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
Lauren Miller
· 4 min read
· Updated on

Investment Readiness

Raising growth capital for businesses is a challenge. It can take a lot of time and focus which means the day job of building the business or product and driving revenues can be hindered.

Raising capital is a crucial strategic decision for any business, and there are different types of money available from different sources.

The first step for any business is to understand what type of funding or mix of funding will be most appropriate for the business at the current stage, and will ensure that the management team can execute the overall growth strategy.

An established revenue generating and profitable business may be in a position to service debt, whereas a pre-revenue high-growth start up will probably need equity investment to grow. Whatever type of funding your business needs it's important that you are investment ready.

Understanding the type of funding that your business needs is the first step. The second essential step is to understand which funders or investors are best placed to provide the capital you need.

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Craig Peterson, Co-Founder of GrowthCapitalVentures and GrowthFunders, shares his thoughts on the key elements that growth focused businesses should consider as part of their investment readiness plan:

“At Growth Capital Ventures we help businesses raise capital from our network of Venture Capital and Private Equity Funds, together with a network of High Net Worth Individuals and Retail Investors. We back businesses with high growth potential, and generally these businesses are looking for equity investment. They are therefore comfortable with the idea of selling a share of the their business in exchange for investment, providing the business with growth capital to scale up.

There are many points to consider from an investment readiness perspective, and I would suggest the business considers the deal from the investor’s point of view. As an investor there are 5 key points I would look for. This is by no means an exhaustive list, but I would encourage any team raising equity finance to first of all understand their investor audience clearly and then provide them with the information they need.

Personally, I like to consider the 5 M’s as a starting point.

  • Management:
    • How complete is the management team?
    • Do they have deep sector knowledge?
    • Have they raised capital, built a team and scaled up a business previously?
    • What skillsets do they have? Can the team market and sell their product.?
    • How can any skills gaps be filled? Do the team have plans to address this?
  • Market:
    • Do you understand your market clearly in terms of market size, trends and gaps in the market?
    • Are your potential customers experiencing a genuine problem that your product or service can solve better, quicker or cheaper than your competition?
  • Model:
    • Can you clearly articulate your business model and revenue model?
    • Be clear on how you make money.
    • Who your target customers are and what sales and marketing channels are you going to use to reach them?
    • What is your value proposition and why will it make potential customers choose your product or service over a competitor’s?
    • Highlight any strategic partnerships that are critical to your success or will help you create and maintain a competitive advantage.
  • Money:
    • How much capital are you looking to raise in exchange for what percentage of equity?
    • How are you going to use the funds to increase the value of your business and reach a successful exit?
  • Momentum:
    • Does the business have momentum or traction?
    • Is the business moving forward to reach pre-defined goals that create value or mitigate risk?
    • Is there a Minimum Viable Product (MVP) that can be used by potential customers and early adopters?
    • Does the MVP demonstrate the value of the product or service?
    • Is the business generating revenues or have you identified a clear path to monetisation?

Any investment ready business should be in a position to clearly demonstrate a strong team, a deep understanding of their market and competition, a detailed understanding of their business model, how the business makes money and what traction and key milestones have been achieved. More importantly the business must know what the plans are once funds are raised, how the funds will be used to scale the business and what the key value creating milestones are that will ultimately lead to a successful exit.

Overall, becoming fully investment ready is an intensive process. The more prepared you are the better your supporting documents will be. Some companies can raise capital with a deck and some high level numbers… but this is very rare. This tends to happen in companies where the people, the company/product name or the business reputation are already known to potential investors and therefore the supporting documents are less important. In the main, an investee company will need to produce a decent plan and robust set of numbers that clearly articulate where they are now, where they want to go and how they're going to get there. Generally, the outcome of being investment ready is a set of documents that are instrumental in unlocking investment;

  • Opportunity Note - an executive summary of the business, raise and offering
  • Investor Presentation - a deck for face to face presentations and demos
  • Investment Memorandum - a full investment document on the business, product, markets, problem, solution, financials and plans
  • Financial Forecast - a well documented and logical set of financials

We see too many businesses that are just not investment ready trying to raise capital. Pitching to investors when you’re not ready will waste valuable time. When you’re raising equity finance you are selling shares in your business in exchange for the capital that will transform your business and accelerate growth. This capital should be the catalyst to helping you significantly increase the value of your business and your share of the business... probably the most important sale you will ever make.

I'm still surprised that some founders don't invest in the investment readiness process in the same way they would invest in a product launch. Both are about making a sale, both are crucial to success, and I would expect to see the same level of polished information for both.”

If you’d like further information on becoming Investment Ready with GrowthCapitalVentures and our co-investment platform, GrowthFunders, please get in touch today by clicking below:

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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.