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[Equities] 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?
1. You could lose all the money you invest
• If the business you invest in
fails, you are likely to lose 100% of the money you invested. Most
start-up businesses fail.
2. 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 here.
• Protection from the Financial
Ombudsman Service (FOS) does not cover poor investment performance.
If you have a complaint against an FCA-regulated firm, FOS may be
able to consider it. Learn more about FOS protection here.
3. You won't get your money back quickly
• Even if the business you invest in
is successful, it may take several years to get your money back. You
are unlikely to be able to sell your investment early.
• 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.
• If you are investing in a start-up
business, you should not expect to get your money back through
dividends. Start-up businesses rarely pay these.
4. 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.
5. The value of your investment can be reduced
• 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.
If you are interested in learning more about how to protect
yourself, visit the FCA's website here.
[Debentures] 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?
1. You could lose all the money you invest
• If the business you are investing
in fails, there is a high risk that you will lose your money. Most
start-up and early-stage businesses fail.
• Advertised rates of return aren’t
guaranteed. This is not a savings account. If the borrower doesn’t
pay you back as agreed, you could earn less money than expected. A
higher advertised rate of return means a higher risk of losing your
money. If it looks too good to be true, it probably is.
• These investments are sometimes
held in an Innovative Finance ISA (IFISA). An IFISA does not reduce
the risk of the investment or protect you from losses, so you can
still lose all your money. It only means that any potential gains
from your investment will be tax free.
2. 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. Learn more about FSCS protection here.
• Protection from the Financial
Ombudsman Service (FOS) does not cover poor investment performance.
If you have a complaint against an FCA-regulated firm, FOS may be
able to consider it. Learn more about FOS protection here.
3. You are unlikely to get your money back quickly
• Many bonds last for several years,
so you should be prepared to wait for your money to be returned even
if the business you’re investing in repays on time.
• You are unlikely to be able to cash
in your investment early by selling your bond. You are usually
locked in until the business has paid you back over the period
agreed.
4. 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.
If you are interested in learning more about how to protect
yourself, visit the FCA’s website here.
