Investing in early stage businesses is inherently risky and should only be undertaken by investors that understand the level of risk that they are taking. A large number of early-stage ventures will fail and VentureFounders encourages its investors to build up a diverse portfolio of investments in order to balance that risk and deliver a blended return consummate with the level of risk you are taking.
As such, VentureFounders only accepts investments from those the FCA defines as High Net Worth and Self Certified Sophisticated investors or Advised Clients.
It is important that early stage investment itself is done as part of a wider, diverse portfolio of investments. The FCA lay down some some guidelines which suggest that you should not invest more than 10% of your investable assets (savings, stocks, ISAs, bonds and property excluding your primary residence) in early stage businesses.
When assessing your risk appetite for investing in early stage businesses you should consider the following:
Many early stage businesses fail and don’t deliver the anticipated level of return. Investors should expect that out of a portfolio of early stage investment a large number of those investments won't be successful (60 – 70%), some will deliver an average return (10 – 20%) and occasionally there may be an above average performer (10% or less).
Shares in early stage businesses are illiquid and there is no proven secondary market for trading in these securities. It is likely that you will only be able to sell your shares when there is an event which leads to an exit for all investors such as a sale or IPO.
Multiple Funding Rounds:
The majority of businesses presented on VentureFounders will require multiple funding rounds in order to achieve their growth ambitions. This will be explained in the investment materials presented on the platform. Investors should expect that they will need to contribute to subsequent rounds in order to maintain their shareholding percentage (should they wish to do so). Whilst negotiating investment opportunities VentureFounders will always request anti-dilution protection and pre-emption rights that give you the ability to follow your money, should you choose to do so.
Length of Investment Horizon:
Early stage investments usually take a long time to deliver a return. Investors should expect to be in an investment for at least 3 –5 years (and possibly longer) before they see a return.