Startup investing

johnathanmdavies

Hi All,

I’m interested in people's views on startup investment. Crowdfunding is now really popular and means you can access the initial funding rounds of startups.

Clearly many of these startups will never get to an IPO, so big risk you never get your money back. But there's always a chance you invest in the next Uber...

What's everyone's view on this? Are we generally interested? Or is it a big no no?

Thrugelmir

Uber wasn't funded through crowdfunding. Would have been Angel Investors with very deep pockets.

You are probably better off trawling through the lower echelons of the London Stock Exchange. Plenty of under researched companies that may possibly go big if "x" happens......

Alexland

My view is that most people would do better sticking to low cost mainstream diversified mixed asset funds.

jimjames

johnathanmdavies wrote: »

Hi All,

I’m interested in people's views on startup investment. Crowdfunding is now really popular and means you can access the initial funding rounds of startups.

Clearly many of these startups will never get to an IPO, so big risk you never get your money back. But there's always a chance you invest in the next Uber...

What's everyone's view on this? Are we generally interested? Or is it a big no no?

If you want startup then things like private equity, micro cap funds and the likes of Woodford Patient capital are options. WPCT hasn't done fantastically though so you might need more patience...

Nardge

johnathanmdavies wrote: »

Hi All,

I’m interested in people's views on startup investment. Crowdfunding is now really popular and means you can access the initial funding rounds of startups.

Clearly many of these startups will never get to an IPO, so big risk you never get your money back. But there's always a chance you invest in the next Uber...

What's everyone's view on this? Are we generally interested? Or is it a big no no?

Thank you for raising this question, it was on my 'to-do' list of enquiries!

I note that those who invested in Monzo or Revolut will now be 'minted'...

I myself invested in Chip, and whilst I may regret that at a later date,
should Monzo and Revolut be something to go by, I might just be all smiles?

Fingers-crossed x

With Kind Regards

dividendhero

ICGT might be an option, it's an IT that invests in unquoted companies, private equity and stuff like that. Performance has been pretty good.

If you're a "sophisticated investor", ie portfolio worth £250,000 plus you could consider VCT's

AlanP_2

Not a recommendation and take notice of the caveats and warnings within the article but relevant to the question asked by the OP:

https://monevator.com/robot-angels-automated-seed-investing-on-the-seedrs-crowdfunding-platform/

Malthusian

Nardge wrote: »

I note that those who invested in Monzo or Revolut will now be 'minted'...

Those who founded them are minted. Those who invested in them still need to find a greater fool.

Crowdfunding is mostly a scam targeted at people who have nowhere near the due diligence expertise for angel investment and nowhere near the wealth required to be able to write off the few hundred or few thousand they punt on these mostly garbage businesses. The Fantasy Equity Crowdfunding blog is good for a laugh if you enjoy rubbernecking.

wastedtalent

I have invested in a handful, only small amounts in each and only in business I see offer something that is both unique and I can see a real market for.



There are a lot of projects out there trying to be the next Revolut or the next Brewdog or the next big health food brand, but I kinda feel this has been done and they will be too late to market.


There are of course tax advantages if you invest in a project registered for EIS/SEIS which means you can claim tax releief on your investment and any losses you incur, which reduces the risk somewhat.

bowlhead99

The EIS relief for qualifying investments on crowdcube and the like can help tip the balance of risk/reward more in your favour, because

- a £1000 investment will only cost you £700 after the £300 (30%) income tax relief.

- then if you lose the whole amount, you'll hopefully get tax relief on the £700 at your marginal rate (could be worth another £300ish or more for people in high tax brackets).

- if when looking at the EIS opportunity you're a high rate taxpayer with >£1000 of taxable capital gain from something else that wasn't covered by your annual exemption, you could potentially defer that capital gain against the EIS investment and only bring it back into charge for CGT when you exit the EIS investment. At which point you might be able to use that years CGT annual exemption to cover it. That's a saving of £200 tax on £1000 of gain that you had sitting around

- and many crowdfunded investments want you to sample and spread the word about their product and will give you discounts or perks with some real value. Perhaps another £50-100 on your £1000 invested.

So if the company survives s few years then goes bust, it didn't cost you £1000 really, due to the initial £300 income tax saving, the later £300 income tax write off, the £200 CGT bill deferred or wiped out, the £100 of perks. The failure only made you worse off by a net £100 .

However for lower rate taxpayers who don't have CGT bills there is not so much to be saved, and the perks can be in short supply for modest investments. Risk of loss is undoubtedly high. SEIS has better tax benefits but the companies are even earlier stage and riskier than EIS.

Using a VCT, with associated tax breaks, (different to EIS rules) is a way of getting a more diversified exposure to a portfolio that's been evaluated by professionals but the tax break is still definitely needed to compensate for high fees and high risk of loss together with liquidity issues.

I have done several with crowdcube but even a 'reputable' site like that is not a mark of quality of the opportunity or valuation you're buying in at. There are plenty of cowboys and chancers and people with passion and enthusiasm who look like they could be the real deal but won't be, due to bad luck, bad execution, a recession at the wrong time, the wrong type of Brexit, etc etc.

I agree with Malthusian that you can't really do all the due diligence you would like when investing in such opportunities. A VC or private equity fund would spend thousands on third party specialist advice for commercial, legal and financial due diligence. I can't do that on a £2000 investment as even if management gave me unprecedented access to their team and business - if you spend more than you propose investing, on considering whether it's worth investing, the economics just don't work out.

So, you have to do what you can within reason, and accept it will still be you taking a punt, just not as much of a punt as is being taken by some people on the crowd sites.

Some people think there is no point doing everything they can within reason, because it will still be something of a punt in the end, and it's only a tenner for a bit of fun, so they throw money in a scattergun manner at a random set of companies with slick pitches, the fiftieth microbrewery or artisan gin turning up 10 years too late for the craft beer revolution or Gin Spring. But if you invest in everything without giving it full consideration, you'll likely lose most of your money.

My time is valuable and I'm conscious that the less you invest per pitch, the less you can justify spending time researching what you are doing and filling in the tax forms to actually maximise your financial gain. Really it has to be 'a bit of fun' or 'a hobby' to make up for the fact that it's time consuming and high risk.

As a hobby, some people would be happy with making interesting early stage investments and on average "almost" breaking even on them. If people are thinking they will find something that gives a 10x return, good luck, but it might involve finding 10 absolute dogs first. And if you get 11 dogs instead of 10 dogs and 1 superstar, it will be an expensive hobby.

johnathanmdavies

Yeah I definitely didn't appreciate the EIS relief point! That will certainly soften the blow!

Open question to anybody who has invested in one of these things already: If you could get your money out (maybe via one of these secondary markets from seedrs or crowd cube) would you?

And/or do you think a punt is worth it? Do you reckon you could get a good deal on these secondary markets?? If they ever get going...