Note to crowdfunding investors and AMA

Freetrade investors,

Last week, we were finally able to share the great news that Draper Esprit has joined our 8,000+ crowdfunding investors as shareholders in Freetrade.

Some background

As I mentioned during our crowdfunding this summer, we regularly receive inbound interest from VCs.

What we were not able to disclose at the time were the discussions we had with leading European VC firm Draper Esprit. As a rare tech-focused VC listed on the stock exchange, their mission and ours are aligned. However, as we expected, the process took a few months to close and we didn’t want the news to sway anyone’s investment decision prematurely.

To break down the £12 million round, it includes the c. £6 million on Crowdcube as well as £6 million split between three Draper Esprit vehicles: their main venture capital fund, their Enterprise Investment Scheme (EIS) fund, and their Venture Capital Trust (VCT).

A portion of the deal (second close) is still completing. We are awaiting FCA approval for the second close as part of the required process for large investments in regulated financial companies.

Use of funds

The top question I’ve received from shareholders is what we’ll use the additional cash for. Our priorities are:

  • Further developing our technology platform. We’re starting to migrate the first customers to our own Invest platform soon, and we have a host of new features shipping, from US/UK/EU fractional shares to instant deposits to a much larger stock universe.
  • Scaling our operations team. We have a rapidly growing customer base and need the back office to support it. This ranges from customer service agents you chat with in the app, to compliance professionals ensuring our policies and procedures are appropriate for a growing regulated financial institution.
  • Spreading the word about Freetrade. This means product-led growth like our Free Share referral program, as well as paid marketing in channels like Instagram. You won’t see a Freetrade tube ad anytime soon, but you will see a lot more content and educational information coming straight from Freetrade.
  • Expanding to Europe. We have been actively working on our plan to bring Freetrade to the rest of Europe for some time. Brexit uncertainty has impacted our timelines, but with this raise, we are set to roll out to Europe over the course of 2020.

Your ownership

The second most common question I’ve received from shareholders is what impact this investment has on their own investment in Freetrade.

To understand this, you need to get up to speed with some venture capital concepts: pre-money, post-money and share price.

The pre-money valuation is the value the investor assigns to the business before making their investment. The post-money valuation is the new value of the company after the investment, which is now higher because there has been a cash injection now sitting on the company’s balance sheet. Pre-money valuation + new invested cash = post-money valuation.

New shares are created in exchange for the newly invested cash. The post-money valuation = the number of shares outstanding x the latest share price.

Therefore, the value of your investment remains unchanged. There are more shares now, but the post-money valuation based on these factors has now increased to c. £52 million.

In the future, the value of your investment will be determined by how the share price changes, just like shares of public companies you own on your Freetrade app! And to be sure, we’re a startup, so the same risk disclosures apply as when you invested through Crowdcube.

How you can help

Freetrade is exceptional in that we built and launched a stockbroker from scratch with only the support of our future customers as investors. We have our product and community thanks to our shareholders. This VC investment will help supercharge our growth, but our most valuable resource remains you, our community.

  1. Keep spreading the word by referring friends, family, coworkers, and randoms on the internet.
  2. See no 1.

Ask me anything

Please drop any questions you have in the thread below. Some information is confidential, of course, so we can’t promise to literally answer every single question - but we’ll do our best!

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All sounds fantastic - congrats on the amazing progress so far!

My question: I’ve referred several friends to the app and many of them expressed frustration with the signup process, many even bailed and didn’t bother completing. What are you doing to make the sign up process better and more successful for customers?

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Thanks for your support James!

I’m curious what part of the signup process caused them the most frustration?

The most common complaint I’ve heard when getting started with a Freetrade account is the step to top up/fund your account. We’ll be addressing this as a priority by adding more payment methods (first up, cards), instant bank transfers and improving the top-up flow.

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Thanks for clearing everything up Adam about the raise. Look forward to the Irish launch next year!

Edit: @adam When will the international investors be getting their swag? I’m an R4 investor. Thanks

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Was great meeting yourself and the team earlier this year after the crowdfunding.

Will you be scheduling/hosting any customer/shareholder events going forward?

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Thanks for the post Adam! I’m actually quite pleased to see you were being chased to throw cash at you by the VCs rather than begging bowl in hand pleading for some. That’s very promising indeed and should make future raises easier too.

I think the biggest thing that puts people off that have larger ISAs is the lack of stocks and funds. I still haven’t transferred all my money from HL as I feel I don’t have anywhere close to the spread and diversity yet and I can’t be the only one.

