Investing money in unlisted companies (particularly start-ups and early stage businesses) can be very rewarding. However, it also involves a number of risks.
The purpose of this Risk Warning is to ensure that you, as a potential investor, understand the risks involved.
To help you understand the risks involved when investing in companies on Spark CrowdFunding, please read the following risk summary carefully.
It is prudent for private investors to diversify their investments. As a guide, investors should not put more than 10% of their available assets for investment into any one company.
The need for diversification when you invest
Diversification involves spreading your money across different types of investments with different risks to reduce your overall risk. However, it will not lessen all types of risk. Diversification is an essential part of investing. Investors should only invest a proportion of their available investment funds via Spark Crowdfunding and should balance this with safer, more liquid investments. Spark CrowdFunding is aimed solely at investors who are sufficiently sophisticated to understand these risks and make their own investment decisions and have been categorised as such on this platform.
By using this Platform in any capacity, the Investor acknowledges and agrees that they have read and understood the following risks and warnings. If an Investor does not understand any of the risks or warnings set out below they should take advice from an Independent Financial Advisor, solicitor or similar qualified professional before using the Platform. The following list of risk factors is not intended to be exhaustive, nor a complete explanation of the risks involved. Any decision to make an investment through this platform is made entirely at the investor’s own risk.
Risks when investing in equity
Investing in shares (also known as equities) on the Spark Crowdfunding platform does not involve a regular return on your investment. Please bear in mind the following particular risks for equity investments:
Loss of investment or tax relief
The majority of start-up businesses fail or do not scale up as planned and therefore investing in these businesses may involve significant risk. It is likely that you may lose all, or part, of your investment. You should only invest an amount that you are willing to lose and should build a diversified portfolio to spread risk and increase the chance of an overall return on your investment capital. If a business you invest in fails, neither the company – nor Spark Crowdfunding – will repay you any part of your investment.
Tax relief may also be lost due to your personal circumstances or due to the activities of a company. You should consider this carefully before investing.
Lack of liquidity
Liquidity is the ease with which you can sell your shares after you have purchased them. Buying shares in businesses pitching through Spark Crowdfunding cannot be sold easily and they are unlikely to be listed on a secondary or primary trading market. It is advisable not to invest in an illiquid share if there is a reasonable likelihood that you will require access to the funds at short notice.
Rarity of dividends
Dividends are payments made by a business to its shareholders from the company’s profits. Most of the companies pitching for equity on the Spark Crowdfunding website are start-ups or early stage companies, and these companies will rarely pay dividends to their investors. This means that you are unlikely to see a return on your investment until you are able to sell your shares. Profits are typically re-invested into the business to fuel growth and build shareholder value. Businesses have no obligation to pay shareholder dividends.
Any investment in shares made through Spark Crowdfunding may be subject to dilution in the future. Dilution occurs when a company issues more shares. Dilution affects every existing shareholder who does not buy any of the new shares being issued. As a result, an existing shareholder's proportionate shareholding of the company is reduced, or ‘diluted’. This has an effect on a number of things, including voting, dividends and value.
Projections and forecasts
The Campaign Listing, Business Summary or Information Memorandum may contain certain statements, estimates, projections, forecasts and data provided by the Investee with respect to the anticipated future performance of the Company’s business and/or its industry. Such statements, estimates, projections, forecasts and data reflect various assumptions by the Company’s management concerning anticipated results, such assumptions which may or may not prove to be correct. Actual results may vary from such statements, estimates, projections, forecasts and data, and such variations may be material.
Many of the companies that appear on the Spark Crowdfunding platform are recently formed early stage companies and may lack any trading or other operating history or accounts. The success of the Company will depend upon the ability of the company raising funds to develop and deliver on a strategy to achieve that Company’s objectives. Neither Spark Crowdfunding, not any of it representatives, accept any responsibility for the execution of the Company’s strategy after the equity crowdfunding campaign completes.