Risk Summary for Stellar Nova EIS Fund

Estimated reading time: 2 minutes

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.   

What are the key risks?  

  1. You could lose all the money you invest 
  • If the businesses you invest in fail, you are likely to lose 100% of the money you invested. Most start-up businesses fail.   
  1. You are unlikely to be protected if something goes wrong 
  • Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here.
  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here.
  1. You won’t get your money back quickly 
  • Even if the businesses you invest in are successful, it may take several years to get your money back. You are unlikely to be able to sell your investments early. 
  • The most likely way to get your money back is if a business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
  • If you are investing in a start-up business, you should not expect to get your money back through dividends. Start-ups and early stage businesses rarely pay these.   
  1. Don’t put all your eggs in one basket 
  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.  
  • A good rule of thumb is not to invest more than 10% of your money in high-risk investments. 
  1. The value of your investment can be reduced 
  • The percentage of the business that you own will decrease if a business issues more shares. This could mean that the value of your investment reduces, depending on how much each business grows. Most start-up/early stage businesses issue multiple rounds of shares.  
  • These new shares could have additional rights that your shares don’t have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.   

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.