Investing in early stage businesses is a high-risk investment strategy and might result in you losing all of your capital. To help you understand some of the risks involved in investing in the Force Over Mass Capital SEIS/EIS Fund (the “Fund"), we have set out what we believe to be the most significant; though please note this list is by no means exhaustive. Given these risks, we strongly recommend all of our investors to seek independent financial and tax advice before investing.
Loss of Capital. This Fund invests in early-stage, unquoted companies. Most early-stage businesses fail. Investments in early-stage technology businesses are widely acknowledged as particularly high-risk. You should not invest more money than you can afford to lose without altering your standard of living.
Illiquidity. An investment in the Fund will be highly illiquid and should be considered a medium to long-term investment. It is very unlikely that there will be a secondary market for the shares of the Fund’s investee companies. Therefore, you are unlikely to be able to sell your shares until and unless the investee company floats on a securities exchange or is purchased. This is unlikely to occur for a number of years from the time you invest.
Valuation difficulties. The fact that shares in investee companies are, in general, not publicly traded or freely marketable may mean that proper information to determine the current value of investments will not be available. The figures we provide to investors in respect of implied profit, implied returns and the value of their investments are obtained by taking the value of each investee company in which the Fund has invested at the last investment round. There is no guarantee that such value is correct nor that investors will be able to realise their investment in an investee company at that value if they are able to realise their investment at all.
Returns and investment opportunities. The value of your investment in the Fund depends on the performance of investee companies and other market, currency, regulatory, economic and political factors outside your control. There can be no assurance that the Fund will meet its objectives or that suitable investment opportunities will be identified.
Realisation of investments. There can be no guarantee that market conditions will be advantageous for the realisation of the Fund’s investments. This may delay or prevent the targeted exit. Such investments may not be realised at a reasonable price or, in some circumstances, at any price. Further, the information necessary for calculating the current value of the Fund’s investments may not be available.
SEIS/EIS relief. If an investee company ceases to carry on business of the type prescribed for SEIS/EIS qualifying companies during the 3-year holding period, this could prejudice its qualifying status. If it fails to obtain SEIS/EIS qualifying company status, or if it is subsequently withdrawn, SEIS/EIS income tax relief and capital gains tax deferral/wipe-out relief could be withdrawn or cease to be available. In addition, there are several circumstances in which an investor could cease to qualify for the tax reliefs offered by SEIS or EIS, meaning that this tax could become payable. Whilst it is the intention of Force Over Mass to invest in companies qualifying under EIS and/or SEIS legislation, Force Over Mass cannot guarantee that all Fund investments will qualify for all EIS and SEIS tax reliefs or, indeed, if they do initially, that they will continue to do so throughout the life of the investment
Fees. Although HMRC has traditionally accepted the payment of corporate finance fees and commission to fund managers out of SEIS and EIS monies as being a qualifying use of such funds, this interpretation might change. There is therefore a risk that the payment of a 10% corporate finance fee to Force Over Mass by investee companies might jeopardise their SEIS and EIS qualifying status.
Force Over Mass Key Persons. The ability of Force Over Mass to introduce suitable investment opportunities will depend upon the services of its key personnel and accordingly the loss of the services of these key persons could have a material adverse effect on the performance of the Fund’s investments.
Management team. Many unquoted companies have small management teams and are highly dependent on the skills and commitment of a small number of individuals. The departure of any directors and/or key employees could have a material adverse effect on an investee company’s business.
Minority interest and co-investment. The Fund will co-invest in many companies alongside other investors, other larger venture capital funds and angel investors. Where the Fund is not the lead investor, Force Over Mass’ ability to dictate investment terms with investee companies is limited. All investors’ interests are generally aligned but Force Over Mass might not always be in a position to influence investee company actions nor those of its co-investors. This might restrict Force Over Mass’ ability to bring about an exit for the Fund’s investors after 3 years provided or in some cases lead to the Fund’s investors being forced to exit before they have held the shares for the 3 years hardening period for EIS and SEIS relief.