The Lemon Fool

What a fascinating thread!

Some questions spring to mind...

The OP says that the business is financed by venture capital. The venture capital companies will have done due diligence, so they must be happy if they are prepared to finance the business.

Given that the business is funded by venture capital, why is the business trying to raise funds by selling shares to people other than to the Directors? How many shares are there altogether? Who owns them?

That the founder is a well respected figure in the field should mean this company stands a better chance than many. But it remains a gamble rather than an investment.

Watis

When I was an active member of an investment club we had a truly interesting talk by three individuals who had formed an angel investor group and whilst they were not desperately looking for new investors they would not have been averse to them provided they met the definition of High Net Worth (which actually was not that high. I think free assets of something like £100,000.) I think I would have believed their presentation and in them as individuals. Had I been attracted to that sort of investing, I might well have gone with them as a 'silent' investor. It was almost a full time job for them though and they rejected far more propositions than they took on, but money could be made because part of their due diligence was an exit strategy once, as they said, they had taken the business as far as they felt they could. That is the way of that sort of business as they explained. They looked to have several investments running at once to spread the risk, and for each to have a clear exit strategy. They also sought Board representation so that they could access financial information in a timely manner.

Taking on a one off investment like the OP is surely fraught with risk.

Dod

I worked for a company that was VCT funded and spent some time talking to their professional investors.

They reckoned if they invest in 10 companies, 5 would go broke, a couple would tick along level, a couple would double or maybe a bit more, and all their money would be made on the 10th. So even guys who are professional and do this for a living can’t do better than one decent success in 10. So why do you think you can do better? Picking one startup company has about the same chance as picking a horse.

If you fancy a small flutter with fun money then go for it. But I concur with the previous posters that your chances of winning are really not great.

Gryff

If the OP is absolutely happy to live with the fact that they're effectively giving the money away and is extremely unlikely to ever see it again, I think it should proceed.

There's two outcomes available. 1 The OP makes a lot of money. 2 The OP loses £5000 but gains an even more valuable life lesson. As long as that's understood, OP should go right ahead.

Much of this discussion revolves around issues the OP did not ask about. Their questions were specific if you go back and read it.

But to add to the discussion, the objective of the exercise is something I noticed missing from the business proposal, which naturally leads on to the exist strategy, also missing.

Without an objective, how will they know when they've reached it? And how will the get out with the profits if that is the goal? How will they find buyers for their shares in a private company? Or is flotation the plan? Or maybe just an ongoing dividend will be reward enough.

OTOH maybe the plan is simply to support a business whose product or service aligns with the OP's life view or philosophy and deserves support regardless of making a profit, or not. These are questions anyone considering such an investment should ask themselves I'd have thought, but then I know little about these things.

This thread will in the future perhaps be helpful to more people than just the OP, in which case it is worth pointing out if the plan is a profit based on the 10:1 chance of the company turning out to be a winner (as outlined previously), betting on the horses brings a far quicker result and return.

Perhaps I'm being over cynical here, but someone signs up to a mainly financial group, asks a seemingly innocent question to gauge interest in an unnamed startup with no clues as to what field or where he/she gets their info, finds out everyone is telling them to run away, and then disappears again?

I suspect either they've avoided losing money, or we have.

Paul

DrFfybes wrote:Perhaps I'm being over cynical here, but someone signs up to a mainly financial group, asks a seemingly innocent question to gauge interest in an unnamed startup with no clues as to what field or where he/she gets their info, finds out everyone is telling them to run away, and then disappears again?

I suspect either they've avoided losing money, or we have.

Paul

I'm usually as cynical as they get, but here I think on balance, the OP was probably genuine as they did actually post again in the thread, although agreed in a slightly disengaged manner.

I suspect they made their decision to invest, or not, then promptly forgot all about this thread.

Will you shrug it off if the money disappears with nothing to show?

If yes, by all means treat it as a flutter. Especially if - as comes across in your OP - you strongly support the business and/or the people behind it. There are Fools who take part in placings and IPOs.

But if you came from a less-specific question, I'd strongly suggest a more balanced approach. Sign up for a crowdfunding platform, take your pick among many companies raising funds, and split your money over a number of flutters of whatever size you're comfortable with. Use that to get a feel for startup investing, and learn about important things like EIS. Watch discussion among the "crowd": some investors know a lot about startups and will ask all the right questions; others may have an understanding of a particular business.