Notwithstanding the benefits of a PFP Framework to the financing ecosystem for startups and SMEs, there are risks associated with PFP Transactions that include, but are not limited to, the following:

(a) Loss of capital: PFPs will mainly attract start-ups and SMEs that have no or very little established track record, for which the observed failure rate is generally high.
(b) Lack of liquidity: In the absence of a ready secondary market for PFP Transactions, clients face the risk of not being able to exit their PFP Transactions or having to transfer them at a significant discount.
(c) Lack of information: There may not be sufficient information on the start-ups and SMEs (“PFP Prospects”) seeking financing through the PFP to enable clients to conduct proper due diligence and make fully informed investment decisions.
(d) Platform failure: Clients of a PFP may not be able to readily recover their assets in the event that a PFP Operator that handles Client Assets fails and becomes insolvent.
(e) Conflicts of interest between the PFP Operator and clients: The remuneration of a PFP Operator is typically linked to the amount of funds raised so the interests of a PFP Operator may be more aligned with those of the PFP Prospect than those of its client providing financing.