Just to be picky but if I’m investing say £1000 then I could pick 7 options because they are plus figures rather than bands
Haha true. Sorry, it’s my first poll and it took me a while to even figure out how to do it and put options. I think at first I set it as pick max 10 options and edited it to just 1 so I supposed that people will be sensible and pick the closest.
I think they will. I’m just a fuss pot
Not being overly happy with the idea of the new shares being class B and thus non voting and without any preemptive rights, I’m already slightly on the back for regarding this round. So, this leaves me with the company valuation for this round and how this affects my view of the perceived risks & upside. If the valuation comes in around £30m, I’ll probably be fairly relaxed about the risks and thus make a reasonably sized investment. However, if the valuation come in at £50m or more I’ll probably be inclined to only make a small investment or maybe even duck this entirely. So, at this point I can’t really make an informed decision regarding this until the valuation is confirmed. Interesting times…
Weren’t the majority of levels of investment last time round b shares too? £20k and over rings a bell for a shares last time?
Having been stiffed on a couple of investments by a VC/Angel coming in later on and diluting the crap out of us original investors, I’m now a lot more careful about share classes and investor protections. We live and learn.
Mat, sorry to hear you’ve lost out on some other investments. I can understand why the risk of dilution concerns people, however for me the key thing is that as long as the diluting party invests at a share price at least equal to yours the value of your investment doesn’t decrease (it can in fact increase), you just own less of a more valuable company.
And hopefully the influx of funds drives the growth of the company, further increasing the valuation of the company and so the value of your investment.
I can see dilution being annoying in a down round, where VCs in a subsequent round paid a lower price, but that’s presumably because the co isn’t making progress (eg Tandem), and yes, pre-emption rights give you a silver lining. Or where shareholders are being wiped (Debenhams).
But other than that, I’ve never understood why dilution should be important to investors who aren’t founders or VCs - they’re holding small %s anyway. Can you explain the pain?
Company successfully raises funds, makes pretty good progress during the 18 months post funding round, gets a bit of buzz within the press, shows promising growth, etc. However, rather than come back to us original investors for the follow up round the founders removed our preemptive rights and took a reasonable chunk of money from a VC at the same price that we had paid almost 2 years earlier. Yes, we paid the same price as the VC, but where was the value for us original investment in the risk that we had taken when the company was little more than an idea? Since that funding round the comm’s from the founders have pretty much dried up and I now have to find out how they are doing via what I can find online or within the press. I hear that the VC will be providing additional funding during this year and so their stake continues to grow and the stake of us original investors continues to fall. I don’t see this ending well for us original CC investors.
Company successfully raises funds and makes pretty good progress during the 15 months post funding round. Comm’s are a bit quiet but things are looking generally ok. However, out of nowhere we are notified that the company needs additional funds for growth and that a deal has been done with a new Angel investor. The new investor has agreed to invest a fairly large sum of money, has agreed to cover multiple raises if needed, but in order to get the deal the founders have agreed to price the shares for this (& potential future) investments from this Angel at 10% of the price that we originally paid. The company appears to be doing ok, and if this all works out then the founders and Angel will dilute us CC investors into insignificance. Again, not a pretty outcome for us original investors.
Don’t get me wrong, the vast majority of my ECF investments are looking really good and I am really pleased with them. However, I’ve learnt my lesson regarding investor protections as they really can make a difference. If nothing more, they can at least make the founders consider the interests of the previous investors when thinking about future funding rounds.
I always try to hope for the best, but it’s best to also plan for the worst. After all, we have no idea what the world, or any investments, are going to look like in 2-5 years time.
I should probably have mentioned, I’m less bothered about the voting rights element to this and more concerned that the dilution issue. In both of the previously outlined scenarios it could well mean that if either of these companies do manage to exit then us original investors will more than likely end up making a very poor return on our investment. We end up having funded the companies, taken on all of the risks, and then potentially getting no real up side for doing it. It’s not how I would treat people and it’s not how I like to be treated.
I can only imagine that I am not the first person to experience this problem and that this is why these investor protections originally started being used.
Thanks, that’s really interesting. It sounds like those companies were in serious trouble, and the alternative is insolvency and zero return for investors (still a likely outcome if they had a down round, or priced the same after two years). That implies their figures were flat, and they were struggling to generate funds from customers. It would put me off investing more. Do you still think those companies will make a good return, in spite of the obvious problems?
As a small investor without a material amount of money to invest, none of the alternatives seem attractive, and I’m not sure being able to invest more money would actually give you a return, or that new investors would be at all interested if they were forced to give you very favourable terms - why would they invest lots of money?
In that case you could find yourself forcing the companies into insolvency instead and getting zero return, by trying to insist on better terms for initial investors, even if you managed to gather the votes necessary. There don’t seem many good options when a company is struggling to make money from customers after a few years - most companies don’t survive.
Company one, I still believe is a cracking concept, it’s growing well nationally and looks like it should start growing internationally sometime later this year. I think that this will do really well, but just not for us original investors. I might end up with a small uplift on my investment when this eventually exits, but I don’t foresee it being much.
Company two, the idea was good, the initial execution was good, the early sales push was a really poor, but they do now seem to have worked out how to position the product and new clients are now coming onboard. I could easily see this exit sometime within the next 3-5 years, but based on the dilution I’ll probably be lucky to get back my original investment.
All a bit frustrating really as in both cases it really didn’t have to end up this way.
A post was merged into an existing topic: AMA: Ask our CEO Adam your questions about our upcoming crowdfunding round
Matt - when I found out this round was only B shares I was actually delighted - as for me, as a Class B shareholder, I now know that we are all in the same boat in this round and probably going forward. It would seem foolish to gather your key investment base and then flog them all a few years time unless as has been mentioned Freetrade was to go to the dogs and a rescue would be the preferred damage limitation option.
It isn’t beyond any company to get people to do its dirty work, take all the risks etc and once it’s sold off who’s going to hear the sob story. I think it would be very damaging for Freetrade to treat investors with such contempt. For me I am prepared to take the risk, but I will want EIS relief for my investment to be higher.
Interesting poll results now
1k plus clearly the majority
This £1m is gonna go fast
Most of investors not gone be able to invest just because 1 milion gone be funded in few minutes unless they gone keep overfunding as well.
We’ll overfund too
Am I right in assuming that the EIS has long gone then?
Apologies, new member here, still trying to get up to speed with everything!