That startup you bought shares in: what does it do? More to the point, what claim do you have on revenue and assets, and will they last? How will they stand up against competition? When you're reading a prospectus, you need these things clear before you invest.
A case in point: we're trying to make sense of a deal that's just been struck that involved Williams Advanced Engineering, and was headlined "Formula One EIS makes gas investment" in the FT Adviser. Formula One makes us think of motor racing, and Williams is a prominent engineer. So, are we looking at gas-powered vehicles?
No. We got that wrong.
Electronics Weekly talks about a gas grid monitoring system. Does that mean we own gas grids?
Wrong again. Insider Media tells us this:
Utonomy has developed an innovative technology for reducing leakage in gas distribution networks. The company's 'Internet of Things' system automatically optimises gas distribution pressures through electro-mechanical actuators retrofitted to the network and controlled by intelligent, cloud-based software.
Right, so this investment is in an Internet of Things (IoT) company that builds clever robots that find leaks in gas pipes.
These are the kinds of questions investors faceall the time. The answers affect what you own, what the business might have to do to build market share, and how much money it might make. Unless you have a clear understanding of these points, you won't be able to value the investment accurately, or do your due diligence.
Does it repair the leaks or just find them? Excuse us, we have more reading to do.