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.
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Risk Summary

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?

  • You could lose all the money you invest
  • Most investments are shares in start-up businesses or bonds issued by them. Investors in these shares or bonds often lose 100% of the money they invested, as most start-up businesses fail.
  • Checks on the businesses you are investing in, such as how well they are expected to perform, may not have been carried out by the platform you are investing through. You should do your own research before investing.

You won't get your money back quickly

  • Even if the business you invest in is successful, it will likely take several years to get your money back.
  • 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.
  • Start-up businesses very rarely pay you back through dividends. You should not expect to get your money back this way.
  • Some platforms may give you the opportunity to sell your investment early through a 'secondary market' or 'bulletin board', but there is no guarantee you will find a buyer at the price you are willing to sell.

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. Learn more here.

The value of your investment can be reduced

  • If your investment is shares, 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.

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.
  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA's website here.

For further information about investment-based crowdfunding, visit the crowdfunding section of the FCA's website here.
Insights
Raising Capital
Jenna Taylor
· 2 min read
· Updated on

10 key metrics early stage investors want to know about your start up

You've decided it's time you raised some capital for your start up or early-stage business so you can put your growth plans into action.

Whether you've bootstrapped up until this point or have received investment previously and are now looking to raise further growth capital, the process isn't that different.

From conducting an online equity crowdfunding campaign to approaching a bank for a loan, or presenting at a live pitching event, raising capital requires structure, preparation, and supporting documentation. That documentation usually includes a business plan, executive summary, and financials.

Each is used to give potential investors an insight into your company, in terms of past performance, present standings, and future plans.

Whilst every investor has their own set of criteria when it comes to what they look for when making an investment decision, there are some key metrics which usually attract careful consideration.

Here, we'll look at the 10 metrics investors look for when examining your start up business.

1. Gross Margin

This indicates how expensive it is to make your product or offer your service. Expressed as a percentage, this is calculated either by taking the business' total sales revenue and subtracting the cost of goods sold (then diving by the total sales revenue) or the selling price of an item, less the cost of goods sold.

2. Revenue Growth

Also known as the "top line", this metric indicates the growth or expansion potential of a business through the illustration of increasing and decreasing sales over a period of time. Rather than simply being a snapshot of revenue, it is able to convey trends.

3. Net Income

Also known as the "bottom line", "profit attributable to shareholders", or "burn rate". This shows the business' total earnings and is calculated by taking all costs incurred (including cost of doing business, depreciation, interest, taxes, and other expenses) away from the revenue amount.

4. Contribution Margin

This metric shows the profitability of individual products. The Contribution Margin is used to determine whether variable costs for your product can be reduced, or if the price of the end product should be increased. 

Depending on the sector your business operates in, this margin can range from 5% to 25%.

 

5. Churn Rate

A metric which shows the revenue potential of each of your individual customers. The larger churn your business experiences, the more difficult you will find Revenue Growth.

In order to expand your customer base, your number of new customers needs to exceed your churn rate.

6. Customer Acquisition

The cost associated with attracting customers to your business. As you work to engage potential customers, you spend money on producing the product or service you offer, research, and marketing - the less you can spend on customer acquisition, the better.

7. Sales Quotas

Including your goals and how closely you've achieved them indicates how well your product is selling and whether or not your sales team is performing efficiently.

8. Salary

This is the single biggest expense for most start ups and a lot of more established businesses too. Potential investors will be interested to see whether you pay low salaries (which could raise employee-retention questions in the future), or excessive salaries (which will reduce your company’s runway very quickly).

9. Revenue Per Employee

A metric which indicates how efficient your business is in using your employees. In general, relatively high Revenue Per Employee suggests that your team is producing more sales, which is a positive sign. 

Some sectors and products seem to just need more people in order to generate higher sales, which is worth keeping in mind.

10. Non-Personnel Marketing Spend

This is perhaps the only variable metric on the list, as it can be controlled, month-to-month. Typically, it refers to money spent on advertising and events, which can be increased or decreased as your other marketing efforts progress.

It is a good indicator of how well your business understands marketing and reacts to the analysis of sales results. 

 

Download our Free Investing into Startups Guide

 
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Creating Value.
Delivering Impact.

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Growth Capital Ventures (GCV) is backed by funds managed by Maven Capital Partners, one of the UK’s leading private equity and alternative asset managers.