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First-time angel investor

Any other investment discussions eg. peer to peer lending
HelenG
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First-time angel investor

#469769

Postby HelenG » January 2nd, 2022, 7:19 pm

Hi everyone

I'm in the process of investing a relatively small amount (£3-5K) into a startup company. It's my first time investing in anything other than a pension pot and so I'm a little bewildered and hoping you might be able to offer some guidance.

The company has received backing by established venture capital firms and the founder is a well respected figure in their field. This is all to say that it is a legitimate business. However, I’m a bit thrown by two points in the contract and the accompanying documentation.

The first is the share price. At the beginning of the contract it says:

“By a subscription for shares dated of even date herewith (the “Subscriber”) subscribed for Ordinary Shares of £0.0001 each in the capital of [company name]”

However, further down in the document, it says:


“I apply for the allotment and issue to me of Ordinary Shares as set out in the table below at a purchase price per share of £3.5132”.

In other words, the share price is significantly higher than the amount stated above. How should l interpret this? And am I right in thinking that £3.5132 per share for a very new company is quite high?

Separately, I am wondering if the following clause in the shareholders' agreement document is a standard one:

Each of the Shareholders undertakes to the Company that he shall not, and shall not agree to, transfer, mortgage, charge or otherwise dispose of or grant any option or other rights over, the whole or any part of his interest in any shares in the capital of the Company to any person, except where permitted or required to do so pursuant to the New Articles or this agreement.

Would this concern you or is it quite normal for a company that hasn't gone public to restrict shareholders in this way?

Thank you for reading this far and grateful for any advice you can give!

XFool
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Re: First-time angel investor

#469774

Postby XFool » January 2nd, 2022, 7:41 pm

HelenG wrote:Hi everyone

I'm in the process of investing a relatively small amount (£3-5K) into a startup company. It's my first time investing in anything other than a pension pot and so I'm a little bewildered and hoping you might be able to offer some guidance.

The company has received backing by established venture capital firms and the founder is a well respected figure in their field. This is all to say that it is a legitimate business. However, I’m a bit thrown by two points in the contract and the accompanying documentation.

The first is the share price. At the beginning of the contract it says:

“By a subscription for shares dated of even date herewith (the “Subscriber”) subscribed for Ordinary Shares of £0.0001 each in the capital of [company name]”

However, further down in the document, it says:


“I apply for the allotment and issue to me of Ordinary Shares as set out in the table below at a purchase price per share of £3.5132”.

In other words, the share price is significantly higher than the amount stated above. How should l interpret this? And am I right in thinking that £3.5132 per share for a very new company is quite high?

I need to get my apologies in first. I'm going to be really blunt here.

The fact you need to ask here for an explanation of the two elementary points above suggests very strongly to me you are unlikely to be equipped for the role of an Angel Investor in a start up company.

I may not be correct, but that is my impression.

XFool is not and never has been an Angel Investor.
Last edited by XFool on January 2nd, 2022, 7:52 pm, edited 1 time in total.

monabri
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Re: First-time angel investor

#469775

Postby monabri » January 2nd, 2022, 7:46 pm

With respect...why are you putting your money into this? I would suggest you don't.

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Re: First-time angel investor

#469783

Postby Darka » January 2nd, 2022, 8:25 pm

never invest in something you don't understand.

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Re: First-time angel investor

#469788

Postby Midsmartin » January 2nd, 2022, 8:59 pm

First, welcome to the forums here!

I recently looked at investing in a local small non listed company. I did not invest because 1) their business forecasts were no more inviting than a tracker fund on the stock market and 2) I had no confidence that there would ever be a mechanism for me to get my money back.

Your first question really is a beginner's question, but this is not a beginner's investment. It's ok to be a beginner.. welcome.. but you're planning to run before you can walk.

The answer by the way is that a £1m company could be divided into 1 million shares of £1 each or 10 million shares of 10 p each. It makes no difference, and thus the price of a share is arbitrary and meaningless on its own. What matters (amongst other things) is how much profit is made in relation to the price of a share, ie the ratio of share price to earnings.

But if this is new information, I too strongly advise you not to do this. Really.. Don't do it. Start with smaller shares on the stockmarket first to learn if you are interested. Read a book!

How likely is this business to actually make money? Do you believe their forecasts? Almost anything could go wrong.

And how can you sell your shares later? They probably promise that the company will buy the shares back or that they may sell the company to a third party in the future. They cannot guarantee these things.

Even if the company does ok-ish, (big if), it may be virtually impossible to dispose of your shares.

