Onside Issue 5 - 47
What exactly are the risks?
So are there other benefits?
In common with any early stage investment, you
should consider the risks involved, including loss
of capital, illiquidity, the likelihood of no dividend
in the early years, and possible dilution as future
investment rounds take place. This may seem stark,
however InvestingZone is committed to making sure
that investors using the platform fully understand the
risks to which they are exposed. If you are in any doubt
about these risks you should consult a professional
investment adviser. Investing in early stage private
companies should be carried out as part of a balanced
overall portfolio approach.
Besides the financial returns, there are other benefits
to investing in early stage companies. You'll be helping
to fund the next generation of successful British
businesses, creating jobs and engaging with some
fascinating companies and entrepreneurs.
So can the rewards of being an angel investor
really make the risk worthwhile?
This is where InvestingZone's collaboration with
Seneca adds value. By taking a professional approach
to analysing companies which are allowed to list on
the platform, and by agreeing sensible valuations
with management, we believe that pitches listed by
InvestingZone are more likely to succeed than the
industry average.
The short answer is yes. Provided that you take some
simple steps to mitigate the risks involved, early stage
investing can prove very rewarding indeed and can
involve you in exciting new businesses.
How does an investor take advantage of tax
reliefs?
Published statistics show that they do. But on closer
examination many of these were doomed to fail from
the start either because the business case was weak or
management was not up to the task.
What are the advantages of taking a portfolio
approach?
Early stage investing is essentially about hunting for
those winning deals within a well-diversified portfolio.
Investors often think that every deal he/she does is
wonderful at the outset but the data shows that most
will in fact fail to generate a return. Therefore, the
best way of maximising the chance of investing in
a winning company is to build a portfolio of several
investments in different sectors and at different stages
of development.
ONSIDE WINTER 2016 |
Taking SEIS as an example; depending on an investor's
personal tax position, if an investor invests in an
eligible company, HMRC will grant income tax reliefs
at 50% of the cost of the investment in the fiscal year
it takes place. Furthermore, if the company fails, then
losses can be offset against an investor's income tax bill
for the year at his or hers highest rate of income tax.
These reliefs mean that the capital which is actually at
risk can be significantly reduced. On the reward side,
if the company goes on to be successful, and as long
as it remains EIS eligible, any gain on disposal of an
investment will be exempt from CGT (provided the
shares have been held for the minimum period of 3
years) - increasing an investor's effective reward.
But don't most early stage companies fail?
47
Table of Contents for the Digital Edition of Onside Issue 5
Contents
Onside Issue 5 - Cover1
Onside Issue 5 - 2
Onside Issue 5 - Contents
Onside Issue 5 - 4
Onside Issue 5 - 5
Onside Issue 5 - 6
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Onside Issue 5 - Cover3
Onside Issue 5 - Cover4
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