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What exactly are the risks? So are there other benefits? In common with any early stage investment, you should consider the risks involved, including loss of capital, illiquidity, the likelihood of no dividend in the early years, and possible dilution as future investment rounds take place. This may seem stark, however InvestingZone is committed to making sure that investors using the platform fully understand the risks to which they are exposed. If you are in any doubt about these risks you should consult a professional investment adviser. Investing in early stage private companies should be carried out as part of a balanced overall portfolio approach. Besides the financial returns, there are other benefits to investing in early stage companies. You’ll be helping to fund the next generation of successful British businesses, creating jobs and engaging with some fascinating companies and entrepreneurs. So can the rewards of being an angel investor really make the risk worthwhile? This is where InvestingZone’s collaboration with Seneca adds value. By taking a professional approach to analysing companies which are allowed to list on the platform, and by agreeing sensible valuations with management, we believe that pitches listed by InvestingZone are more likely to succeed than the industry average. The short answer is yes. Provided that you take some simple steps to mitigate the risks involved, early stage investing can prove very rewarding indeed and can involve you in exciting new businesses. How does an investor take advantage of tax reliefs? Published statistics show that they do. But on closer examination many of these were doomed to fail from the start either because the business case was weak or management was not up to the task. What are the advantages of taking a portfolio approach? Early stage investing is essentially about hunting for those winning deals within a well-diversified portfolio. Investors often think that every deal he/she does is wonderful at the outset but the data shows that most will in fact fail to generate a return. Therefore, the best way of maximising the chance of investing in a winning company is to build a portfolio of several investments in different sectors and at different stages of development. ONSIDE WINTER 2016 | Taking SEIS as an example; depending on an investor’s personal tax position, if an investor invests in an eligible company, HMRC will grant income tax reliefs at 50% of the cost of the investment in the fiscal year it takes place. Furthermore, if the company fails, then losses can be offset against an investor’s income tax bill for the year at his or hers highest rate of income tax. These reliefs mean that the capital which is actually at risk can be significantly reduced. On the reward side, if the company goes on to be successful, and as long as it remains EIS eligible, any gain on disposal of an investment will be exempt from CGT (provided the shares have been held for the minimum period of 3 years) – increasing an investor’s effective reward. But don’t most early stage companies fail? 47