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Re: First-time angel investor

#469792

Postby swill453 » January 2nd, 2022, 9:11 pm

On the other hand, if it's a case of bunging 3 to 5 grand to a mate to get them a leg up then feel free, if you can afford to never see it again. Not sure it sounds like that though.

Scott.

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Re: First-time angel investor

#469798

Postby GrahamPlatt » January 2nd, 2022, 10:03 pm

Please heed the dire warnings. I speak from experience (of being inexperienced & having actually done what you are proposing to do). It did not end well. Shame really, as the idea was great.. just some 20 years ahead of its time. Another company, launched a couple or so years ago with exactly the same product, is now storming ahead. Having said that, one never knows. Perhaps you’ll be lucky. Is this linked to an EIS scheme (such that you’ll at least get the tax relief?).

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Re: First-time angel investor

#469803

Postby HelenG » January 2nd, 2022, 10:23 pm

Thank you all for your words of caution and advice, I appreciate you taking the time to respond!

Normally, I act cautiously and avoid diving into something I have little to no experience in. Because I've been following the company closely and find it quite exciting (I believe in the founder and her vision) I thought I would go for it. I hear your sound advice though and thank you once again.

HelenG
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Re: First-time angel investor

#469805

Postby HelenG » January 2nd, 2022, 10:30 pm

GrahamPlatt wrote:Please heed the dire warnings. I speak from experience (of being inexperienced & having actually done what you are proposing to do). It did not end well. Shame really, as the idea was great.. just some 20 years ahead of its time. Another company, launched a couple or so years ago with exactly the same product, is now storming ahead. Having said that, one never knows. Perhaps you’ll be lucky. Is this linked to an EIS scheme (such that you’ll at least get the tax relief?).


Very sorry to hear you experienced this. I'm worried I will learn the hard (and expensive) way too, hence why I wanted to seek advice. I'm not sure if the company is linked to an EIS scheme... where could I find this out? Would it be in the documentation available via the government's Companies House portal?

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Re: First-time angel investor

#469807

Postby AsleepInYorkshire » January 2nd, 2022, 10:47 pm

HelenG wrote:Thank you all for your words of caution and advice, I appreciate you taking the time to respond!

Normally, I act cautiously and avoid diving into something I have little to no experience in. Because I've been following the company closely and find it quite exciting (I believe in the founder and her vision) I thought I would go for it. I hear your sound advice though and thank you once again.

Helen,

Excitement is great. And it really is good to get excited about everything in life, especially if you buy into the vision. I genuinely hope, whatever decision you make, that you continue to find the vision exciting. You've had some extremely good advice. Free too. I'm not going to add my opinion to the thread.

I have a 14 year old daughter. She's extremely shrewd. By March this year she will have £9K in savings. And "we" will invest that in a junior ISA for her. We are adding £9K per year for her. "We" propose to invest that in a growth fund - probably North American Stocks. We anticipate the fund will grow by 12% per year. But we're hoping it may be a little above this. Who knows :?

I have met people who spend £600 to sit on a private beach for the morning. But that's because to them £600 is the equivalent of my 50p.

Happy New Year

AiY(D) :)

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Re: First-time angel investor

#469810

Postby Midsmartin » January 2nd, 2022, 10:50 pm

HelenG wrote:Thank you all for your words of caution and advice, I appreciate you taking the time to respond!

Normally, I act cautiously and avoid diving into something I have little to no experience in. Because I've been following the company closely and find it quite exciting (I believe in the founder and her vision) I thought I would go for it. I hear your sound advice though and thank you once again.


If you have been following them closely, then perhaps you do have a good understanding of the business. It's a free world if you still want to invest! Is the sum involved modest enough that you wouldn't mind losing it all?

The questions to ask yourself are:

Using their business forecasts, what will the shares be worth in say 5 years?

Are their forecasts realistic?

How will you get your money back if in fact the shares have a value? Who would buy them?

How does this compare with just buying something on the stock market?

Are you doing this because it's a good investment, or after you willing for it to be a donation to an experiment that you never see again?

If there is tax relief available I'd expect this to be well advertised in the company's literature. If you are a higher rate tax payer, it does make it more attractive.

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Re: First-time angel investor

#469819

Postby monabri » January 3rd, 2022, 12:57 am

There's a reason why the "par value" is set so low ( £0.0001). If the company were to enter bankruptcy, your ~1500 shares have a par value of 15p. Your risk is the £5k . I translate this as " I've got a business idea but I want you to shoulder the financial risk". Obviously you need to know a lot about the company and it's business plan for such an asymmetric risk, otherwise you might just be funding someone to play at being a CEO.