In any add to attract customers what they’ll want to see are these 3 words or phrases: “Free” “thousands of stocks and funds”, “Fully FSC protected”. You’ve got 2 of these, but I think you should see more people invest money and actually bring money in (rather than sign up for a free share and increase the number of users count) once the choice is there.

Loving the growth and development. Exciting times.

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I know you said no tube ads anytime soon, but can you offer anymore insight into your growth strategy in the UK, and will it eventually include sponsorships or anything ATL?

I’m with Ben - the only reason my other Stocks ISA hasn’t been transferred is that most of my biggest holdings are in FTSE100 companies yet to be added to FT.

I also find that whenever I read about an interesting company, 9 times out of 10 it’s not yet available in FT.

If you could make adding all UK stocks a priority I think that would go a long way towards breaking down people’s hesitation to transfer 100%.

Apart from that, as a founding investor and reinvestor in R4 I am over the moon with everything FT related - especially my socks :sunglasses:

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“I also find that whenever I read about an interesting company, 9 times out of 10 it’s not yet available in FT.”

Exactly me Stu - I do my research or see something online, I check out their financial statements and consider the market etc etc and then oh it’s not yet on freetrade. :cry:

It’s all part of the development and we’re just bouncing with excitement and need to sit down cross legged and take deep breaths. It’s coming soon!

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The next one is Nov 20th at Google Campus in London: https://www.eventbrite.co.uk/o/freetrade-17887957284

We appreciate not everyone is based in London though, and will do more UK (and soon EU) road trips, like when we visited Birmingham and Manchester last June.

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There is a lot of juice in boring companies that have fallen out of the hype cycle, even if they are actually tech companies. If there is an active subreddit led by some bulls about some company, it’s probably not worth it.

Having said that, I think the new platform will allow for additions of companies in massive batches.

If we start seeing sponsorships and ads similar to all the small fintechs lately, it would be a sign that organic growth is not working any more. This means higher expenses too - anti-scale.

This is fantastic. Finance can be confusing by design and translating things into human language on one platform sounds great. Also, I’ve yet to hear about a successful investor - Ray Dalio, Warren Buffett, etc - who didn’t read and educate themselves daily.

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Same. I now just put them in my stock watch list, hoping they come up soon. One which I spotted about 8 months ago has since risen 50% - a bit frustrating, however not frustrating enough for me to use someone else and pay £12 a trade :money_mouth_face:

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Thanks for your response! I dont think there was one single issue, it was either not knowing their NI number or having to go through a manual verification process.

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Sorry boss, it’s Google for Startups Campus near Moorgate - not the main campus :slight_smile: Just wanted to make sure people don’t head to King’s Cross.

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“More stocks” has been our top requests since launching and we’ll continue to add more.

Up until now, we’ve been limited to what the LSE market-makers offer, so not a whole lot of US and other international stocks. That will change very soon as with the new Invest platform we’ll be sending orders to new exchanges and venues that will vastly increase the universe of stocks we can offer.

We’re missing six of the FTSE 100 stocks, generally airlines or defence companies that require ‘national declarations’ before you can buy them. We’re working on getting that into the app.

We now have all companies over £1bn market cap, most of the main market and are selective adding AIM stocks. Our target is to have everything though!

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Good guess Adam - it’s BAE that is my biggest holding. Maybe not the most PC of companies, but pays good divs and I’d like to keep it for now. To balance that out I try to stick to ethical stocks for the rest of my portfolio :innocent:

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Hi Adam,

Congrats on the VC raise! I imagine it’s a proud & surreal feeling for you as founder. It’s easy to overlook this human element, so can you shed some light on what this raise means for you personally, and in-house for the team spirit, as an achievement/milestone?

Secondly, is there anything meaningful other than capital funds to finance growth that Draper will help :freetrade: with? Perhaps some expertise, connections, advice, etc.

Thanks.

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:slight_smile:

This is the biggest pain in initial onboarding for sure as most people haven’t memorised it. It’s a regulatory requirement we collect it (different depending on your nationality - it’s a passport number for me as I’m Canadian).

We’ve considered allowing users to skip that step and check out the app, but it’s just delaying the pain of looking up your NI number. Any feedback from your friends on how they’d make it better/smoother?

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Thank you Adam and the team for your work. Draper’s investment is great (though I was slightly disappointed that they didn’t invest at a higher valuation).

You guys are building a platform that has real value.

I have just been buying shares from the middle of nowhere in Africa on a terrible internet connection and it worked surprisingly smoothly.

The Xmas list is a great list of near term priorities. Please don’t delay the Europe launch or the Alpha account launch.

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