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
Industry Insights
Dan Smith
· 4 min read
· Updated on

The UK needs more angel investors - how startup investing helps

Angel investment is on the rise in Britain, but figures suggest even more is needed to meet the demand of ambitious entrepreneurs across the country.

In its 2018 annual update, the UK Business Angels Association (UKBAA) reported that 41% of angel investors increased their level of investment in the 2016/17 tax year.

This good news for Britain’s startup community was tempered by a recognition that the angel investment scene is somewhat London centric, with the majority of venture capital transactions occurring in the nation's capital. Over 57% of angel investors are reportedly based in the Capital and the South East.

The highest proportion beyond this was in Scotland (8%), followed by the South West (6%), the North West (5%), the East of England (5%), Wales (4%) and Northern Ireland (1%). The research clearly suggests more work is needed to achieve a more balanced spread of angel funds nationally.

The report also pointed to a disproportionately low representation of women in Britain’s army of angels, with only 9% of business angels in the UK in 2017 were women, according to reports, compared to 20% in the US.

Events like our UKBAA-backed angel investment forum targeted at women, held in Leeds in October, will go some way to addressing this issue, but more clearly needs to happen.

And positively, we are seeing steps being made.

The government-owned business development bank, the British Business Bank, is stepping up its efforts to encourage more into angel investing, for example.

A digital portal aimed at helping companies understand their finance options, including angel investment, is among its plans announced in 2018, whilst the organisation has also rolled out a new financial instrument to support the creation of regional angel groups.

Read more: why do so many investors invest in startups?

Similarly, the UKBAA is in the process of opening 'angel hubs' in locations across the UK to serve as focal points for “connectivity, awareness and education”, according to its latest annual report.

These initiatives could indeed boost the volume of angel investors in the UK.

But existing angels themselves might also be a catalyst for welcoming new recruits to their club.

Many come to angel investment with entrepreneurial success behind them. And this success will often have been fuelled by angel investors who gave them the funding they needed to scale up themselves.

If continued, this chain of investment can become an ongoing loop which creates new opportunities and prosperity – for individual businesses and the communities they call home.

This, in turn, bolsters the wider national economy, as recognised by the G20 group of nations in 2017 when it announced angel investment as one of its key areas of focus.

G20 leaders underlined the crucial role of angel investment in developing and stabilising economies by helping small firms overcome the challenge of accessing finance.

Theoretically, the more entrepreneurs supported past funding barriers by an angel, the more that will go on to become the next generation of angel investors.

While the average angel investor in the UK has eight years of experience in angel investment, a reasonably steady stream of newcomers is apparent, according to the UKBAA.

Its survey of over 650 angels, published in 2018, shows that 17% came to angel investing in the previous two years. The study also suggests angels are keen to impart their own entrepreneurial expertise onto those they back.

It found that 76% of respondents give strategic advice to firms they invest in, with 68% providing a “sounding board” to their founders/leaders.

Read more: what do successful private investors look for in a startup?

Clearly, angels are a vital source of both funding and expert advice for entrepreneurs and their creations.

So how do we see a boost in the UK ranks by creating more angel-backed entrepreneurs?

An influencing factor may be the continual surge of interest in impact investing.

Enterprises that combine profitability with environmental or social benefits are increasingly in demand by investors.

This was laid bare recently when financial services giant UBS Global Wealth Management announced plans to include environmental scores in its 2019 funds. Bonds and equity funds will be gauged on impact indices such as pollution, ethics and climate change.

Rather than a publicity stunt, the move is indicative of an ever-more considerate investment community.

The Global Impact Investing Network’s 2018 annual summary predicted that the volume of impact investment deals and the amount of capital put into impact investments would rise by 5% and 8% respectively in 2018.

Entrepreneurs with good intentions can take advantage of what has advanced in recent years from a minor trend to practically the new normal of investment.

Startup business plans that deliver strong returns, coupled with positive impact, are becoming a hugely popular addition to angel portfolios.

Impact entrepreneurs who successfully leverage angel funds to achieve their goals could then mature into impact-friendly angel investors – and the cycle of investment goes on.

UK tax incentives are also helping to speed the journey from would-be entrepreneur to seasoned angel investor.

The Enterprise Investment Scheme (EIS) rewards investments in small, high-risk companies, offering income tax relief of 30% of the cost of the stake in the startup. Up to £300,000 worth of tax relief is available.

Furthermore, the Seed Enterprise Investment Scheme (SEIS) is designed to incentivise support for early stage businesses. It represents an income tax relief of 50% of the cost of shares, for investments of up to £100,000.

Read more: 6 facts you might not know about EIS tax reliefs

Such schemes - which also offer a range of other tax reliefs and incentives - can help angel investors build up diverse portfolios of startups, potentially boosting their wealth and generating yet more funds to inject into startups.

Over the long term, a growing population of angels should ensue.

Of course, not all successful startup entrepreneurs will go on to become angels – but a large proportion do, evidence suggests. A study by Coutts entitled Life After Exit found that 74% of entrepreneurs will try “advising another business” after exiting their own firm, while 65% will invest in another company.

It is also important to note that not all angel deals will lead to a positive outcome, in the high risk, high reward game of startup investment.

However, angel funds can be absolutely pivotal in achieving startup success and help to steer past one of the most common reasons for failure.

CB Insights’ data on the post-mortems of 101 failed startups shows that “ran out of money” was a cause of death in 29% of companies profiled. This was second only to “no market need”.

By funding people at the beginning of their startup journey, successful entrepreneurs can reap the many rewards of angel investing while laying the foundations for others to do the same in years to come.
Driving Growth.
Creating Value.
Delivering Impact.

Backed by

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.