The risks in brief
Unlisted shares can deliver high returns, but the risk is also higher than for most listed shares. The companies are often smaller and at an earlier stage, the shares are hard to sell and you get less information. This guide goes through the main risks and what you can do about them.
You can lose your whole investment
Many unlisted companies are young, and some of them will fail. If a company goes bankrupt, shareholders are paid last, after all lenders and suppliers, and in practice the shares are usually worthless. Unlike a fund, which spreads the money across many companies, you carry the whole risk yourself when you buy shares in a single company. You can never lose more than you paid for the shares, though, because shareholders are not personally liable for a limited company's debts (unless you borrowed to buy them or guaranteed the company's loans). A loss is deductible in your tax return, for unlisted shares by five sixths; see the article on tax when you sell unlisted shares.
Liquidity risk: selling can take a long time
There is no exchange where you can sell with a click. A sale requires finding a buyer, which can take weeks, months or in the worst case years. Often it takes until the company goes public or is acquired, and even after an IPO early owners can be bound by a lock-up period. So expect the money to be tied up for a long time. Read more about how to sell unlisted shares.
The price is an estimate
Without a market price, the price is usually based on the latest trade or funding round, which may be years old. The headline valuation from a round doesn't always say what your particular share is worth either, since new investors are often paid first in a sale. The guide on how unlisted companies are valued explains why.
Dilution
Growing companies often raise new capital through share issues. If you don't take part, your ownership stake shrinks, and if the issue is priced below earlier rounds (a down round), the value of your shares can fall. See the guide to cap tables and dilution.
Limited information
An unlisted company doesn't have to publish quarterly reports or keep the market informed. The main public source is the annual report, which the company files with the Swedish Companies Registration Office (Bolagsverket). The founders and largest owners therefore almost always know more than you. Do your own due diligence and read the company's annual reports before you buy.
Transfer rules and small owners' influence
The articles of association can contain post-sale purchase rights, pre-emption rights or consent clauses that affect when and to whom you can sell. If you are party to a shareholders' agreement, it can also force you to sell if a majority sells the company (a so-called drag-along). As a small owner you have limited influence over the company's decisions, even though the Swedish Companies Act gives some minority protection.
Risks when investing via an SPV
Large US private companies are usually bought via an SPV, a company that pools several investors and holds the shares for them. You then own a stake in the SPV, not shares directly in the company. The manager decides when the shares are sold or distributed, fees affect your return, and the holding is in dollars, so the exchange rate affects its value in kronor.
Fraud and firms without authorisation
Fraudsters sometimes offer shares in unlisted companies with promises of quick, safe returns. The Swedish Financial Supervisory Authority (Finansinspektionen, FI) recommends investing only through firms listed in FI's company register and checking that the firm is not on FI's investor alerts list. Be especially wary of unexpected calls and offers with time pressure. Accumeo AB is registered with Finansinspektionen as a tied agent of Aqurat Fondkommission AB.
Investor protection doesn't cover losses
The Swedish investor protection scheme pays up to SEK 250,000 if a securities firm goes bankrupt and can't return your securities or money. It never compensates for a share falling in value. Read more at Riksgälden.
How to reduce the risks
- Spread your money across several companies and sectors, and keep unlisted shares to a limited part of your portfolio.
- Understand the business model. If you can't explain how the company makes money, treat that as a warning sign.
- Consider the company's stage. A young company fails more often than a mature one, but often has more upside too.
- Check the team and the other owners. Who has invested before, and on what terms?
- Read the articles of association and any shareholders' agreement before you buy.
- Check the platform in FI's company register.
- Have a plan for getting out: an IPO, an acquisition or a sale in secondary trading.
- Only invest money you can do without for many years.
Summary
The biggest risk with unlisted shares is that the company fails and you lose your whole investment. On top of that, the shares are hard to sell, the price is uncertain and you know less than the company's insiders. A diversified portfolio, your own analysis and a long time horizon help you manage the risks, but never remove them.