Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
Few people enjoy making mistakes, especially those with come with a financial cost such as with investing. Fortunately, errors bring the opportunity to make improvements to your approach in the future. In the long-term, mistakes could put you in a stronger future position compared to had you not made them. In this article, we share five important lessons learned from investment losses. To find out more about our EIS and other investment projects in our exclusive investor network, visit our portfolio page here. To enquire regarding our latest projects and funding (for investors and founders, respectively), you can reach us via:
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#1 Expect inconsistent victories
Even the best investors make mistakes. Experts cannot consistently win in a any sphere of life. Within sports, for instance, even the top elite athletes sometimes underperform (perhaps due to an injury or bad mindset leading up to a competition). Warren Buffett is one of the world’s most famous investors, and he admits to making poor portfolio choices – such as ConocoPhillips, U.S. Air and Dexter Shoes. Recognising that you will likely fail, at least to some degree, helps guard against overconfidence in your investment selection. It will help you remember to diversify your portfolio appropriately and not place too much trust in your ability to judge a single investment.
#2 Always have a protection plan
Sometimes you lose money because an investment underperforms and you sell at a loss. Other times, your investment falls foul of other circumstances – such as theft, or scams. The Covid-19 pandemic, for example, brought a huge rise in scams as criminals targeted people online during lockdown. In 2020 alone, Authorised Push Payment (APP) fraud losses amounted to £479m. Others were persuaded into investing money into dubious schemes (often based overseas), and the money disappeared. Always check the legitimacy of any investment offer and the protection that is available (e.g. the Financial Services Compensation Scheme).
#3 Expect disruption
For stock market investors, “ups” and “downs” come with the territory. It should be expected that the holdings should fluctate over time. With startup investing, you cannot check the share prices on a stock exchange, but you can gain a sense of your investment’s performance when talking to the founder(s) and checking recent reports. In the early stage, a business is bound to come across difficulties such as unexpected problems in the market, within operations and within the team. For an angel investor, the skill is knowing when your investment is deteriorating and has become dysfunctional, rather than just experiencing the “growing pains” of becoming a mature and profitable business. Knowing the difference comes with time and experience, but can also help to rub shoulders with other investors within a professional network (such as ours here at Bure Valley Group!).
#4 Know when to rebalance
Sometimes, the macro landscape changes and you need to shift your investment strategy. In 2022, for instance, interest rates are rising to counter inflation now standing at a 40-year high. Not only does this make it harder for businesses to borrow money as cheaply as before, but it also means it may be more difficult to sell goods and services to customers with less spending power. Needless investment losses can occur when an investor fails to account for both the short and long term. This is not always an easy balance to strike.
On the one hand, you do not want to rebalance your portfolio every time negative news hits the headlines. Conversely, new macro conditions can justify a re-examination of a strategy. In October 2022, for instance, it may be wise for startup investors to take extra care when considering businesses with high levels of debt. Whilst some debt is likely unavoidable, the higher the liabilities, the higher the risk that the business may not weather the economic storms and mature to profitability.
#5 know how to use loss relief
Certain tax-efficient schemes on offer from the UK government – such as EIS (the Enterprise Investment Scheme) – can be very helpful for mitigating investor losses. Failing to expoit these “vehicles” is like leaving money on the table. EIS, for instance, allows you to claim back your effective loss on an EIS investment equivalent to your highest marginal rate of income tax. So, if your effective EIS investment was £10,000 and that company goes on to fail, then you can claim back £4,500 via your tax return (assuming your are an additional rate taxpayer). The Seed Enterprise Investment Scheme (SEIS) also offers a similar loss relief mechanism, although you are limited to investing up to £100,000 into SEIS-qualifying companies each tax year (compared to £1m for EIS companies; or up to £2m if they are recognised as “knowledge-intensive”). If you are interested in investing in early-stage companies, then it is worth focusing on those which are eligible for loss relief schemes in case things do wrong.
Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group? Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
+44 160 334 0827