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Risk Warning


Investing in new types if investment or new investment structures can be very rewarding, but like any investment it involves a number of risks. To invest through Earnest Knight’s new investment you need to understand five important risks of investment.  These are:


Loss of investment

You should only invest an amount that you are willing to lose and you should build a diversified investment portfolio to spread risk. If a business you invest in fails to perform as anticipated, neither the company – nor Earnest Knight – will pay you back your investment.


Lack of liquidity

Liquidity is the ease with which you can sell your investment or shares after you have purchased. Buying investments or shares through Earnest Knight cannot be sold easily as they are unlikely to be listed on a secondary trading market, such as AIM, Plus or the London Stock Exchange.  Even successful companies rarely list shares on such an exchange. In addition, if you purchase B Investment Shares, these are non-voting shares and may not be attractive to potential buyers. 

Without a public market to find a buyer for shares it may be more difficult to sell them for a cash return. Investment through Earnest Knight should be viewed as a long term and illiquid investment unless the terms of the specific investment stipulate otherwise.


Rarity of dividends

Dividends are payments made by a business to its shareholders from the company’s profits.  Most companies Earnest Knight pitch are start-ups or early stage companies, and these companies are designed to differ from most start-ups that rarely pay dividends to their investors. This means that the structure is designed to see a return on your investment through dividends but you may not see a return until you are able to sell your shares.

Businesses have no obligation to pay shareholder dividends.


Possibility of dilution

Any investment made through Earnest Knight 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.

Most businesses who pitch through Earnest Knight only offer A-Ordinary Shares, which may include pre-emption rights that protect an investor from dilution.  In this situation the business must give shareholders with A-Ordinary Shares the opportunity to buy additional shares during a subsequent fundraising round so that they can maintain or preserve their shareholding. Please check a pitch, and the Articles of the company to see if the shares you are buying will have these pre-emption rights. Most companies do not offer pre-emption rights for B Investment Shares.


The need for diversification

Diversification involves spreading your money across multiple investments to reduce risk. However, it will not lessen all types of risk.

Diversification is an essential part of investing. Investors should only invest a proportion of their available investment funds via Earnest Knight and should balance this with safer, more liquid investments.


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