Risks Involved with These Investments

The Financial Conduct Authority (FCA) classifies these investments as high-risk due to the potential for losses. Take a few minutes to understand the level of risks associated with these investments. 

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Key Risks:

Risk of Losing All Invested Funds:

Investors face the risk of losing all their invested capital if the business they invest in fails, which is common among start-up ventures.

Limited Protection in Case of Failure:

Coverage from the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS) does not extend to poor investment performance. These schemes do not cover losses resulting from investment decisions. You can verify your investment protection status with the FSCS investment protection checker and learn more about FOS protection on their respective websites.

Slow Return on Investment:

Even if the business succeeds, it may take several years to recoup your investment, as early sale opportunities are rare. The primary means of recovering funds is through acquisition by another company or going public, but such events are infrequent for start-ups. Dividends from start-ups are also uncommon, making it challenging to retrieve your investment quickly.

Diversification is Key:

Putting all your funds into one business or investment category poses significant risks. Diversifying your investments reduces reliance on the success of any single entity. It’s advisable to limit high-risk investments to no more than 10% of your portfolio. Visit the FCA’s website for more information on investment diversification.

Potential Reduction in Investment Value:

As businesses issue more shares, your ownership percentage decreases, potentially diminishing the value of your investment. Additional rounds of share issuance, often with added rights like fixed dividends, can further reduce investment returns. Explore methods of safeguarding your interests on the FCA’s website.