Maintain our participation ( resist dilution )


(Andrei Costin) #1

Hello,

I have invested in the first crowdcube round, and now that there is another investment round I can see that we, as past investors are entitled to invest again. But what I noticed is that we are not entitled to maintain our participation, and we get ourselves diluted. Would it be possible to maintain our participation please, or at least to have this option?

Thank you


(Andrew Schofield) #2

Here’s what Tom has to say on the matter:


(tom) #3

Pre-emption rights typically allow investors to invest additional funds in each future round of investment, in order to maintain their original pro-rata share of the company (ie, not be diluted).

The issue with applying this to Crowdcube shareholders is that there are 1,800 investors, each of whom invested somewhere between £10 and £1000. The administration and cost involved in collecting the precise pro-rata investment to offset dilution of each person is prohibitively high. We’re working with Crowdcube to try to put in place a more automated solution by next year, when I hope we’ll be able to offer formal pre-emption rights.

Instead, what we’re doing in this round is offering existing investors the right to invest anywhere between £10 and £1000, so each investor can at least maintain their investment percentage and avoid dilution, or potentially even increase their holding if they wish. While we’re not using the pre-emption mechanic here, there’s the same economic effect.

There may be some confusion here. You can only ever maintain your participation by investing again.

For reference, shares in the crowdfunding round were priced at £0.5133. Those shares are valued at £1.0058 in this round. By my calculation, a £1,000 investment last year would buy a 0.0033% share the company. Those same shares are now worth £1,959.48 and represent 0.0023% of the company after dilution. If you wanted to purchase another 0.001% of the company to take your shareholding back up to the original percentage, you should invest £870 in this round.

Likewise, if you invested £100 originally, an £87 pound investment would protect your initial percentage shareholding.

I was a Crowdcube investor personally in the last round. Like all other Crowdcube investors, I’ll look at this round now and figure out if it’s a good investment for me or not. What’s my appetite for risk? Do I have £870 spare? How would I feel if I potentially lost it all? Do I have better opportunities to invest £870 somewhere else? Can I afford to lock away £870 and potentially not have access to it for 7 or 10 years? To me personally, maintaining a precise percentage shareholding is much less important than making a sensible investment decision.

Practically every member of staff at Monzo is a shareholder (or options-holder). We come to work every day because we’ve got the chance to build a bank that can positively impact the lives of millions of people. We want to leave the world in a better state than we found it. And, to reward the huge amount of support provided by investors and staff, hopefully we can make a decent financial return in the long-run.

I hope that makes sense? I’m more than happy to answer questions you have.

Thank you for your support so far :heart:


Announcing Our £22m Investment Round and Crowdfunding!
Invest in Monzo: Launching Our Crowdfunding!
Announcing Our £22m Investment Round and Crowdfunding!
Announcing Our £22m Investment Round and Crowdfunding!
Announcing Our £22m Investment Round and Crowdfunding!
An Explainer of Pre-emption Rights for Crowdfunding
Dilution
Announcing Our £22m Investment Round and Crowdfunding!
Invest in Monzo: Launching Our Crowdfunding!
Announcing Our £22m Investment Round and Crowdfunding!
Announcing Our £22m Investment Round and Crowdfunding!
Announcing Our £22m Investment Round and Crowdfunding!
(Andrei Costin) #4

Thank you for your reply Tom!

What I meant with “not entitled to maintain our participation” was that with this round we are only limited to buy shares worth £1000, which will definitely “help” dilute my participation. I think I am open to buy a higher number of shares and try to keep my participation as close to the initial percentage. ( no matter how small that is ) :slight_smile:


(Andrei Costin) #5

To me, trying to maintain the percentage is pretty important. :slight_smile: - Especially when I believe in the business I am investing in!


#6

Thanks for this Tom. Does this mean that the pre-investment valuation is around £43m?


(Alex Sherwood) #7

It’s actually this valuation -


(Duncan) #8

Hi Tom,

It’s quite hard to get a precise handle on what is going on. When you say purchasing £870 or £87 (in different respective cases) to protect one’s initial percentage shareholding, that can’t be the case (unless I’m missing something!). This is because of the interim issue of shares (£4.8m’s worth to Passion Capital), and the fact that in the last round £1m of £6m went to crowdfunding (~16.6%) whereas this round it is £2.5m of £22m (~11.3%), and, further, the (original) Crowdcube investors, 1800 in number, could only purchase £18m worth of shares, if all maxed out their potential allotment. Add to this the reincorporation of the company, share buybacks, issue of restricted stock… It’s quite complex!

Would you be willing to provide some cap tables? Say, at the original Crowdcube investment, after the £4.8m injection from Passion, and then after this coming round?

Thanks!


(Mark) #9

Hi Tom,

Fantastic news on the new capital raise. TechCrunch let the cat out of the bag on Monday…

Great explanation on the valuation. I’m just having some trouble on the details. For £1,000 I bought 1949 shares which as you say above is 0.0033% of Monzo. Thus, there would be c59.06 million shares issued valuing Monzo at c£30.31 million this time last year.

