Loss of Capital
7 out of 10 start-up and early stage businesses will fail so it is important not to invest any more than you are happy to lose.
Any investment you make through the platform will be highly illiquid, which means you will be unable to sell your shares until the business has driven towards a successful exit. Even for a successful business, a flotation or purchase is unlikely to happen for a number of years, and investors must be of the time frame between investing in a business and seeing a return.
Start-up and early stage businesses very rarely pay dividends because its highly likely that any profits that are made are re-invested into the business to build the shareholder value. Even for a successful business, dividends are unlikely to occur for a number of years until the company is in a position where they do not have to continue to re-invest. Businesses have no obligation to pay dividends.
Any investment you make through the GrowthFunders platform is likely to be subject to dilution. This means that if the business goes for additional funding at a later stage, more shareholders will come on board, reducing your percentage of the investee company. Another reason for dilution in a business would be due to the grant of options available to employees of the investee company or to other service providers closely linked to the business. It is therefore important to continue to reinvest in the business, increasing your shareholder percentage.
Investing in start-ups and early stage businesses is always going to be high risk. Therefore it would be in the investors’ best interest to diversify their investment portfolio by investing smaller amounts in different companies in a range of sectors, rather than investing large amounts in one small company.