An Explainer of Pre-emption Rights for Crowdfunding

Sorry, that wasn’t clear. I believe it requires more than 75% agreement to happen, and there was that :slight_smile: That’s all I meant!

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No it won’t be if both funding round shareholders take up their allotments … :slight_smile:

logically if we have had a funding round of £1m and £2m+ and the shares in this round have doubled in price and we are being offered half of amount of whats been put in in other funding rounds

So, my very rough calculations/thoughts on share allocation if it is to be based on what we have previously invested.

Crowd funding 1: £1,000,000 @ £0.5133 a share means a total of 1,948,178 shares.
Crowd funding 2: £2,500,000 @ £1.0058 a share means a total of 2,485,584 shares.

As the 3rd round will be for a total of £1,500,000 @ £2.3566 a share there will be a total of 636,510 shares available for allocation. If there are done on a pro-rata basis (636,510 / 4,433,762) it will mean c 0.143 new shares for every share that is previously owned.
A lot of presumptions on how Monzo will calculate, but again - a rough calculation.

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Great news about the latest raise!

Just wondering if there is a plan for any of the £1.5m not taken up by existing crowdfunders?

Particularly interested being someone who committed a small amount in the last round!

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Probably a but off topic here but just wondering if other investors have received any news from crowdcube for the latest round of crowd funding.

answered in the 71 million raise thread -

I assume there isn’t. I understand the 1.5 million is just an opportunity for existing investors to limit their dilution because of the 71 million secured elsewhere.

If no investors take up on the offer, this 1.5 is not raised and nothing happens. Monzo don’t “need” to raise these 1.5 million, they are just offering the dilution limiting courtesy.

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Hey, confused why waiving pre-emption rights stopped the round becoming too large?

Isn’t this the point of pre-emption rights? You decide to mint new shares at a certain price and the previous investors get first dibs on them, and then your new investors invest less.

Same number of new shares, same price per new share = taking on the same capital, but with a different distribution of shares (one where we can avoid being diluted out…)

edit: should note that I’m also not au fait with investment inticacies

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for a few reasons

I think it was explained by Tom somewhere that it costs about £4 /year (from memory) to service the crowd cube shareholders - so somebody putting in a tenner would actually cost Monzo money over 5 years rather than raise any finance to carry on the development of the business

Its far far ‘easier’ to raise 20m from a single investor than 20m at a tenner a time from 2 m investors - not so sure you would prise 20m from my hands in one hit :slight_smile: :slight_smile: :-0 but i suppose its all relative to what you’ve got :slight_smile: Tom and team do seem to have a knack of getting big hitters to back them :slight_smile:

what happens if you put your major investor off saying we’re giving 70m to minor investors and only 10m is taken up - you then need to go back cap in hand to major investor who will want more equity because they now know you couldn’t raise the required capital elsewhere

you would never know until the crowd fund was over that you got the finance that you wanted , but the whole world would know how much interest there was in your business - this could obvs go either - way good or bad

You are “only” allowed to raise €5m / year (i think) with crowd funding without a prospectus

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Nice maths. My 995 shares are showing I can buy 146 more so pretty close!

From the Crowdcube page the new valuation is £220m. The new $71m raise is about a third of the company.

@ £2.3566 per share there are now around 93,354,833 shares

Previous round valuation was £84,750,000 with around 84,328,358 shares (share price was 1.005)

So the number of shares has increased by 10.7%

If I double down and buy all 146, my share count has increased by 14.6%

So actually by my math, I can not only avoid being diluted but I can actually increase my stake?

the 220m is a pre money valuation, post money its somewhere between 280m as suggested in business insider and 290m (220 - from crowd cube pre money valuation +70 funding ) - so more like 25% dilution than 33% - i think

I posted this before about dilution which explains it quite well I think

https://bothsidesofthetable.com/understanding-how-dilution-affects-you-at-a-startup-4fb4cd29ad5c

also this about pro emption rights

https://bothsidesofthetable.com/what-all-entrepreneurs-need-to-know-about-prorata-rights-e5883fd21f80

Ah my bad, I assumed the £220m included the big new investment.

