Читать книгу How To Become A Business Angel - Richard Hargreaves - Страница 60

Prospectus EIS deals are investment opportunities which are promoted to the general public using formal prospectuses. The fact that prospectuses are available to the public means they are subject to strict legal rules but that does not mean they are safe investments.

The issuer, or promoter, of any prospectus has a legal duty of utmost good faith so as to not mislead potential investors and he must disclose all material facts about the company’s business. But that is completely different to the promoter believing the company will succeed. In the unquoted market, promoters often do deals simply because they think the public will buy them. Many promoters are fee driven and have little interest in the company succeeding once they have pocketed their fees and moved on to the next deal.

The prospectus route can also be a very expensive way of raising capital and I have seen total costs as high as 30% of investors’ money. Entrepreneurs will accept such high costs as high share valuations can more than offset them. For example, if an entrepreneur is prepared to raise money at, say, £5 per share but a promoter says he can raise it at £10 with costs of £3 giving the company £7 per share net, then the entrepreneur gains. It is the investor who suffers. So investors need to be vigilant.

None of this is to say there are not excellent prospectus offers and Case Study 3 describes one of these.