2020 - Freetrade valuation for the 6th Investment Round

Crowdfunding Freetrade šŸ™
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I have been trying to predict the value of Freetrade for the next investment round in terms of pre-money valuation.

The next round will be Freetradeā€™s sixth round of investment and it was mentioned last week on Adams Ask Me Anything (2/4/20) that the next round may occur during the 2nd quarter of 2020.

The previous 5 investment rounds were as follows:

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So, how do you value Freetrade?

Should it be based on User Growth, Monthly Active Users (MAU), Assets Under Management (AUM) or some other mechanism? Without having details of Freetrade MAU or AUM it is far easier for shareholders to predict the price relative to Freetrade user growth, and since this has been accelerating over the recent months then the valuation (and share price) will be increasing at pace also.

In the round 5 Freetrade investment deck (slide 19), Freetrade previously stated

"We believe the most relevant framework to value Freetrade is looking at comparable companies.

New businesses are usually loss making and tend not to disclose financial metrics. This makes customer numbers the best publicly available metric for valuation comparisons.

We look at other consumer, mobile-focused fintech cos as the best to measure against."

Back then Freetrade compared Robinhood, N26 and Monzo valuations versus their customers to come up with an average value of 872x per customer.

So, what valuation could Freetrade expect today?

The last reported user figure to sign-up was #13304x on 6th April 2020. So, using the 2019 average value multiplier, Freetrade current value could be 872 x 133040 = Ā£116,010,880.

What potential valuation could Freetrade have at the next investment round?

Obviously, between now and the next funding round, there will be further growth in user sign-up, hopefully matching or bettering the current average figure or approximately 800 users per day. So if we assume that round 6 will be around the end of May 2020, then that gives a potential extra 50 days x 800 users = 40000 users could join Freetrade and presumably get to near 180000 users which would translate to a valuation of Ā£156,960,000.

Now all these figures are estimates and total conjecture, they donā€™t take into account new features or additional markets, but I would be interested to hear other viewpoints on what you think the next Freetrade valuation would be for the sixth investment round. More or Less?

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I think thatā€™s a good estimate.

Fractionals, more US stocks, European stocks and 175,000+ users should all be done before this funding round. Itā€™s possible the alpha account could be released around that time as well?

I seem to have lost my pitch deck for Freetrade but when comparing to companies like Monzo and N26, Freetrade have a much clearer revenue path with ISAs and the alpha account. Iā€™m hoping to see some numbers in this round about how many people are paying for ISAs.

I think weā€™ll see Ā£160M - Ā£180M this round

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That would be an enormous leap. Wasnā€™t the round last year valued at around 30million? I donā€™t see how the value of Ā£872 per customer can be correct? An Isa is Ā£36 a year. Even if Freetrade Alpha was a whopping Ā£20 a month - thats Ā£240 a year. Ok maybe more with pensions when they come. But at say 0.35% charge (so less than HL which charge 0.45%) of a charge on pensions held; on a Ā£80,000 SIPP that is Ā£280 a year. However, most portfolios are not ISA paying and there is no info on freetrade Alpha or how many will use it and pensions are not up yet.

Then there is the growth potential. With international starting up this looks good. Iā€™m really clueless to all of this.

Iā€™d suggest Ā£300 is therefore a much more realistic figure? Maybe double it for growth? Ā£300 * 2 * 180k users = Ā£108million?

I thought that the share price would be at least Ā£2 which would be just over double the last round.

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R5 in June was valued at Ā£43M pre-money and advertised 30,000+ customers. In terms of customers weā€™re looking at ~6x that now

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Ah ok. Yes that rings a bell now

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Hi @Rollingskies

After the shares were allocated from that last investment round (Round 5 / Series A), the post-money valuation of Freetrade had increased to c. Ā£52 million.

I am assuming that Freetrade will charge a tiered (based on pension value) monthly fee for Pensions, to make it easier to market; and the Alpha would provide some level of discount if you had a GIA+ISA+SIPP. But as you say we donā€™t have product costs and we donā€™t have volumes.

Iā€™m not saying the 872x is correct but it is a starting point for discussion.

So at the time of the Ā£52M valuation, Freetrade had approx 45k users and will now potentially have 180k users.

I am also hoping for something over Ā£2 per share.

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If possible, and by that I mean if the amount of cash in the coffers suffice, I would very much like to see the next crowdfunding round after reaching 200k users.

As for the mentioned round b by year-end, I would like it to occur only after reaching 500k users if the circumstances allow it. I may change my mind and go to 750k depending on how things evolve. Any VC wanting me to drop the bar a notch Iā€™m open to hear about bribes.

