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Risk Warnings

Due to the potential for losses, the Financial Conduct Authority (FCA) considers investments like these to be high risk.

What are the principle risks?

 

1. You could lose all the money you choose to invest

 

If the business you decide to invest in fails, you are likely to lose 100% of the money you invested. You should consider when deciding whether to invest or not that most start-up businesses are not successful.

 

2. You are unlikely to get your money back quickly

 

Even if the business you invest in is successful, it may take several years before you get your money back. You are unlikely to be able to sell your investment early.

 

The most likely way for to get your money back is if the business is bought by another business or lists its shares on an exchange, for example the London Stock Exchange. These events are not common.

 

If you do decide to invest in a start-up, you should not expect to get your money back through dividends as these are rarely paid.

3. Spread your risk and investment

 

Investing all your money in a single business or type of investment, is risky. Spreading your money across different investments makes you less dependent on any one to do well.

 

The FCA suggests you should not invest more than 10% of your money in high-risk investments.

 

4. The value of your investment may reduce

 

The percentage of the business that you own will decrease if the business issues more shares, which could reduce the value of your investment, 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, for example the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

 

5. You are unlikely to be protected if something goes wrong

 

The business offering this investment is not regulated by the FCA. Protection from the Financial Services Compensation Scheme (FSCS) only considers claims against failed regulated firms. You can find out more about FSCS protection here.

 

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

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