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.
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.
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.
- Keep spreading the word by referring friends, family, coworkers, and randoms on the internet.
- 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!