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020 3145 1851
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Risk summary for non-readily realisable securities which are shares
\nEstimated reading time: 2 min
Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.
\nWhat are the key risks?
\n1. You could lose all the money you invest
\n• If the business you invest in fails, you are likely to lose 100% of the money you invested. Most start-up businesses fail.
\n2. You are unlikely to be protected if something goes wrong
\n• 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. https://www.fscs.org.uk/check/investment-protection-checker/
\n• 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. https://www.financial-ombudsman.org.uk/consumers
\n3. You won’t get your money back quickly
\n• 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.
\n• 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.
\n• 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.
\n4. Don’t put all your eggs in one basket
\n• 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.
\n• A good rule of thumb is not to invest more than 10% of your money in high-risk investments. https://www.fca.org.uk/investsmart/5-questions-ask-you-invest
\n5. The value of your investment can be reduced
\n• 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.
\n• 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.
\nIf you are interested in learning more about how to protect yourself, visit the FCA’s website here. https://www.fca.org.uk/investsmart
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An example of the support we have provided to an investee company is Hotpod Yoga. At the point of investing in April 2017, Hotpod were using an outsourced finance facility which was not sufficient for their needs, yet they were not ready to invest in a permanent function in-house. This is a typical challenge for emerging businesses whereby a professionalised and full scope finance solution can be somewhat out of reach owing to the relatively small scale of the business (meaning full time finance is not cost effective) and other staffing priorities.
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\nIn the case of Hotpod, we replaced the incumbent finance service within eight weeks of investing and provided bookkeeping and management reporting services enabling the business to benefit from more timely and relevant financial information as well as better cash and systems controls. We were also able to provide tailored support at the Finance Director level, inputting on systems design, preparing and analysing budgets and providing a sounding board with an experienced finance professional.
\nAll businesses must aspire towards their own finance solution and in early 2019, we agreed with Hotpod management that the necessary scale was in place to move finances in-house. At this point, we led on the recruitment of a Finance Manager who was eventually placed in April 2019. Our advisory team’s flexible support continued as an outsourced support team to the newly placed Finance Manager as well as a continuation of the Finance Directorship.
\nBy early 2020, Hotpod had recruited their own Finance Director, and they are now entirely self-sufficient with a dedicated finance team.
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