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Investing in businesses, particularly earlier stage ones, may be very lucrative, but there is a certain amount of risk involved. If you wish to make an investment through Squareknot, you need to recognise and appreciate a number of significant risk factors:
1. Loss of Capital
When investing in companies, there is always a chance that their success will not hit desired heights. Some may underperform or even fail resulting in a partial or complete loss of capital. You should not invest a greater sum through the Squareknot website than you are prepared to lose or which you can afford to lose without altering your standard of living.
2. Limited Liquidity
The shares of different companies experience varying levels of liquidity. Some may be highly illiquid. In consequence, you may have to wait for a liquidity event to be able to realise your investment. Such events include the company in which you have invested in conducting an IPO or some other listing on a recognised securities exchange, or is the subject of an acquisition by another business. Even successful businesses may, however, choose not to list their shares or sell their company, and therefore any investment you make through Squareknot should be viewed as both long term and illiquid.
3. Scarcity of Dividends
It is highly unusual for an embryonic company to be in a position to make a distribution to its shareholders. Any profits earned tend to be reinvested into the business of the company and are not used to pay dividends. Hence, returns may rely solely on capital appreciation realised via a liquidity event in the medium to longer term. Even successful businesses may choose not to pay dividends.
4. Dilution of Shareholding
If you make an investment through Squareknot the percentage of the investee company that you own may be reduced in the future. Such an event usually occurs through the issue of additional shares to raise more capital and is referred to commonly as dilution.
5. Diversifying your portfolio
It is commonly recommended that investors should maintain a balanced portfolio and diversify their investments through different asset classes and a broad variety of different companies. Investments through Squareknot should be seen as but one such asset class.