With various options available, they're all focused on investing money into a company or asset of some variety.
And on a high level, the options for investing your money into these come in two different styles - investments into unlisted companies, and investments into listed companies.
Both listed and unlisted investment opportunities allow investors to buy an investment asset and potentially earn a return.
The key distinction between listed and unlisted investments is the structure, with each one having a different way of buying and selling the investment.
What's more, listed and unlisted investments often perform very differently - on many occasions, the value and investment return received from investments covering exactly the same asset class (for example, listed property and direct property) is not the same.
Whilst we only provide investment opportunities into unlisted companies, it's important as an investor that you're aware of the differences, so you can make the most informed choice when it comes to deciding on where to invest your money.
Unlisted investment opportunities
Also known as unquoted investments, unlisted investments are investments into shares of companies or assets that are not traded on the open market.
With the opportunities generally being for smaller companies, importantly, they will normally have ambitious plans for rapid growth; plans which need investment to be implemented, so to take their business to the next level.
As these businesses are considered higher risk than their more established counterparts, finance can be difficult for them to obtain. One solution is private equity from individual investors and funds invested directly in the companies.
And to support investment into unlisted companies and drive growth in British businesses, the government has established the Enterprise Investment Scheme (EIS), which offers - amongst other incentives - income tax relief of 30% to investors.
And like the EIS scheme, the Seed Enterprise Investment Scheme (SEIS) is also available, offering income tax relief to investors at an even greater rate of 50%.
Investing in early stage or start up businesses does carry a significant risk, but in addition to the generous tax reliefs available, there always the possibility one of these businesses could turn out to be the next big thing, providing a very positive return - take Facebook or Google as perfect examples!
Understanding the risks as an investor
As with any investment, those in unlisted companies do bring with them risk, and it's important these risks are made fully clear before an investment is made.
Generally speaking, these can be summarised in four areas:
- Loss of capital invested - investors need to be financially able to absorb any losses and invest in unlisted investments as part of a diversified portfolio
- Inability to trade shares on open market - shares are not traded on the open market and therefore unlisted investments are generally highly illiquid. Many years after making an investment, investors may only be able to sell their shares when the company achieves a successful exit via a sale or floatation
- Possibility of dilution - investors may find that as the unlisted company grows, it will require additional finance. In return, additional shares may be issued, thus reducing the percentage of the company owned by existing shareholders, diluting their holdings.
- Dividends unlikely - unlisted companies are not obliged to pay dividends to shareholders, and if they do, they may be infrequent. Instead, many small companies choose to reinvest profits in the business to facilitate further growth.
Different ways to invest
As well as direct investment in an unlisted company, it is also possible to invest via an EIS and an SEIS fund.
These funds are investment vehicles that raise finance from individuals and institutions to invest across a portfolio of EIS or SEIS-eligible companies, spreading risk across different companies.
The funds always aim to return a profit, which is then shared by all those investing, whilst also offering the benefit of EIS or SEIS tax reliefs.
Furthermore, Venture Capital Trusts (VCTs) offer investors tax benefits, working in a similar way to EIS and SEIS funds.
These essentially allow investors to spread their investment across a number of small higher-risk trading companies not listed on the stock exchange.
The majority of investments made by large funds tend to be listed assets, which means the investments are ‘quoted’ or ‘listed’ on a secondary market - for example, the London Stock Exchange (FTSE).
Being listed essentialy means investors participating in that market can buy and sell their investments on a regular basis on the relevant market exchange.
The main asset classes (other than listed company shares) and investment structures investing in underlying asset classes include:
- Bonds: a bond represents a product that reflects a fixed-term loan between a government or company, and an investor. Listing a bond product allows investors to sell the loan or bond to another investor at the market price.
- Hybrid securities: such listed securities combine elements of both debt and equity. Examples include the floating interest rate notes that convert to shares issued by major banks
- Exchange Traded Products (ETPs): ETPs give investors exposure to shares or other assets by tracking the performance of an index
- Managed funds: these funds pool the money of individual investors and include share funds, property funds, listed investment companies (LICs), infrastructure funds and absolute return funds
- Warrants, options and derivatives: sophisticated investment tools, these provide investors with alternative ways to invest in large companies, currencies and commodities.
As mentioned, at GrowthFunders we focus on providing a range of tax efficient investments for our investor members. These opportunities are thoroughly pre-vetted prior to listing on the GrowthFunders platform.
Providing impact-driven investment opportunities that fall under the SEIS and EIS umbrellas wherever possible, our co-investment model enables everyday investors to invest alongside professional and institutional investors and back the next generation of great bristish businesses.