( read the bit about why the par value is set so low).

https://www.investopedia.com/terms/f/fullstock.asp

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Re: First-time angel investor

#469822

Postby Dod101 » January 3rd, 2022, 1:17 am

monabri wrote:There's a reason why the "par value" is set so low ( £0.0001). If the company were to enter bankruptcy, your ~1500 shares have a par value of 15p. Your risk is the £5k . I translate this as " I've got a business idea but I want you to shoulder the financial risk". Obviously you need to know a lot about the company and it's business plan for such an asymmetric risk, otherwise you might just be funding someone to play at being a CEO.

( read the bit about why the par value is set so low).

https://www.investopedia.com/terms/f/fullstock.asp


You are quite likely to be correct because I know little about this but is the par value of a UK company very important? The article seems to be concentrating on US shares.

Dod

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Re: First-time angel investor

#469823

Postby Dod101 » January 3rd, 2022, 1:31 am

The OP is I think at the high risk end of the investing spectrum. The risk therefore of losing all is quite high. I had a friend who returned to this country with serious money and he was an accountant. He then decided that the future was in heat pumps and other 'green' energy. He was right in one sense but this was nearly 40 years ago when I think about it. Within about 10 years or so he had lost a considerable amount of his fortune and returned to the boring business of being an auditor and book keeper.

Of course times have changed but the problem is that we only hear about the Bill Gates, Bezos and so on, not the many who have come to grief.

Chucking £5,000 or so at a new venture could make Helen's fortune but the chances are probably quite high against it. Best to join a consortium of angel investors if you are a newbie Then all you are doing is investing some cash but at least you are doing it alongside some who are experienced in that sort of investing. They can also answer Helen's questions. The Dragons of The Dragon's Den are wealthy but they have mostly built up their own businesses before putting money into others' businesses and they will know about how to monetise their investment (ie the escape route) and long before that, how to evaluate the chances of success.

Good luck anyway.

Dod

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Re: First-time angel investor

#469827

Postby DrFfybes » January 3rd, 2022, 7:24 am

HelenG wrote:Thank you all for your words of caution and advice, I appreciate you taking the time to respond!

Normally, I act cautiously and avoid diving into something I have little to no experience in. Because I've been following the company closely and find it quite exciting (I believe in the founder and her vision) I thought I would go for it. I hear your sound advice though and thank you once again.


May I enquire how you heard of this startup company, and how you get your information on the founder and her history? If the information is coming from any sort of social media outlet, yammer, linkedin, facebook, etc or just personal websites then I would be very wary indeed. If the person has a track record then Companies House could be a useful place to investigate their past endeavours and look at the current company (if any).

Paul

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Re: First-time angel investor

#469830

Postby jackdaww » January 3rd, 2022, 8:31 am

.

we are advised not to throw our money at speculative unknowns - i agree - its reckless gambling .

conversely perhaps it makes sense to invest in proven success stories.

eg greggs . since 2013 the price has gone from 400p to 3300p - a nice return plus dividends .

:)

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Re: First-time angel investor

#469839

Postby DrFfybes » January 3rd, 2022, 8:55 am

jackdaww wrote:.

conversely perhaps it makes sense to invest in proven success stories.

eg greggs . since 2013 the price has gone from 400p to 3300p - a nice return plus dividends .

:)


Good point, I've been ingesting in Greggs for 40 years.

I was just one letter away from being rich.

Paul

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Re: First-time angel investor

#469865

Postby flyer61 » January 3rd, 2022, 10:50 am

'Never in the field of investing has one owed so much to so many'.

This is what makes this place so great. The responses here are pure gold!

I would add you should check what others are paying to subscribe in this issue and what others have paid for shares before you. Combine that with a check of the options, warrants etc awarded to the others. This really is buyer beware territory.

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Re: First-time angel investor

#469870

Postby bluedonkey » January 3rd, 2022, 11:05 am

Before investing, mentally think through how you would feel if you never saw a penny of your investment ever again. If you could live with that, fine.

Minority investors in start ups are often pejoratively described, so sorry if this sounds rude. The three "Fs": friends, family and fools.

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Re: First-time angel investor

#469871

Postby ukfire » January 3rd, 2022, 11:05 am

In my limited experience of unlisted investments (Seedrs and Crowdcube), the biggest problem seems to be lack of price/risk discovery. Everyone has rosy forecasts until the business collapses. And that's before shady behaviour e.g. warrants.

But then again, some people get lucky!


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