1. INVESTMENT RISKS
Investing in young, start-up or early stage companies can give you the opportunity to gain a significant return on your investment. However, potential rewards also come with potential risks. The risks, particularly when investing in smaller companies, can be significant and may result in you losing your entire investment.
Before you decide to invest in any of the companies on the Fireflock platform (www.fireflock.com), you must understand, acknowledge and accept that you may face the following risks:
- Total loss of your investment
- Inability to sell your shares
- Failure to receive any dividend payments
- Future dilution of your shareholding
Total loss of your investment
The majority of start-up, young, and early stage businesses fail. They can fail for many different reasons. If a business that you have invested in fails you are at risk of losing some, and most probably all, of the money that you invested. Your losses will not be reimbursed either by the company you invested in, nor by Fireflock.com Ltd.
Inability to sell your shares
The shares that you choose to buy or subscribe for in companies via the Fireflock.com platform may be difficult to sell. This is because the shares you buy or subscribe for are shares in a private limited company and are not quoted on a Recognised Investment Exchange such as the London Stock Exchange, AIM (the Alternative Investment Market), or ISDX (ICAP Securities & Derivatives Exchange), where shares are more easily traded and share prices are quoted. If you wish to sell shares that you have bought or subscribed for via the Fireflock platform, you will need to find a buyer who will agree a mutually acceptable price in return for your shares. This can prove difficult when selling a minority interest in a private limited company.
The rights attaching to any shares you buy or subscribe for (including whether they have voting rights, pre-emption rights or rank behind other classes of shares) will also affect the value and ability to sell those shares in the future. It is therefore important that you understand the rights attaching to any shares you choose to subscribe for.
Failure to receive any dividend payments
When a company is profitable, it can reward its shareholders by paying them a share of those profits. This payment is known as a dividend. Start up, young and early stage companies may take a number of years to become profitable, if ever. Even when a company is profitable, it may decide not to pay its shareholders any dividend payment and it is usual for a company to re-invest some or all of its profits back into its business. Therefore, it is highly likely that you may never receive a dividend payment from the company in which you invested.
Future dilution of your shareholding
Any investment made through the Fireflock platform may be subject to dilution in the future. Dilution occurs when a company issues more shares. Dilution affects every existing shareholder who does not susbcribe for 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 the proportion of voting, dividends and value you are entitled to. It is important to check whether any shares you subscribe for do or do not carry a right to participate in future share issues (pre- emption rights) when assessing the viability of a pitch.
DIVERSIFYING YOUR PORTFOLIO
Although we make no recommendation as to how you should manage your investments, you should only invest a proportion of your available funds viaFireflock and have a diverse investment portfolio by investing in other asset classes which are considered less risky which may include more mature, established, revenue-generating, profitable and liquid companies (such as those that are listed on a Recognised Investment Exchange). By diversifying your portfolio, you will be spreading your risk.
IF IN DOUBT, SEEK PROFESSIONAL FINANCIAL ADVICE
If you have any doubts about investing in any of the companies via the Fireflock platform, then you should seek advice from a suitably qualified financial professional such as a Stockbroker, Financial Advisor, or Accountant.