Investor Risk Warning
Investing in startups, early-stage businesses and private companies can be very rewarding, but involves a number of risks and challenges. If you choose to invest through Central Exchange or www.centralexchange.com (the “Website”), you must be aware of and accept the important considerations below.
The following list of risk factors does not purport to be a complete enumeration or explanation of the risks involved in investing in any of the companies pitching for investment via the Website. Each individual company is different and comes with its own specific risks. Prospective investors should review the individual companies’ profiles in their entirety and are encouraged to consult with their own independent professional advisers before making any investment decision.
Although the aim of the Website is to provide a secondary market, any investment or purchase made through the platform will be highly illiquid. Because secondary markets for private company equity still remain largely illiquid, you are unlikely to be able to sell your shares until and unless the investee company floats on a recognised securities exchange or is bought by another company. Even for a successful business, a flotation or purchase is unlikely to occur for a number of years from the time you make your investment.
2. Loss of Capital
Because most startups fail, if you invest in a business through the platform, it is more likely that you will lose all of your invested capital than that you will see a return of capital or a profit. You should not invest more money through the platform than you can afford to lose without altering your standard of living.
3. Lack of Information
Unlike public companies, private companies are typically not required to publish detailed information such as financials and strategy. This lack of transparency is inherent to private companies and may increase your risk as an investor.
4. Valuation Challenges
The lack of information disseminated by private companies makes valuing these companies especially difficult.
5. Legal, Regulatory and Tax Risks
There are different risks that come with different companies, including potential legal, regulatory and tax risks that you should consider before making an investment.
6. Rarity of Dividends
Startups and early-stage businesses rarely pay dividends. This means that if you invest in a business through the platform, even if it is successful you are unlikely to see any return of capital or profit until you are able to sell your shares in the investee company. Even for a successful business, this is unlikely to occur for a number of years from the time you make the investment.
Any investment you make through the platform is likely to be subject to dilution. This means that if the business raises additional capital at a later date, it will issue new shares of the investee company to the new investors, and the percentage of the investee company that you own will decline. These new shares may also have certain preferential rights to dividends, sale proceeds and other matters, and the exercise of these rights may work to your disadvantage. Your investment may also be subject to dilution as a result of the grant of options (or similar rights to acquire shares) to employees of, service providers to or certain other parties connected with, the investee company.
Investing in startups and private companies is a risky asset class and should only be done as part of a diversified portfolio. This means that you should invest only a small proportion of your investable capital in startups and private companies, with the majority of your investable capital invested in safer, more liquid assets. In addition, you should invest relatively small amounts in multiple businesses rather than a lot in one or two businesses.