Down Round - Who Eats the Cost?

As has now been widely reported, Monzo are looking at a 40% down round on their imminent round of financing. My question is: which rounds of previous investors will eat what proportion of that devaluation? Do any particular classes of stock that have been generated from the various previous rounds have anti-dilution protection (perhaps in the institutional investors case?), which would perhaps shift the burden disproportionately to other groups of investors?

Perhaps an appropriate member of Monzo staff could answer.

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As far as I can see re the Articles of Association on companies house, each share class is completely identical and would be diluted equally.

It looks like Monzo’s current share class system just lays out which round the shares were created in. Ordinary was prefunding, A is their first Crowdfunding round, B their round after that, and so on.

The terms binding all these classes looks the same, though.

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So does this mean previous Investors have effectively lost 40% of their buy in?

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On paper.

It’s a temporary response to a temporary situation.


I’ve never heard of anti-dilution share preference. Is that a thing or are we thinking out loud here?

Most common forms of preferred share give preference in terms of who gets their money back first at liquidation, or priority when it comes to dividends or rights to buy new shares in future.

A common modern use of preference shares (or should I say the introduction of a lower class of share, eg. B shares) in crowdfunding is to strip away or combine the voting rights of crowd investors so the company doesn’t have to consult 10,000 people before doing anything.

If Monzo is selling new shares at, say £8, then everyone who has shares already is going to see that as a key indicator that their shares are now worth around £8. There will be no investors looking at it thinking “well we have voting rights so our shares will still be worth £13”.

Every investor is losing 40% of the last known ‘paper’ value of the shares, not certain rounds or certain investors.


No one is ‘losing’ anything because no one ever ‘had’ anything. Certainly from the crowdfunded viewpoint we all threw our money down the well, never to be seen again. Anything that comes out of that decision will be a happy surprise.


No - it means they’ve “lost” (on paper) 40% of what they were worth the last time they were valued. For example, if you invested at 50p, and the last valuation was at £13, after a 40% drop you would still have £7.80 - a tidy profit if you could sell at that. Of course, if you invested at £13, you will have lost 40%, but only on paper, so they can still recover before you get the chance to sell - it just makes it a little bit harder to make a large gain. I wouldn’t worry about it too much at this stage because a) It’s not a negative cash flow for you, b) Anything can happen in future, and c) There’s nothing you can do anyway, unless you can find a private buyer and all that hassle.


Yes, but you still know what is meant by lost/losing in this context.

So much this :point_up:

This is just another (albeit large) fluctuation in an upward trend.

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Of course, the other question is: “what terms will the investors demand in this new round?”. The shoe is on the other foot now, so the terms may well be more onerous / restrictive / geared towards the investors who participate in this round.

Cheers for that.

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Unless it is not evenly distributed across investor classes, as you assume.

To answer your question about anti dilution, yes I believe the most recent F round investors (at £13) could have those rights - the 2019 Articles of association, section 9 gives the details, you would have to read section 9.1 about 3 times to understand it and the relevant equation , and also know if the majority investors had waived their rights, which actually we dont :slight_smile:

As far as I understand the series F round that completed at £13 odd would have these rights (8.7 million shares out of 129 million ) , and if the next completed G funding round comes in at £8 ish nobody else from previous rounds would have these rights as they purchased at a lesser value ( £7.71? ) so haven’t been affected by the anti- dilution clause, in effect their previous holding just haven’t gone up in “value” in relation to another funding round, having said that , there will be more shares in issue.

So basically I dont think anybody will “eat the devaluation” apart from Monzo who will give more shares to the 13 pounders ( haven’t done the calculation but feel free to have a go :slight_smile: ) from the already closed F funding round at that valuation ( Y combinator , Accel, Goodwater ++ etc ? ) , the £70-80 million funding round G that is about to close will be at the £8 ish value.

The investors that bought in at the £7.71 E funding round, and other previous rounds, and indeed in the £13 round , when they were confident enough in Monzo prospects to invest, I think will be some of the same investors in this round G and will stump up another £8 ish to increase their holding in Monzo in these “perilous” times …

I’m intrigued. Is “eat the devaluation” an expression. Specifically the “eat” bit? :thinking:

me too, Ive never heard of “eat the devaluation” - which obviously doesnt mean others haven’t - take a haircut …yes

“Wash it’s face”. I’ve heard of that one - kind of know what it means but for the life of me, can’t work out the connection :thinking:.

Anatomically, I could, at a stretch, see “take the devaluation on the chin”. But… anyway, c’mon @duncang, fill us in… :grinning:

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You’ve misquoted: I said “eat[s] the cost”, which is meant quite literally. Sometimes investors with certain classes of shares have provisions that push the hit in a down round onto classes of shares owned by earlier investors.

in fairness that was probably me misquoting your "eat what proportion of that devaluation? " to my " will “eat the devaluation” "

Well, at risk of being pedantic, is it “literally”?

(Heck, it is Friday :blush:).

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Has there been official word that this down round is actually happening? Independent of our legal rights as shareholders I feel that Monzo should at least tell us about it. So far I haven’t heard anything from Monzo or got an email. If the deal is already through then this is at best bad form. I just wanna know what’s happening.

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