Investing in start-up and early stage businesses is highly risky. Every investor on investiere.ch has to be aware of the following:
Loss of investment
Most start-ups fail and it is therefore very risky to invest in these businesses. If you invest in a start-up, it is very likely that you will lose all, or part, of your investment. Therefore, you should only invest an amount that you are willing to lose and should build a diversified portfolio to spread risk. If a business you invest in fails, neither the company – nor investiere – is obliged to pay you back your investment.
Any investment you make through the investiere-platform will be highly illiquid. There is no secondary market for the shares of the companies that investiere presents as investment proposals. This means that you are unlikely to be able to sell your shares until and unless the company you invested in floats on a securities exchange or is bought by another company. Even for a successful business, a flotation or purchase is unlikely to occur for a number of years from the time you make your investment.
Rarity of Dividends
Dividends are payments made by a business to its shareholders from the company’s profits. Start-up and early stage companies extremely rarely pay dividends. Profits are typically re-invested into the business to fuel growth and build shareholder value. This means that if you invest in a business via the investiere-platform, even if it is successful, you are unlikely to see any return of capital or profit until you are able to sell your shares in the company.
Any investment you make through the investiere-platform is likely to be subject to dilution. Dilution occurs when a company raises additional capital by issuing new shares. If you own shares in a company and this company issues new shares that are purchased by new investors, the percentage of the company that you own will decline. These new shares may also have certain preferential rights to dividends, sale proceeds and other matters, and the exercise of these rights may work to your disadvantage. Your investment may also be subject to dilution as a result of the granting of options (or similar rights to acquire shares) to employees, service providers or other third parties connected with the company.
Diversification involves spreading your money across multiple investments to reduce risk. Investing in startups should only be done as part of a diversified portfolio. This means that you should invest small amounts in multiple early stage companies rather than a lot in one or two companies. Investors should only invest a small proportion of their available investment funds in early stage companies and should balance this with safer and more liquid investments.