At £290m valuation there are 123,058,643 shares which is a 45.9% increase in total shares

So yea if I double down I still get a 22% dilution (1-(1.146/1.459)). If I don’t it’s 31%.

Would be nice to have these numbers called out somewhere on the blog post to help people make an informed decision.

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from the previous crowd fund - already posted by Tristan - basically if you have the spare cash and you still think its a good ‘investment’ and you have the time to be patient , put your money in - its a personal choice - and really depends on where you could imagine the business to be in 5 or 10 years time - some will see it as a massive potential opportunity to invest in “google” while they are still in the garage - others will see it as Ive gambled enough with my 10,100, or 1000 quid and also thats all I can afford to lose

this funding round obviously had the pre emption rights withdrawn so we will be diluted even if we take up our offers

It would be nice if crowdfunders could have the opportunity to invest a specific sum of money to counteract the dilution that they’ve had in the various funding rounds. Obviously it will cost them a lot more than it would have done had pre-emption not been waived, but some investors may have appetite for this.

I get the reasons for why pre-emption is waived, but so far it’s only been crowdfunders that have been impacted.

At the next funding round I mean…

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Well, everyone has been impacted, including the institutional investors (Passion Capital etc.) for whom it really matters. For Crowdcube investors, it makes no difference at all whether your shares are diluted, as you will never have any sort of ‘control’ of the company. The point of counteracting dilution is to maintain a specific percentage ownership so as to maintain a certain level of influence, board seats, etc.

This is not an issue for tiny investors. For Crowdcube investors, what matters is the amount of money you want (and are allowed) to invest in the company for financial reasons. Percent ownership is meaningless on this scale.

The institutional investors and founders, on the other hand, have sacrificed a certain amount of influence and control to allow this new round of investing. I’m not suggesting we should feel sorry for them, but it is certainly not true that Crowdcube investors are the only ones who have been impacted. I’d go so far as to argue they’ve even impacted the least.

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It was stated that institutional investors had topped up their investments. It didn’t say by how much, but you would expect that they would have (or would have at least been given the option to) top up to at least the level needed to mitigate dilution.

It’s all relative Jolin - not your call to make that statement for each individual investor each with their own circumstances…

This is not about control. I was never going to try and oust Tom as CEO with my 0.0033% share holding.

Wrong. Monzo could turn into a £100bn company one day, Tom’s even said it could be a £1trillion company in the future. If you get diluted by 20-30% every year for 5-10 years prior to an IPO - actually you could end up not making very much (relatively - considering you invested initially at a £30m valuation and it subsequently became comparable to a tech giant). This is the whole reason pre-emption rights exist, and there have been plenty of discussions on the topic if you search the forum.

Again, not about control. People typically invest to make money. My point is about some shareholders continually being treated differently to others. For example, why focus on bringing on new institutional investors, when your current investor base may have the appetite to satisfy your funding requirements? Sure, they will bring their own benefits to Monzo - but one of the negatives of that approach is that it isolates current crowd investors.

Again, I’m not unsympathetic to Monzo about the reasons for the dilution, it’s perfectly understandable. But if it could be corrected (at the cost of investors, should they wish to) - then I personally would like to see it.

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It was explicitly stated that the institutional investors were also excluded from pre-emption rights:

I read that to be that these investors were not able to maintain their share of the company, otherwise the round would have had to be a lot bigger.

That’s a fundamental misunderstanding of what dilution is. Dilution is about the percentage of the company that you own, not the value of your investment. If you invested in the first round, you will make just as much on that investment whether or not you invest more in subsequent rounds. If you wanted to maintain the same 0.0033% shareholding, you would need to make another, separate, investment in this current round. But you will have to pay a lot more (per share) to maintain this percentage. So proportionally, you will actually make less eventual profit on this second investment. But, fundamentally, you are making separate investments.

The only purpose of dilution prevention is control (it also has the side-effect of allowing people to have automatic rights to make additional investments). It has no bearing on how much money you make on your original investment.

If you’re saying that you want the opportunity to invest more money at this point, that’s a fair argument. But that argument has nothing to do with dilution or the percentage of the company that you own. And also, there are lots of people who want to invest in Monzo at this point, so it’s good fortune you’re able to do so to any extent.

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