Risk WarningsInvesting in the types of companies presented on Emerging Crowd can be very rewarding but also involves a number of risks, some of which are listed here (in no particular order):
Your capital is at risk
If you invest in a company through the platform, it is possible that you will lose all of your invested capital. Your investment is not guaranteed by Emerging Crowd or by the companies themselves, and you should not invest more money through the platform than you can afford to lose without altering your standard of living.
Investments are illiquid
The securities you purchase through the platform are not listed on any exchange, and there will be no secondary market in which you can sell those securities. This means that even if your investment increases in value, it is very unlikely that you will be able to sell those securities or realise your investment until (a) the company floats on a stock exchange, or (b) is acquired by another company or (c) the investee company buys back the securities you purchased. You should be aware that even if the business is successful, none of these liquidity events is likely to occur for a number of years after you make your investment.
Shares rarely pay dividends
The small and medium-sized businesses presented on Emerging Crowd rarely pay dividends. This means that if you invest in shares through the platform, you are unlikely to receive any dividend payouts or to realise any return on your capital until you are able to sell your shares. As discussed above, this is unlikely to occur for a number of years after you make your investment, even if the business is successful.
Bonds are unsecured
If you purchase bonds through the platform, they will be unsecured debt of the investee company and will rank equally with any other unsecured debts of that company. The bonds will not be secured against any fixed asset or property, and if the Issuer were to become insolvent, there is a risk that (a) some or all of the nominal value of the bonds would not be redeemed and (b) some or all of the interest payments due on the Bonds would not be paid.
Equity is subject to dilution
Dilution occurs when the company in which you invest issues more shares after you invest (for example in follow-on equity fundraising or in connection with employee options) so that your share of ownership of the company declines. Not all deals on Emerging Crowd involve dilution, so if your investment is subject to dilution it will be clearly indicated in the Invitation Document and campaign materials.
Performance and diversification
All investee companies will provide forward-looking statements with respect to future results. By their nature, forward-looking statement are not guarantees of future results or performance and many different factors could cause actual results to be different from those that may be expressed or implied by such forward-looking statements. You should also not rely on past performance as a guide for future performance. Investing in unlisted small and medium-sized businesses, such as the companies presented on Emerging Crowd, should only be done as part of a diversified portfolio. This means that you should invest relatively small amounts in many such businesses in order to mitigate the risk that individual investments fail or cannot be realised. In addition, you should not invest more money in this asset class than you can afford to lose without altering your standard of living.
Tax treatmentEach time you invest in an Equity or a Debt Campaign, you must satisfy yourself prior to making any commitment that you understand and accept the tax consequences to you of making that particular investment, including the UK and foreign tax treatment of dividends, interest payments and capital gains or losses. The UK government provides certain types of tax relief for investments in small businesses by UK tax resident individuals. Certain investments made through the Platform may be designated on the Platform as being eligible. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future.
Currency exchange rates fluctuate
Investments through Emerging Crowd are denominated in pounds sterling, but most investee companies on Emerging Crowd operate in foreign countries that use other currencies. The exchange rates between the pound sterling and those foreign currencies will fluctuate over the life of your investment. This means that even if the investee company is successful and the value of your investment increases in terms of the foreign currency, you may not be able to realise the full value of any increase in terms of pound sterling, and you may lose some or all of your investment due solely to exchange rate fluctuations.