders 100, a team of entrepreneurs/business advisers who are interested in assisting start-up and early stage growth businesses.
Any investment you make is likely to be subject to dilution. This means that if the business raises additional capital at a later date and issues new shares, your investment will continue to represent the same number of shares and the percentage of the business that you own will decline. These new shares may also have certain preferential rights to dividends, sale proceeds and other matters which may further reduce the value of your shares. Dilution can drastically impact on the value of your portfolio.
8. Diversify your Portfolio
Investing in start up 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 alleviate risk you should invest small amounts in multiple businesses. To mitigate the risk of investing in start up companies, that carry high risks as well as the possibility of high rewards, you should invest the majority of your investment funds in safer, more liquid assets like bank deposits, bonds, gilts, shares and funds.