Risks of investing in early-stage businesses

Investing in early-stage and other growth-focused businesses can be very rewarding, but it involves a number of risks and challenges. If you choose to invest in London Real, you need to be aware of and accept a number of considerations:

Loss of Capital

Most growth-focussed businesses fail, and if you invest in a business of this nature, it is significantly more likely that you will lose all of your invested capital than you will see any return of capital or a profit. You should not invest more money in growth-focused businesses than you can afford to lose without altering your standard of living.

Illiquidity

Almost all investments you make in growth-focussed businesses will be highly illiquid. It is very unlikely that there will be a liquid secondary market for the shares of the business. This means you should assume that you will be unlikely to be able to sell your shares until and unless the business floats on a stock exchange or is bought by another company; and, even if the business is bought by another company or floats, your investment may continue to be illiquid. 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. For growth-focused businesses for which secondary market opportunities are available, it can be difficult to find a buyer or seller, and investors should not assume that an early exit will be available just because a secondary market exists.

Rarity of Dividends

Growth-focused businesses rarely pay dividends. This means that if you invest in a growth-focused business, even if it is successful you are unlikely to see any return of capital or profit until you are able to sell your shares. 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 in a business is subject to dilution. This means that if the business raises additional capital at a later date, it will issue new shares to the new investors, and the percentage of the business 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 grant of options (or similar rights to acquire shares) to employees of, service providers to or certain other contacts of, the business.

Diversification

If you choose to invest in growth-focused businesses, such investments should only be made as part of a well-diversified portfolio. This means that you should invest only a relatively small portion of your investable capital in such businesses, and the majority of your investable capital should be invested in safer, more liquid assets.