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Ongoing scrutiny

Managing risk in an EIS portfolio isn’t just about investment decision-making. Backing entrepreneurs and start-up companies involves a close two-way relationship in which experienced ventures investors can provide expertise and advice for the growth of the company.

The Oxford Capital ventures team’s close involvement with the companies our clients are invested in puts us in the best position to monitor progress. The team often have a seat on the board of investee companies. They are specialists in the particular tech-driven industries we invest in, so they are immersed in industry dynamics – markets, competition, trends and the drivers of change.

There are strong benefits of this two-way engagement for risk control of our clients’ investments. First, we can monitor companies for real progress towards the goals we set for further investment.

Second, we can bring our experience in start-up growth and their industries to their planning and decision-making. This kind of advice and experience in ventures growth planning would otherwise be out of reach for start-up companies cost-wise.

Third, we can ensure that all policies and decision-making maintain the companies’ qualification as an EIS investment, thereby securing tax benefits for investors.

This combination makes the ongoing strength of our relationship with the companies our clients invest in an important means of controlling the risk of ventures investing.

Find out more in our CPD-accredited
Oxford Capital Guide to Ventures Investing

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?

  1. You could lose all the money you invest
    1. If the business you invest in fails, you are likely to lose 100% of the money you invested. Most start-up businesses fail.
  2. You are unlikely to be protected if something goes wrong
    1. 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.
    2. 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.
  3. You won’t get your money back quickly
    1. 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.
    2. 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.
    3. 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.
  4. Don’t put all your eggs in one basket
    1. 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.
    2. 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
  5. The value of your investment can be reduced
    1. 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.
    2. 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.

 

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.