You later raised £4.8 million which resulted in shares being worth £50 million. Thus meaning that there were c64.62 million shares. This is then the shares were worth £0.7737.

Now as the shares are worth £1.0058 and Monzo is valued at c£65 million there are still c64.62 million shares, which would mean that my 1949 shares would represent 0.0030% of Monzo. However, as noted above those shares comprise 0.0023%, which means there should be c84.73 million shares.

This is where I am confused, as 85 million shares would value Monzo at over £85 million. Can you clarify the total shares in issue etc?

Appreciate it.
Mark


(Alex Sherwood) #10

As @billinghamj calculated earlier in the developer’s Slack channel, the pre-money valuation is £65m, then Monzo’s raising £22m so it’s then 87m - near enough :wink:


(Mark) #11

Legend Alexs.
Knew there was something I missed


(tom) #12

Exactly right. When I get a second, I will dig out the exact number of shares and price per share at each round.


Announcing Our £22m Investment Round and Crowdfunding!
Invest in Monzo: Launching Our Crowdfunding!
(Duncan) #13

That would be great. 0.75 * 0.0033 = 0.002475. I guess the difference comes from the extra round with Passion Capital?


(Matteo) #14

@ddevil if the company will do well and will produce returns in the future, non-Crowdcube investors will obviously be in a better position, because they can decide not only to participate in the new round, but to “top up” their previous investment (possibility for now excluded to Crowdcube investors) and avoid dilution.

In this case you could look at pre-emption rights as an “unfair” advantage over non-Crowdcube investors, but as @tom mentioned, this is done because the current setup makes the collection of capital from a disperse set of small investors a burdensome and expensive process (thus, directly affecting all investors).

I understand your point (and wish things will change soon), but we’re talking about £10-1000 individual investments in a company worth millions.

Since the amount of shares will never be enough to grant any individual right (dilution or not), I’m actually not concerned about seeing the % itself diminish, but I still care the fact that others get more “privileged” access to what we believe will be a successful company (and investment).


(Duncan) #15

If you read @tom’s comment you’ll see that you will not be diluted this round, and in fact could slightly increase your overall percentage holding, should you choose to invest again. Further, they are working with Crowdcube to make it possible to do automatic pro-rata calculations for Crowdcube investors in future rounds, so you can continue to maintain your overall percentage, should you choose to invest again in those rounds as well.

Don’t worry. Nobody is getting privileged access.


(Matteo) #16

depends how you look at it :wink:
you can call it “avoiding dilution”, but at the same time you have to give up on investing in a new round (while normal investors are usually offered the possibility to do both).

anyway, until Crowdcube as a platform will not be ready to offer such an option, not much we can do about it :grimacing:


#17

It sounds like some investors are annoyed their stakes are falling in percentage value and they need to invest more to maintain the percentage stake (so they feel like they’ve lost out somewhere) which shows a fundamental lack of understanding of how equity investments work. :fearful: In an equity investment your % stake is always falling and it doesn’t matter unless you are planning to launch a takeover bid or if the company is diluting you out like Saverin at Facebook. The Mondo investment from march 16 has DOUBLED in value and they’re giving you the option to invest again ahead of everyone else, so it’s a fantastic outcome!

When they raised a year ago it was known they would be needing to raise another £15-20m before launch. That meant they would be diluting by about 60% unless they grew the value of the business in the meantime, which was a concern to many investors.

They have grown the value a lot and have raised more money for less so the gamble has really paid off for crowdcube investors.

Being offered first dibs on this crowdfund is also amazing. £87m seems very cheap for a bank on the cusp of full market launch and affordable for mere mortals like us as it includes £20m in the bank, enough to grow to a million users with revenue coming in - whereby the company will be worth a lot more.


( related to Monzo CEO, Investor in Monzo ) #18

read this a while ago by Mark Suster I found it quite an informative article -

  • there will of course be further rounds of fund raising as the business grows and inevitably further dilution of a much bigger pie -should I shouldn’t I put more money in ? for everybody to individually decide depending on their circumstances

(Duncan) #19

A very sensible answer


(Lucy ) #20

Hi Tom,

I received the in app notification earlier today to pre-register (which I have done again, as I missed out last year). However I wanted to ask -will Mondo Beta users who missed out in 2016 get pref access this time or is there a chance we will miss out again?

I put my entire disposable income into my Monzo account each month and have done since last Spring. Is there a guarantee that loyal users will be rewarded or not? Feel the barrier to entry with you guys is always too high and ends up pissing people off rather than building FOMO. For example are you giving primary access to users who ‘share’ with their audience and if so how many contacts are we expected to share with? I don’t want to hassle my remaining friends to sign up (I have already onboarded about 50 contacts to Monzo) to then not get access.

Lastly - re this debate on pre-emption for CC investors…#shouldhaveraisedonSeedrs!

Good luck with the round and fingers crossed I get in this time round!
Lucy