Investment mechanism
Investment mechanism and types
Equity-Based Investing
The potential return on invested capital achievable through the growth of startups via “equity” is significantly higher than investing in established, publicly-listed companies; however, the associated risk is also much greater.
💡 A fully digital 100% investment process
💰 Investment starting from SAR 1,000
🕌 Shariah-compliant investment
What Is Equity-Based Investing?
It is a mechanism that enables small and medium-sized companies to raise funds by increasing capital through new investor entry into the company’s ownership. The purpose is to finance growth and expansion plans. This mechanism allows investors to invest small amounts in various projects in exchange for a share of the company’s equity and, consequently, a portion of profits—or via redeemable shares with specific terms, yields, and time frames. These shares may be redeemable and/or convertible upon maturity. Equity-based financing is one of the most advanced products for funding startups and mature companies with ease.
What Are the Issued Share Categories?
The shares issued by companies through the Alliance platform to obtain funding are divided into the following categories:
Ordinary Shares
These shares represent a portion of equity in unlisted companies—whether startups, growth-stage firms, or mature companies. They grant holders several rights, most notably: attending and voting at general assemblies, receiving dividends when distributed, and priority in subscribing to new share issues. The investor aims for capital gain upon exit—via sale to strategic partners, acquisition, or public listing—over the long term.
Redeemable Shares
Redeemable shares are a Shariah-compliant hybrid of equity and sukuk. They offer fixed periodic returns and have features different from ordinary shares. They include predetermined redemption terms and may be converted, but they do not grant voting rights at general assemblies.
What Are the Features of Ordinary Shares?
In contrast to redeemable shares—which carry lower risk for investors—the risk level is higher with ordinary equity. However, the potential long-term profit is significantly greater.
Voting Rights
Ordinary shareholders can vote on key company matters such as new share issuances or dividend distributions, giving them a say in company governance and helping represent shareholder interests.
Preemptive Rights
They have priority to purchase new shares before other investors, proportional to their existing holdings.
Capital Gains
Ordinary shareholders benefit from company growth and success through capital appreciation, e.g., via bonuses or stock grants.
What Are the Features of Redeemable Shares?
Redeemable shares attract low-risk investors and enable companies and entrepreneurs to access necessary funding. The Alliance platform has developed a Shariah-compliant redeemable share product that combines equity and sukuk with distinctive features, including:
Redeemability (Redeemable Shares)
Companies issue these shares with preferential terms and a redemption premium. At maturity, the company repays the share value plus the agreed-upon premium and then retires the shares.
Convertibility (Transferable)
Holders may convert redeemable shares into a fixed number of ordinary shares under specified conditions. This can be attractive if the company performs well and its share price rises at maturity.
Variable Profit Rate (APR)
Holders receive a redemption premium that delivers a set return rate per the offering document. Any dividends approved by the general assembly are shared pro rata.
Redeemable shares do NOT grant voting rights in the general assembly.
Why Issuance of Redeemable Shares?
Issuing redeemable shares is one of the most innovative and advanced solutions for investing in startups and mature companies. It offers periodic income and capital gains by allowing the company to repurchase shares at a higher price upon maturity.
A fully digital 100% innovative investment process
Periodic dividends and returns (quarterly, semi-annual, annual)
Attractive investment returns with lower risk!
Shariah-compliant investment
Option to convert to ordinary shares if the company grows
Lower-risk investment compared to other asset classes
Why do companies issue Redeemable Shares?
Companies issue redeemable shares to raise capital flexibly without permanently diluting ownership. These shares allow them to secure additional funds and later redeem them, maintaining greater control over long-term ownership. Additionally, redeemable shares are not categorized as debt, helping keep leverage low and improving credit ratings.
Key Features of Issued Share Categories
Ordinary Shares
- Grants voting rights at general assemblies.
- Generates returns through long-term share price appreciation.
- Entitled to net dividend payouts (if any).
- Cannot be redeemed by the company; it's a long-term investment.
- No predetermined exit mechanism is provided.
- High-risk; however, if the company succeeds, can yield high gains on exit.
- Ideal for long-term investment strategies.
- Entitled to residual equity on liquidation.
- Right to oversee and monitor company activities.
Redeemable Shares
- No voting rights at general assemblies.
- Yields are provided through dividends set at issuance, plus share price appreciation during the term.
- Periodic dividend payouts at a higher rate than ordinary shares; unpaid dividends may accumulate.
- Clear exit mechanism with a defined maturity date.
- May include a conversion option to ordinary shares at investor’s discretion.
- Lower-risk shares that deliver solid returns.
- Company may redeem shares at maturity with a redemption premium.
Is Redeemable Shares Investment Safe?
When it comes to risk, redeemable shares are positioned between bonds/sukuk and ordinary shares. They carry more risk than bonds/sukuk but less than ordinary equity. If the company thrives, share prices may rise sufficiently to provide capital gains via conversion.
Nevertheless, as with any financial asset, thorough research and advice from licensed professionals are essential to determine if the shares align with your investment goals and risk tolerance.
Understanding Risks
Investing in securities involves varying risk levels (high, medium, low). Be sure to review opportunity-specific risks and assess your own risk tolerance.
Investment Steps
The investment process is simple and consists of steps:
Register
Within two minutes
Select
The right opportunity
Pay
the investment amount
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