Investing in early-stage companies involves risks, including illiquidity, lack of dividends, loss of investment and dilution, and it should be done only as part of a diversified portfolio. Seismic’s offerings are targeted exclusively at investors who are sufficiently sophisticated to understand these risks and make their own investment decisions.
We have set out below what we consider to be the most important areas of risk that arise through investing in early-stage businesses, which you should carefully read, understand and accept before you make an investment:
- The need for Diversification – Investing in early-stage businesses should only be done as part of a varied portfolio. Therefore you should invest relatively small amounts in multiple businesses rather than a lot in one or two businesses, which will reduce your overall risk. You should only invest a small proportion of your available investment funds in early-stage businesses, balancing this with other safer, more liquid investments.
- Loss of Investment – Your capital is at risk if you invest through Seismic. Many early-stage businesses do not grow as planned or fail, and if you invest in a start-up, you must assume that it is significantly more likely that you will lose your invested capital, and the business will fail. If this happens, neither the company – nor Seismic – will be liable to pay you back the amount you invested and all of your investment will be lost. You should not invest more money through the Seismic than you can afford to lose without changing your current standard of living.
- Tax Relief – Tax reliefs are not guaranteed to the Investor, and we recommend that you seek specialist tax or financial advice before investing. Seismic does not offer any tax advice to the investors or entrepreneurs seeking investment. Any tax reliefs referred to are those currently applying. The business needs to maintain their qualifying status, and this may be withdrawn at any time by HM Revenue & Customs. Furthermore, the tax treatment of EIS and SEIS schemes depends on the individual circumstances of each client / investor and may be subject to change in future.
- Lack of Liquidity – Any investment through Seismic in early-stage and growth businesses will be highly illiquid. This means that there is little chance that you will be able to sell your shares through a secondary marketplace – the investee company floats on a stock exchange or is bought by another company. Even for a successful business, a floatation or purchase is unlikely from the time you make your investment, and it is probable that you would have to keep them until there is a strategic exit – such as a management buy-out, complete sale of the business or a share buy-back scheme.
- Operating History & Company Directors – The majority of businesses raising investment through Seismic will likely be in growth or turnaround phase and therefore have limited or patchy operating history upon which prospective investors can evaluate likely performance. Past performance is also not a reliable indicator of future performance, and should not be relied upon. The success of many Seismic’s investee companies will depend in part upon the ability of their directors to develop and maintain a strategy that achieves the company’s investment objectives.
- Dividends – Small, early-stage businesses rarely pay dividends. This means that if you invest in a business through Seismic, 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. Even for a successful business, this is unlikely to occur for a number of years from the time you make your investment.
- Dilution – Any investment you make through Seismic is likely to be subject to dilution. If the business wants to raise additional capital at a later date, it will issue new shares to the new investors, reducing the percentage of the investee company that you own. These new shares may also have 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 grant of options to employees of, service providers, to or certain other parties connected with, the company.
- Financial Services Compensation Scheme – As a Professional Client, you may not be eligible to seek the services of the Financial Conduct Authority or the Financial Ombudsman Scheme and may not be eligible for compensation under the Financial Services Compensation Scheme.