Call me mad if you like. What else is new?!

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Iā€™m certainly no expert, but value per customer wouldnā€™t be based on just 1 year of income from a customer, its more like the value from that customer over their lifetime with Freetrade discounted to present value. So if you are calculating
up to Ā£200 per customer in 1 year, Ā£872 doesnā€™t sound unrealistic at all.

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Exactly, the calculation also has to make adjustments for potential growth. I donā€™t know anything more than my own experience but I have signed up 4 other people to Freetrade now. Let us assume that two customers onboarded represents another customer being added (this is assuming that only 50% of people recommend it to at least one person and is just a ballpark for discussion) then you also have to account for this. Given that plus your point GBP 872 sounds realistic. However, we know have to discount for inactive users/free features only users. Given we have no stats for this it is difficult but we can interpolate from other such services. Monzo etc. may again prove useful ballparks here as they offer both premium and free services.

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Hrochfor1 - We discussed this on a different thread and you said the opposite, when I suggested Monzoā€™s previous valuations could be used as a sense check when valuing FT based on user growthā€¦

The figure I came up with last month was just north of Ā£2 per share, so Iā€™m hoping it will be mid Ā£2-3 by the end of Q2. Hereā€™s hoping :slight_smile:

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Just out of curiosity, would you be looking to invest in the new round if you have already invested in R4/R5?

Debating at the moment

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Hi @SpyrosL,

I have invested in each round from R2 onwards.

In each of the previous rounds, I have thoroughly read the investment deck and associated documents with the funding round and I determined that the merits and potential gains outweighed the risk at that time for me, and I will do the same again with this next round. I am always mindful that with each of my investments, my capital is at risk and I could lose it all.

So if the next investment deck and documents are again positive from my personal situation, then yes I would invest again.

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I think you are a brave individual if you are putting more than 1% of your liquid net worth in a start up so for me that is my barrier.

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Yes that was with regards to the valuation specially. Here I am only talking about one metric regarding customer willingness to pay for premium content and crowd sourcing that information from other recent fin tech start ups.

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What is the minimum investment and how can one be involved?

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Crowdcube has been used for all previous rounds with loads of details closer to the time. I believe the minimum investment is Ā£10, but speed is key as last time the site crashed with all the demand and Iā€™m sure this time isnā€™t going to be different!

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Iā€™d hope we all get the ability to connect early & invest as customers of the site/forum users. Larger investment opportunities like cheeky panda do that. Iā€™m sure I have seen mention of it happening previously on the forum before I got into crowd-funding. Not an investor yet but intend to be this time round.

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As an investor of course iā€™d like to put confidence behind 2x or 3x at the next round. That said, iā€™m surprised no-one has mentioned that big virus thing currently closing the planet down. This is undeniably cutting VC investor appetite and small cap valuations (see Invesco writing down their UK private assets by 60%) which means the same valuations per user growth canā€™t be relied upon.

Weā€™ve seen many platforms/online dealing websites benefiting from this period of elevated volatility (see Plus 500), but they have greater sensitivity to number of transactions for their revenues. Freetradeā€™s revenues benefits less, as i understand it, so i wouldnā€™t say they have benefitted as much. Of course user growth may well have increased faster than expected, which is great, but i think the VC valuation discounts will offset much of this growth.

A 75-100m would be fantastic in this environment. Hope iā€™m wrong and itā€™s moreā€¦!

To go further beyond, i think they need to a) grow available shares both in UK, US, EU, RoW in that order, b) dramatically increase ETF offerings, c) fractional shares - theyā€™re getting there on these fronts. For me a huge issue is their lack of active funds and ETFs - this is what is personally stopping me from transferring from HL. Do this and HL is there for the taking.

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Iā€™m surprised to hear no mention of revenue so farā€¦

Freetrade is, to my knowledge, still pre-/minimal revenue. That makes, in my opinion, most of the valuations (>Ā£50mn) thrown about here very steep.

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I invested quite a lot round 4 and also invested round 3 and 5. Far more than I normally would limit myself too esp as it was a startup. I concluded after EIS relief it might be a year or two of investing returns if it goes wrong and I decided that Iā€™d take that risk. Iā€™m not sure I could justify more without being greedy. I know this isnā€™t a mine but many start ups are money pits and most fail. No matter how glorious and promising they are. If freetrade expands too quick and burns cash to quick in a worldwide recession then who knowsā€¦

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