- Equity crowdfunding is risky.
- Issuers using Equitise’s facility include new or rapidly growing ventures. Investment in these types of businesses is very speculative and carries high risks.
- You may lose your entire investment, and must be in a position to bear this risk without undue hardship.
- New Zealand law normally requires people who offer financial products to give information to investors before they invest. This requires those offering financial products to have disclosed information that is important for investors to make an informed decision.
- The usual rules do not apply to offers by issuers using Equitise’s platform to raise funds. As a result, you may not be given all the information usually required. You will also have fewer other legal protections for this investment.
- Ask questions, read all information given carefully, and seek independent financial advice before committing yourself to any investment.
Equitise does not provide any financial, investment, legal or tax advice or recommendations to potential investors wishing to use the Equitise platform. Equitise does not recommend or endorse any company which makes an offer through the Equitise platform. Investors should make their own assessments of any investment opportunity on the Equitise platform, and should seek independent advice before committing to any investment.
Investing in private companies can be rewarding, although there are a number of factors to understand. To help you understand the risks associated with investing in private companies via the Equitise platform, please read and be aware of the following.
Investing in private companies should be done as part of a diversified portfolio. This means that as an asset class, private companies should only make up a portion of your portfolio, with the balance of your portfolio being made up of more liquid assets such as listed shares and bonds.
This also means that within the portion you invest in private companies, you should spread your risk and diversify your investment. We would suggest that you consider investing small amounts in multiple companies rather than all of your portfolio allocation in one or two companies.
2. Loss of Capital
The majority of early stage private companies fail or do not scale as planned, and therefore investing in these businesses involves significant risk. While you are only limited to losing your investment, it is likely that you may lose all, or part, of your investment.
You should not invest more money through the platform than you can afford to lose without altering your standard of living. If a company you invest in fails, neither the company – nor Equitise – is under any obligation to pay you back any portion of your investment.
3. Lack of Liquidity
Liquidity is the ease with which you can sell your shares after you have purchased them. Buying shares in companies making an offer through Equitise cannot be sold easily and they are unlikely to be listed on a secondary trading market, such as the New Zealand Alternative Market (NZAX) or the New Zealand Stock Exchange (NZSX). Even successful companies rarely list shares on such an exchange.
There may be the future opportunity for a secondary market for private company shares, which will allow you to potentially sell your shares, however this is not available at the moment and there are no guarantees it will be available in the future.
4. Rarity of Dividends
Dividends are profits paid to shareholders from a company's profits. While this is desirable from a shareholder's point of view, early stage companies like those on our site often seek high growth and therefore typically reinvest profits into growing the business to achieve greater long-term value to shareholders. This means that if you invest in a company 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 company. Even for a successful company, this is unlikely to occur for a number of years from the time you make your investment.
Any investment in shares made through Equitise may be subject to dilution in the future. Dilution occurs when a company issues more shares. Dilution affects every existing shareholder who does not buy any of the new shares being issued. As a result an existing shareholder's proportionate shareholding of the company is reduced, or 'diluted'-this has an effect on a number of things, including voting, dividends and value.
Businesses can have and issue different classes of shares, which will assign different rights to you as a shareholder. Such things as pre-emption rights on new share issues or share transfers and voting may affect your shareholding so please ensure you are aware of the capital structure and class of shares you will be buying. This information will be set out in the offer materials details provided by companies making offers using Equitise's platform.
6. Reliance on Founders
When investing in private companies, as well as public companies, there can be significant reliance on the founders of the business, the directors, and the management team. You should take steps to satisfy yourself as to who is involved in any company you are investing in.
While the above are all important considerations, the prevailing economic, tax and regulatory conditions may also impact the performance of your private company investments as they would the balance of any investment portfolio.