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
· 1 min read
· Updated on

So you think your start up has no competition?

One of the most oft-heard phrases for us from entrepreneurs and businesses owners is: "my business doesn't have any competition".

Perhaps you've found yourself thinking the same thing when looking at your startup or early stage business. 

You've done some market research and Googled all manner of key words and phrases related to the service or product your business provides but the search has come back with zero results.

In fact, you came up with the idea yourself and patented the innovation. Therefore, you know for a fact that you have no competitors.

 

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Unfortunately, that's not the case and those few words can prove to be the killer phrase in terms of putting potential investors off investing into your business at all. 

No matter how innovative and unique your idea may appear to be, nine times out of ten, there will be something similar already on the market. You may just have to look a bit deeper and think a bit more outside the box, that's all.

If potential investors hear you don't have any competitors they may simply believe that you haven't carried out sufficient market research. All this means is that you don't have a direct competitor; there are other types of competition that your business most likely will have, which is what we'll take a look at in this post.

In an article in The Guardian, angel investor, successful entrepreneur, and former "Dragon", James Caan said:

jamescaanquote

Whilst James is right that it's impossible not to have competitors, direct and indirect aren't the only forms you could be facing.

Types of competition

When it comes to finding your competition, try not to think too narrowly. Dismissing startups and more established businesses because they initially appear too different to yours means that you could overlook some close substitutes which are providing good or better solutions to the same target market as your product or service.

  • Direct
  • Indirect
  • Replacement

We'll look at what each of the above types mean and then follow with some examples.

Direct

Usually what people think of when they hear "competitor". A direct competitor is a business that essentially offers the same product or service as you do.

Indirect

An indirect competitor is a business which offers a similar product or service but may be in a different sector of the same market.

Often more difficult than direct and indirect competition to uncover is...

Replacement

A substitute for the product or service offered by your business. They do not need to be in the same sector and will not be immediately obvious as a competitor.

Examples

directandindirect-1

 

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