Announcing Our £22m Investment Round and Crowdfunding!

The reasoning is that it’s the standard financial approach to give existing investors first dibs when a company is diluting its shares with additional investment, so that they can maintain their original stake in the business.

At the end of the day if you had an orange and someone came along and said they were going to take a couple of segments but don’t worry, the remaining segments are worth more, you understandably might be a little peeved.

I know the analogy is a little stretched when it comes to something that is essentially virtual, like a share holding, and it does seem irrelevant with a highly speculative, high growth stock like Monzo but try to think of it in wider terms… if you owned 25% of a company and significant voting power and the other shareholders decided to dilute the shares and also that they would be the ones with the opportunity to buy them then you essentially lose your control over the company.

Whilst we only have small shareholdings, it’s understandable that someone who bought 0.0033% of a company expected to receive 0.0033% of the voting rights and 0.0033% of the dividend pot and they’re not going to be too happy to find out they suddenly only have 0.0023%.

As Tom’s pointed out elsewhere, Crowdcube don’t currently support pre-emption (although they hope to in time for next year) so the £1,000 cap is a bit arbitrary (albeit good for someone like me who bought £400 in the first round but will go in with the full £1,000 this time).

The real problem (if you perceive there to be one) is the limited amount of the new raise that is being offered to ordinary people through crowdfunding. Monzo are raising £22.5m, of which only 11% is being offered to ordinary people. There’s nothing intrinsically wrong with that but Monzo could have raised that entire amount through the crowd if they’d offered out the full pot without the £1,000 cap and then everyone could have had a good share.

The reason for not doing this is presumably because crowdfunding is more expensive than regular funding (along, I’m sure, with some other reasons). A commercial decision though has been reached that they’d rather have the money cheaper and easier than to involve more people. I’m not criticising this decision, running the company is up to Tom and the board, but it seems likely that that’s the reality of it.

The only way to solve this problem so that lots of people aren’t horribly disappointed is to up the amount offered from £2.5m. Let’s be honest though, part of the reason for the offering is the PR around it. Selling out in 90 seconds, ballot processes, etc. all gain the company traction and create headlines.

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That’ll do for me, thanks @tommy5dollar. Now who stole my orange.

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Will still probably throw in a fiver

Minimum is £10 so may have to double it.

They’re using a pre-brexit fiver.

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Not all dilutions are created equal. Eduardo Saverin was aggressively diluted out of Facebook so that Mark Zuckerberg could take control. Multiplying the number of shares in the company and redistributing them like that is a totally, utterly, and completely different thing to taking on £20m of investment for 25% of the company. You are comparing apples with oranges.

You’re making a new investment, at a different price. And you are choosing to maintain an arbitrary proportion of shares in the company as a total.

You are forgetting that the pie is getting bigger. A smaller piece of a bigger pie, which will grow bigger via the investment. Your money will grow. Nothing is unfair. It’s just a logical fallacy that you need to keep your 0.0033% of the company until IPO.

Actually, the opposite is true. Subsequent rounds will (hopefully!) be for increasing amounts of cash. Say the next round was for £100m [Edit: I meant £200m). In this round ~10% is allocated to crowd funding - which only amounts to a couple of million. In that future round 10% would be 20 million. 10x the number of people could invest. However, I doubt that Monzo would go that high; the market for crowdfunding has its limits… And it makes a pretty bad press story to not fill a round like that. If I were them, I would make sure that was not a risk at all.

If you still don’t believe that investing in the next round is a completely independent event, then take a look at the calculations in this spreadsheet. It shows that buying shares to compensate against dilution in Round 2 and Round 3 leads to exactly the same profit as the sum of the two separate cases where you (case 1) don’t purchase against dilution and (case 2) you buy new shares in the same proportions as an anti-dilution purchase in Round 2 and Round 3. They are independent events! Provably! (43080 + 31440 = 74520).

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If multiplying the number of shares in a company through capital raises and not allowing investors to buy shares to counteract dilution - it’s actually exactly the same thing.[quote=“duncang, post:53, topic:7618”]
arbitrary proportion of shares in the company as a total
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Arbitrary is your completely unbiased opinion. Ask Passion if they think it’s arbitrary to continually take part in future funding rounds as they have been doing. [quote=“duncang, post:53, topic:7618”]
You are forgetting that the pie is getting bigger.
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No I’m not! I know the pie is getting bigger, but I want to maintain my share of a bigger pie! Google capitalism.[quote=“duncang, post:53, topic:7618”]
Actually, the opposite is true. Subsequent rounds will (hopefully!) be for increasing amounts of cash. Say the next round was for £100m. In this round ~10% is allocated to crowd funding - which only amounts to a couple of million. In that future round 10% would be 20 million
[/quote]

Nonsense. 10% of £100m is £10m by the way. Monzo want to have 1 million customers by the end of this year, if they allow all of their customers to have shares in the bank at the next round (using your example), that’s a whopping £10 each. That’s before juggling pre-emption rights and I’m sure mighty expensive to administer. [quote=“duncang, post:53, topic:7618”]
If you still don’t believe that investing in the next round is a completely independent event, then take a look at the calculations in this spreadsheet
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I really have no idea where you’re going with this. I never said they’re not separate events. The point is about protecting investments from dilution. This is not a revolutionary idea.

