The general risks of investment crowdfunding and what you can do to mitigate them.
Investing is always risky, but by taking certain precautions you can help to mitigate your risks.
Below we’ve described some of the actions Spreds has taken to help protect our crowd of investors, and some of our recommendations for our investors to take to mitigate their own risks.
One programme to consider is the Tax Shelter for startups. This programme qualifies some startups to allow investors to claim a tax reduction of 25%, 30% or 45% of their investment back in their tax declaration. This is one way of mitigating your risk, by attempting to gain a tax reduction to counterbalance your invested capital. Certain conditions apply, and therefore certain risks, as mentioned above.
Rewards for Investors
To win you have to play. But it’s important to play by the rules, including the rule to diversify your investments in a variety of ways.
Typically, the venture capital industry uses the following statistics. On average, a start-up has a 30-40% failure rate, which would mean that an investor in the startup could lose all of their money invested in the company. The “survival” rate for new businesses is 40-50%, but where the company has no return on investment. This means that the investor will either have a small return or a small loss. Around 10-20% of companies succeed with a financial gain, meaning there is a return on investment, as the company gets acquired or goes public on the stock market. If you diversify and invest in many different types of companies (typically more than 10), the wins of the 10-20% may counterbalance losses and provide you with a decent return on your portfolio.
Responsibilities for Investors
Spreds invites the investors to help empower entrepreneurs through funding on our platform.
Our investors have a responsibility to inform themselves about the investments they choose to make and carefully consider their risk tolerance before making any investments. Although we have tried to make a good summary on this page, you should always read the Information Note in full as well as the details of each investment opportunity before making an investment.
Early-stage companies, including start-ups and scale-ups, face a competitive market.
New businesses face uncertain conditions, often in a new industry to market without a proven track record.
Attend General Meetings
It is in the interest of anyone who has purchased Notes to attend the general meetings of Noteholders. Meetings are exceptional and infrequent, typically to discuss important resolutions, for example":" deciding on amendments to the Terms & Conditions of the Notes, deciding to sell shares, or deciding to amend the provisions affecting the transferability of shares.
Any investment has a risk of 100% loss. For this reason, we highly recommended that you diversify your investment portfolio. Diversification means that you spread your investments in many different types of companies, including companies in differing stages, and different industries. We suggest your investments in one asset class should be spread over 10 to 20 investments. In a healthy diversified portfolio, the loss felt from some investment(s) can be balanced by the gains made on other, more successful ones.
Investors who invest through our platform are not becoming direct shareholders. Rather, investors hold participatory Notes from Spreds Finance which represent their crowdfunded investment in the company. All the operational activities, including our team costs, are conducted in “Spreds S.A.”, which is kept separate from the investment funding.
Spreds Finance is a financial vehicle with the sole activity to hold investment or participation in companies. Spreds Finance serves as a single representative of crowdfunding investors, which simplifies administrative actions such as verifying the investment at the notary.
Through Spreds Finance, the crowd has reduced burdens compared to shareholders, and collectively a stronger voice than an individual holder of a small number of shares. Although, this also means you have no individual voting rights in the company. Whenever an important decision needs to be taken concerning your investment, we will organise a general meeting of all the crowd investors to decide.
Spreds Finance has a special structure, ensuring that each company on the crowdfunding platform is isolated from bankruptcy. If one business goes bankrupt, it is restricted only to the compartment linked to that business.
The Spreds Finance structure avoids a domino effect because it is “bankruptcy remote”. This structure ensures there are no creditors of Spreds Finance other than the investors of the concerned compartments and, eventually the Belgian state government. In any case, Spreds guarantees all the potential debts of Spreds Finance.
The accounts of Spreds Finance are audited by external audit firm Ernst & Young. Spreds Finance is also subscribed to responsibility insurance.
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