To help you understand the
risks involved when investing in any pitch on SMECrowd, please read the
following risk summary.
The need for diversification when you
spreading your money across multiple investments to reduce 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 SMECrowd and should balance this
with safer, more liquid investments.
Risks when investing in equity
Investing in shares (also known
as equity) on SMECrowd does not involve a regular return on your
Please bear in mind the following particular risks for equity
Loss of investment
The majority of start-up
businesses fail or do not scale 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 SMECrowd – will pay you back your investment.
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 SMECrowd cannot be sold easily and
they are unlikely to be listed on a secondary trading market, such as
AIM, Plus or the London Stock Exchange. Even successful companies
rarely list shares on such an exchange.
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 SMECrowd 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
Any investment in shares made
through SMECrowd 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.
Some businesses who pitch for equity
investment through SMECrowd offer A-Ordinary Shares, which may include
pre-emption rights that protect an investor from dilution. In this
situation the business must give shareholders with A-Ordinary Shares the
opportunity to buy additional shares during a subsequent fundraising
round so that they can maintain or preserve their shareholding. Please
check a pitch, and the Articles of the company to see if the shares you
are buying will have these pre-emption rights. Most companies do not
offer pre-emption rights for B Investment Shares.
Lower in the pecking order on winding up
If an Issuer falls into
financial difficulty and goes out of business, other creditors and debt
holders with seniority – including fixed charge holders, administrators,
employees who are owed wages, banks, and secured debtors - will be
compensated first. This means it is unlikely investors, who
sit below all of the previously mentioned in the pecking order, will
have their initial investment or outstanding interest payments returned
to them after higher ranked creditors are compensated.