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

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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

Impact investments: Better returns? but fewer opportunities

It seems to be generally accepted now that investing for impact – in businesses or projects that make a positive difference to society – can be as financially rewarding as traditional investments.

A survey by the Global Impact Investing Network (GIIN) and JPMorgan, found that 55% of impact investment opportunities result in competitive, market rate returns.

This was backed up by a meta-study by Friede & Busch of more than 2,200 pieces of academic work over the past 40 years, which analysed the relationship between environmental, social and governance (ESG) factors and corporate financial performance. It found that more than 90% of them showed that ESG factors have a positive or neutral impact on financial returns.

It says:

"The results show that the business case for ESG investing is empirically very well founded."

But, the cynic might say, if that’s true, then why aren’t there more impact investing opportunities around? Logic and the laws of supply and demand would suggest that if impact investing can give decent returns, investors would be clamouring for them and the market would provide them.

On the face of it, it seems there is the demand for impact investments but not necessarily the supply.

For example, according to research by Triodos Bank, a majority of investors in the UK favour a fairer and more sustainable society. However, two-thirds of them have never been offered ethical funds, despite the fact 64% of investors would like to support companies that make a positive contribution to society and the environment.

Also, the latest UBS Investor Watch, which surveyed more than 5,300 investors in 10 countries on sustainable investing, found that currently only 39% hold sustainable investments in their portfolios, defined as at least 1% of their investable assets.

Read more: it’s a fact - socially responsible, impact-driven investments can deliver long term returns

Now it’s possibly down to a lack of clarity over definition. In a recent article in Business Day magazine, Steve McCallum and Suzette Viviers, academics in the department of business management at Stellenbosch University, examine this. They say ambiguity over the definition of impact investing is a barrier to impact measurement that reduces the attractiveness of it as an investment strategy.

To complicate matters further, there’s no universally agreed set of metrics to measure and compare impact. The lack of a standardised definition has been at the centre of debate since the term impact investing was coined at the 2007 Rockefeller Foundation convention.

However, there is general agreement on four elements that make up an impact investment:

  • It should be an active and intentional deployment of capital
  • The impact created by the investment should be measurable
  • There should be a positive correlation between the intended impact and an investment’s expected return
  • It should have a net positive effect on society and the natural environment

This is a reasonably broad definition and it’s probably broader than many who haven’t gone deeply into impact investing would have expected.

In a recent article in the FT, Mark Haefele, chief investment officer of UBS global wealth management, argues that the old critics of sustainable and impact investing (SII) were unfairly and unfavourably comparing regular or traditional investing with “exclusion” investing (the exclusion of ethically questionable investments)

However, SII is no longer just about avoiding certain socially harmful activities. With impact investing it can also be a question of backing good things. Impact investments are made in businesses or projects that have a positive social impact, which could, for example, be providing clean water, clean energy, life savings drugs or education.

The implication is that too narrow a definition of impact investing fails to take into account all the opportunities that are out there.

Writing in Forbes magazine, Georg Kell, chairman of Arabesque and founding director of the United Nations Global Compact, says:

“…[ESG factors] might include how corporations respond to climate change, how good they are with water management, how effective their health and safety policies are in the protection against accidents, how they manage their supply chains, how they treat their workers and whether they have a corporate culture that builds trust and fosters innovation.’’

The World Bank says:

“ESG investing is increasingly becoming part of the mainstream investment process for fixed income investors, as opposed to a specialist, segregated activity, often confined to green bonds.’’

Impact investments don’t have to be limited to a narrow range of obviously philanthropic or green projects. As I said right at the beginning of this piece, an impact investment can be in any business or project which makes a positive difference to lives and society.

There are hundreds of highly innovative businesses starting up every year which are seeking early stage funding. There are new businesses seeking funding in health research, clean energy, education and training.

Read more: 3 key reasons impact investing is soaring in popularity

Housing is also a sector in which there’s huge potential for impact investing to make a difference, not only in relieving homelessness and improving quality of life, but also in providing economic stimulus, jobs and training and in regenerating communities.

Financial and media company Bloomberg says:

“The investment opportunity of affordable housing, especially in emerging markets, is massive: the McKinsey Global Institute estimates that construction investments of between US$9trn and US$11trn will be necessary by 2025 to replace today’s substandard housing and build necessary additional units, and that an additional US$16trn will be needed for land.’’

In its recent report: The Economic Footprint of Housebuilding in England and Wales, Lichfields points out that last year some £12bn was invested in the housebuilding industry in England and Wales. Of this, £11.7bn was spent on suppliers, of which 90% was spent in the UK.

The UK sector generates £38bn of economic output each year, supporting nearly 698,000 jobs and, among these are 4,300 apprentices, 525 graduates and 2,900 other trainees. It paid £2.7bn in various taxes, created £4.2bn of affordable housing and spent £841m on infrastructure, including £122m on new and improved schools. So, an investment in house building is certainly going to have an impact which meets the new definition and qualifying criteria for impact investing.

Ultimately, there’s a wealth of opportunity for investments that makes for generous returns and wide diversification – as an industry, we simply need to help ensure investors know that these are also often impact investments.
Driving Growth.
Creating Value.
Delivering Impact.

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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.