Are you high?

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Hey,
New to this and would like to be part. Do I have to have a crowdcube account to be able to invest?

It sounds like you don’t need to create one yet, you’ll only need the account if you’re given the option to invest, by being picked in the ballot -

@alexs Thanks :slight_smile: In that case I hope I will be lucky and able to invest into :mondo:

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You’ve missed the point; in the Facebook case you cited the shares were diluted to change the balance of majority voting rights - which is totally different to diluting the shares in order to access more capital.

Have you read the articles of association? Read section 22.2 (a): Passion have to keep their percentage above 10% or they lose their board voting rights - which they obviously don’t want to do. Don’t worry - with 0.0033% this isn’t a concern for you ;-).

You’re right. Imagine I said £200m. The point remains - there’s more supply and less demand; the next nine hundred thousand users are not going to have the same investment appetite as you do.

Here is the key phrase, and the source of your misunderstanding:

“protecting” explicitly ties that second investment to the first. It implies that without the second investment the first will be in some way devalued. That is not true. Look at the spreadsheet. Regardless of what you do your original investment will eventually make the same amount. You cannot “protect” it. It will be diluted, no matter whether you buy more shares or not. I do not deny you your right to evaluate the merits of the current offering, and to make a further, separate, profit on that. But you should see that it is a quite separate investment and not making it will in no way affect your original investment. You cannot protect your investment from dilution.

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This might seem obvious to some, but where exactly do you pledge your money? Will there be a link in this site or purely through Crowdcube?

From the blog post at the top of this thread -

Next Tuesday (February 28th), we’ll begin a pre-registration period lasting two weeks when you can pledge the amount you’d like to invest through the Monzo app and Crowdcube website.

Two unrelated questions:

  1. Why do (some of) the existing Crowdcube investors care about their percentage ownership of Monzo? Whether before or after dilution, it’s an infinitesimally small amount of the company and there are no change to benefits (e.g. either way, your vote in an AGM will have no impact). Surely what’s important is whether the value of the original shares is being undermined, which seems not to be the case. What is the importance of what’s essentially an arbitrary, very small, percentage? I don’t have a financial background, so I’m genuinely curious, I feel like I’m missing some big concept.

  2. In terms of the lottery for new investors, will the investment amount affect the likelihood of ‘winning’? In a very simple example, imagine it gets to the point where £500 is left, and person A has pledged £1000, but person B has pledged £500. If person A gets ‘chosen’, will they be offered the chance to invest £500 instead of £1k, or will they be passed over in favour of person B, whose pledge ‘fits’ the remaining amount?

Thanks for any insights!

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The amount you pledge will not affect your likelihood of being chosen in the random ballot. So if there is only £500 left to invest and you have pledged £1000, we’ll offer you a chance to invest £500. Hope that makes sense. :blush:

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Yes, makes perfect sense, thanks! Great to hear. :smile:

For no good reason. Probably paranoia from reading too many articles where dilution was used in a bad way - like diluting Eduardo Saverin out of Facebook board voting rights, cases where the options pool is a different class of stock and is diluted aggressively when the founders stock is not, and, most importantly, because they are letting their emotions drive their actions without opening up a spreadsheet and actually looking at the numbers.

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If their shareholding was in double digits I could understand but when it is in a tiny fraction of a per mille ( o/oo ) it is laughable

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It’s hardly laughable.

Compared to the original investment, it is double digits.

There has been somewhere around 33% dilution.

Whether you have £1 invested or £1m, it’s a fair piece of your investment you may want to recoup.

If the company is worth £100b one day, the difference could be in the millions.

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But what are you trying to ‘recoup’? You still have the same number of shares, and their value has gone up. That’s what it’s like having shares in a company, regardless of dilution issues – you have a certain number of shares and their value goes up and down depending on the market. Isn’t part of the ‘market’ for a startup the need for investment rounds and capital (i.e. it’s not as straightforward as a listed company)? This is what I’m struggling to understand – what has been lost just because the shares don’t represent the same percentage of ownership, given that their value has increased (significantly)?

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