How Risky Is It To Invest In Seed EIS Investments?
Many investors consider investing in early stage growth companies to be a high risk investment strategy, especially when compared to the public markets where many of the companies listed on the London Stock Exchange have decades of trading history.
But as this pandemic has shown, the risk is not small just because a company is listed on a stock exchange or has been trading for a long time.
Should private growth firms, many of which have used seed EIS investments and the subsequent EIS investments, be viewed differently?
Well, two specialist investment groups, Worth Capital and Nova, sometimes known as We Are Nova, believe that investors need to think about how they perceive risk rather than immediately believing that Seed EIS are high risk and large publicly traded companies correspond to a low risk.
In a short video, the two discuss how they aim to diversify within the portfolio of companies in which they invest through their Seed EIS funds and how this complements the listed investments of portfolio investors or other funds such as investment trusts or unit trusts can and open investment companies (Oeics).
“#Startups are taking their place and growing fast; They are very nimble and can adapt to rapidly changing circumstances. “Matthew Cushen from @WorthCapital and Andy Davidson from Nova advised #SEIS. #SeedFunding #entrepreneurs #startupfunding #equityfunding #investment https://t.co/bUrLsq88ZF
– Small Business (@smallbusinessuk) January 12, 2021
Matthew Cushen, one of the founders of Worth Capital, is looking for companies where he and his colleagues can use their branding expertise to move a business forward. They are independent of what sector the business is in. Currently successful investments include a specialized, fashionable shoe store for women with everyday foot problems such as bunions and a bedding store.
Another way Worth seeks to diversify is by the way they look for new companies to invest in. It does this primarily through the Start Up series, which aims to invest up to £ 250,000 in growth companies that can benefit from Worth’s marketing and branding expertise.
Northwest-based Nova founder Andy Davidson offers investors diversification in a number of ways from Worth. Based in Liverpool, the group sources most of its deals from the north of the UK, where competition for deals between venture capital and growth company investors is not as great.
In addition, Davidson looks for companies with high quality technology as a basis for the business idea and often invests very early in a company’s life before it generates revenue. The currently successful investments include a so-called MedTech business, with which the cleaning habits of employees in hospitals are to be monitored in order to reduce infections in hospitals.
Mr Davidson and Mr Cushen agree on one thing: to reduce risk but achieve true diversification, investors should try to place investments with three or four Seed EIS or EIS managers if they can.
In this way there is a diversification of the plants with managers with different investment skills.
Are you interested in participating?
The start-up series, hosted by smallbusiness.co.uk and Worth Capital, offers companies the opportunity to secure an equity stake of £ 150,000 to £ 250,000 each month. To learn more, click here.