Suitability Test Tutorial

What Happens to Most Start Ups and Early Stage Businesses?

• Unfortunately, most start-ups and early stage businesses struggle to get to

profitability and will fail. This can happen due to strong competition, not enough
market demand for the product or service offered, or just bad timing – i.e. the world
wasn’t ready for their great idea!

• How can I reduce the risk of this happening?

– Since it’s very difficult to know in advance which companies will fail and which
will succeed, the best way of maximizing the chance of investing in a successful
company is to build a portfolio of several investments on Eureeca. Therefore
you spread your risk.

• Remember - You should not invest more money through the platform than you can
afford to lose.
 What Is The Best Way to Invest In Start-ups?

• Investing in start-ups should only be done as part of a diversified portfolio. This

means that you should invest relatively small amounts in multiple businesses
rather than a lot in one or two businesses. This helps spread your risk.

• It also means that you should invest only a small proportion of your investable
capital in early stage companies, with the majority of your money invested in safer,
more liquid assets like public stocks or bonds.

• Having a diversified portfolio means that you give yourself a better chance to ensure
the returns from the companies that do succeed balance out the losses from those
that don’t.
How Can I get My Money Back? Can I Sell My Shares Once The
Company Is Successful?

Any investment you make through the platform will be highly illiquid. This means that
you are unlikely to be able to sell your shares until and unless the company:

– Floats on a stock exchange (IPO) or

– Is bought or acquired by another company or
– Someone wishes to purchase you share, for example a new investor into the
business.

Even for a successful business, an IPO or purchase is unlikely to occur for several
years after you make your investment.

When investing on Eureeca, pay attention to the exit strategy of the company and
the entrepreneur. This should be a important factor in determining your
investment.
 Do Start-ups Pay Dividends?

• Start-ups and early stage businesses rarely pay dividends. This means that if you
invest in a business through the platform, even if it is successful you are unlikely to
see any return on capital or profit unless you sell your shares to a third party or back
to the company.

• Businesses have no obligation to pay shareholders dividends. Any profits the

business makes are typically re-invested into the business to fuel growth and build
long-term shareholder value by increasing the value of the company.
 What Happens if The Company Issues More Shares After I
Invest?

• It is normal practice in the investment world that companies go through many

rounds of funding, raising more money, hopefully to expand, scale, and grow, and
therefore increase the value of the company.

• Any investment you make through the Eureeca platform is likely to be subject to
dilution. This means that if the business raises additional funds at any point after the
date of your investment, it will issue new shares to the new investors.

• This means that the percentage of the company that you own will be reduced as
more shares are added. This is standard practice, and the aim is that the value of those
shares have gone up so you own a smaller piece of a much bigger pie!
 How Can I Avoid Being Diluted?

• Most of the companies listed on Eureeca offer their investors “pre-emption rights”.
This means you will have the right to participate in any follow-on funding rounds if
you want to, and will be given the chance to do so before the new investors come in.
However NOT ALL COMPANIES WILL, so it is important to check the term sheet of the
proposal you are investing in.

• If you choose to participate in this new round, you can re-invest in the company at
the new price to maintain your ownership percentage.

• If you choose not to participate, then your ownership percentage in the company
will be reduced. This isn’t always bad! If the business is performing well and the new
funds are raised at a higher valuation, then even though your percentage holding will
be reduced, the actual value of your shares would still increase – e.g. owning 1% of a
company worth $20 million is better than owning 10% of a company worth $1
million.
 That’s all for now!

If you have any questions, please get in touch with us at

contactus@eureeca.com and we will be happy to help