Building a well-diversified portfolio

  • Friday 4th November 2016
  • by Crowdcube

With new investment opportunities added to Crowdcube every week, investors can choose from startups, early and growth stage businesses from a brewery to a challenger bank, a consumer brand or even an airship - the choice is yours.

When investing, particularly in seed or early-stage businesses, it is important to diversify your portfolio by making a range of investments. This is to help balance the risk of losing capital by investing across sectors and stages. Whilst there are still risks involved, spreading your money across multiple and different types of investment can provide a cushion to adverse market conditions and the failure of some startups.

To give you an overview of how you can build an investment portfolio lets first take a look at the businesses that seek crowdfunding on Crowdcube. Here is our classification of business stages:

Seed:

Typically the initial stage of equity funding from external investors to prove product and market fit. A few examples of funded seed-stage businesses include The Chocolate Bear Kitchen, The London Jam Factory, Cape Fisheries and Savvy Foods.

Early Stage:

Typically raising capital to develop its product, begin to scale and demonstrate commercial traction. A few examples of funded early-stage businesses include The Italian Job, Good & Proper Tea, Classlist and WiseAlpha.

Growth Stage:

The product and market fit are well defined with demonstrable traction, the company is raising capital to scale the business and increase market share. Examples of funded growth-stage businesses include goHenry, Sugru, BrewDog, Vivobarefoot and POD Point.

There are also a variety of sectors within each business stage, which vary from consumer products to technology to cleantech, fintech and much more.

Getting started

According to a recent Nesta report, it is recommended that investors manage risk by selecting a wide variety of investments within their portfolio. So to do this, you could set yourself a time frame and allocated spend, say a yearly budget and invest across a variety of fundraising businesses that you have researched on Crowdcube. Alongside this, you may decide to invest into an ISA, pension or bonds, carrying different levels of investment risk to equity crowdfunding.

When managing your portfolio, you could divide your investments by business stage/maturity, sectors, geography, time frame and investment type. For example, if you have invested all of your money within the UK or US, whether it's through businesses, banks or funds and there is a change to market conditions, this leaves you sensitive to any changes, i.e. a recession, change of government or regulation.

What happens next?

Whether you are an everyday, advised, sophisticated or high net worth investor, it is important to review your portfolio regularly and follow the businesses you have invested in. If you have invested in businesses on Crowdcube, you can keep up to date with its progress through the funded company pages and articles on Crowdcube, as well as the investor updates sent by the businesses.

The funded company pages on Crowdcube include business details, company status, information from Companies House, news articles, key financials, the team and the original investment opportunity (pitch page).

When investing in startups, if you are a UK taxpayer you can claim tax relief through the SEIS or EIS schemes. These tax relief schemes benefit investors as you can claim back 50% for SEIS and 30% for EIS along with Capital Gains Tax benefits. You may also be eligible for loss relief if the company goes into liquidation. When browsing through investment opportunities on Crowdcube, you will be able to see the status of on each individual pitch page. Please note that you should always seek independent tax advice if you are unsure of any aspect of the process and the availability of tax relief depends on your individual and the company’s ongoing circumstances and applicable law.

The finance invested through Crowdcube is helping businesses to boost UK exports from expanding overseas, creating thousands of new jobs and opening offices, shops, bars, restaurants, fitness centres and much, much more. To date, the funded businesses on Crowdcube have delivered £5m in returns for investors, including equity exits from E-Car Club and Camden Town Brewery, along with bond interest repayments.