The purpose of this document is to warn you about the risks involved when providing financing via the online platform accessible through the website http://tfgcrowd.com and its subpages (hereinafter jointly the “Portal”). The list of risks and warnings is non-exhaustive and there may be other matters that you may need to consider when deciding to use the Portal and making investment decisions. This document should not be viewed as an investment advice or guidance of any kind. It is written to remind and warn you that there are various risks involved when investing by providing financing via the Portal.
The risks involved with investment decisions might affect potential investment returns and, as there may be no guarantees or other collateral securing the investment, you might incur losses. You should endeavour to diversify your investments (different regions, industries, asset classes, etc.). We advise you to seek professional investment advice and also legal and tax advice before investing via the Portal.
When investing via the Portal, please be aware of the following risks:
You need to diversify your investment
When investing your money, it is important to diversify among different types of investment, which carry different degrees of risk, in order to lower the overall risk of your investments. Because the financing you provide via the Portal goes to unlisted companies, among them newly formed start-up companies without a successful track record, which may be having difficulties securing financing through other sources (e.g., from banks) to support their operations or to fund a new project etc., you should be aware that the financing provided by you will be at risk of significantly losing value. Therefore, providing financing via the Portal or other crowdfunding platforms always carries a high risk and you should balance this with safer, more liquid investments.
You may lose your investment
Companies looking to raise funds through the Portal, like any other companies, are vulnerable to financial difficulties, which may mean that even though they projected that they would be able to repay the financing, the circumstances may change. Because the financing you provide is not secured or insured and is not protected by any governmental authority, then in case the company you have invested in becomes insolvent, you could lose some or all of your investment.
Your investment is very illiquid
Liquidity is the ease with which you would be able sell your investment to someone else in order to recover it. As there is no secondary market for the financing provided via the Portal and you don’t have the right to assign the rights and claims arising from the financing agreement you have concluded to someone else (except with the permission of the Portal operator to another registered user of the Portal), you will be unable to recover your investment by selling it off on a secondary market.
You will also not be able to request an early repayment from the company you have provided financing to, if you need the invested money during the payment term yourself, as there is no such option available in the Portal. Therefore, before making any investment decisions you should assess your future financial needs, as you may not be able to find an immediate buyer for your rights and claims, and you will generally not be able to cancel the financing agreement prematurely or ask for an early repayment unless the financing agreement explicitly stipulates otherwise.
Please note that political or social circumstances, changes in the legal acts and changes in the situation on the market can bring about negative influences on your investment. The market risk can be reduced but not eliminated by diversifying your investments.
The legislative acts, administrative practice and other factors may contribute to the legal risk. The legislative acts and administrative practice regarding state supervision, assets, ownership, investment activities and taxation may change and influence your investment and the outcome of your investment.
Investing in a foreign country
Please be aware that, when investing in a foreign country, you may encounter a different and non-familiar economic, political, social and legal environment.
You should always assess the tax risks associated with any investments – any earnings or capital gains can be subject to income and other taxes. This may reduce your realized profits and you may be subjected to investigative proceedings from tax authorities, if you fail to properly report any earnings or capital gains realized from investments through the Portal.
There are specific risks associated with investing in loans:
You may lose your investment and not receive interest payments
Companies looking to raise financing through the Portal, like any other companies, are vulnerable to financial difficulties, which may mean that even though they projected that they would be able to repay the financing, including interest, the circumstances may change. Because the financing you provide is not secured or insured and is not protected by any governmental authority, then in case the company you have invested in becomes insolvent, you could lose some or all of your investment. Similarly, if the company encounters financial difficulties you may receive lower or no interest payments at all.
Your investment may be repaid early
Companies have the right to repay the financing before the maturity, which may mean lower than projected earnings on your investments.
You are lower in the pecking order
If the borrower encounters financial difficulties and is unable to meet his outstanding financial obligations and is subsequently liquidated, other creditors (for example employees, tax authorities, banks and other secured debtors) may be prioritised and be compensated first. This means that you are lower in the pecking order and may not receive your initial investment or accrued interest back, as there may be no funds left once the prioritised creditors are paid.
Rising interest rates and inflation may adversely affect your investment
Because loans pay a fixed rate of interest, which is not pegged to an underlying index, a rise in central bank set interest rates may have an adverse effect on the relative returns that you earn. Similarly, inflation may reduce the real value of your returns over time.
Convertable loans may not be converted into shares
When you invest in loans that are intended to be converted into equity at a later date, be aware that the borrowers have the option to repay the loan without converting it into equity. Consequently, your returns (if any) would only be realised in the form of any accrued interest. On the other hand, it is important to understand that when you invest in a convertible loan, your investment is also subject to the same risks as investing in equity. Please refer to the risks associated with investing in equity below for more detailed information.
There are specific risks associated with investing in equity:
Your investment may lose value
The companies looking to raise financing through the Portal, like any other companies, may not grow or work out as projected. This means that investing in these companies involves significant risks. It is possible that you may lose some or all of your investment, therefore you should only invest an amount that you are willing to lose. You should also endeavour to build a diversified investment portfolio consisting of investments that offer varying returns and carry different levels of risk. If the company to whom you have provided financing fails, neither the company, nor the Portal operator will pay you back your investment.
You may not receive dividends
Companies have no obligation to pay dividends to their shareholders. Because the companies looking to raise financing through the Portal are often start-ups or early-stage companies, they are likely to re-invest any profits into the business to promote growth and build company value rather than pay out the profits in the form of dividends. This means that you may realise little or no returns on your investments until and if you are able to sell your shares at a higher price than acquired.
You may not realize any growth in capital
Returns from investments in equity may be realized in the form of capital growth. This means you would have to sell the stake acquired in the company in return for your investment to somebody else at a higher price than you acquired it. Because there is currently no secondary market for your investments through the Portal, you would need to search yourself for somebody to buy your equity. Current terms specify that the potential buyer would also need to be a registered and active user of the Portal.
Risk of dilution
Any investment in equity made through the Portal may be subject to dilution in the future. This happens, when a company issues additional shares and affects you, if you do not buy any of the newly issued shares by diluting (reducing) your proportional shareholding in the company, which in turn will have an effect on various things, including among others, voting, dividends and the value of the shares you hold.