Oxford capital eis fund
Investor Portal

Accessing the best deals: quality follows quantity

“A start-up investors’ network and reputation will deliver both quantity, and quality, of opportunities.”

One of the most effective ways to ensure the highest quality of companies to back is a simple numbers game. The quality of a portfolio of start-up investments is directly related to the number of opportunities the manager can identify and research.

Many potential deals are “off the market” – dependent on invitation or the right introduction to invest. Successful venture capital investors rely heavily on contacts developed over their careers. A good reputation can attract opportunities and open doors. It will have a direct effect on the number of investment opportunities they see, which in turn has a direct impact on the quality of the investments they make. The most successful ventures investors attract the best entrepreneurs and management teams. The best entrepreneurs deliver the best performance.

The Ventures team at Oxford Capital pay particular attention to the pipeline of deals they see. Their network and their reputation in their specialist industries ensure they see as many deals as possible. They make just 4-6 new investments per year, so it is vital not to miss the best opportunities. They now see on average over 200 potential deals per month – and rising! That means we’re reviewing well over 2,000 potential investment deals per year, and seeing more than 70% of industry deals in our target sectors (Crunchbase).

Both the pipeline and the team’s filtering and research to identify the right companies to back are key drivers of quality and risk-control in our clients’ portfolios.

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.