Investing in shares, especially shares in small and early stage companies, is an inherently risky process. Below we provide a summary of the major risks and considerations you should be aware of when choosing to invest through Capital Cell.
Potential for Loss
An investment in shares (equity) does not guarantee that your money will be returned to you. Many small, early stage businesses fail and if a business you invest in fails, neither that company nor Capital Cell will pay you back your investment. You are strongly advised not to invest more than you can afford to lose.
Diversification – which means spreading your money across a wide variety of investment types – is an important way to reduce the overall risk of investing. Don’t put all your eggs in one basket. Investors should not invest more than 10% of their investable assets in shares in early stage companies.
Lack of Liquidity
It is highly unlikely that you will be able to sell your shares quickly or easily. Shares in companies listing on Capital Cell are unlikely to be traded on stock markets. You should be prepared to wait until the whole company is sold or floated on a stock market to sell your shares.
No Regular Income
Businesses listing on Capital Cell are generally not yet profit-making or will choose to spend all their profits on growing the business. This means that you are unlikely to receive regular distributions of profits through dividends, so you are unlikely to receive a return on your investment until you are able to sell your shares.
The majority of Companies that list on Capital Cell are early stage companies, which lack significant trading or operating history. The success of these companies is uncertain and depends upon the ability of their management team to implement a strategy for growing the business. A company’s campaign page may contain estimates of anticipated performance, which are based on assumptions which may or may not prove to be correct.
Any investment you make may be subject to dilution in the future. This happens when a company needs to issue more shares, in order to raise more money or incentivise staff. This means that the proportion of the company you own may be reduced, or ‘diluted’ over time. New shares issued by the company may also carry preferential rights to those acquired by you, meaning that payments such as dividends might get made to them first.
Please note, often the shares you purchase will come with ‘pre-emption rights’, which allow you to purchase more shares before they are made available to new investors, to reduce the effects of dilution.
Tax Treatment of Shares
The UK government provides certain types of tax relief for investments in small businesses. While Capital Cell encourages businesses and investors to apply for these tax reliefs where appropriate, the final decision on whether the company and investment is eligible is made by HMRC after the investment is completed. Eligibility for tax relief may also be lost due to your personal circumstances or due to changes in the company’s activities or circumstances.
If you are unsure about any of the risks or warnings set out above, we recommend you seek advice from an Independent Financial Advisor before making investments through Capital Cell.