Zoom AMA #7: Simon Cook, Chief Investment Officer at Draper Esprit, our VC investor, 21st May @ 8PM

[gt94sss2]

Out of interest, has anyone compared Freetrade’s R6 valuation using the general formula Simon mentioned that he uses to quickly value firms?

[sb87]

Yes, and based on that formula (taking 2021 forecast) the valuation was better than fair.

[Viktor]

No recording I’m afraid, but we plan to record future community meetups.

[Rollingskies]

Yep

[Rollingskies]

I had done my own valuation based on users. I was very close.

What his value approx meant to me was that my estimates for future FT share value weren’t as crazy as I first thought.

[Wulfy]

Thanks for sharing. Couldn’t make this call so this is great

[Rollingskies]

Why I think this is so good is because even if FT are 2 years late to hit these targets that’s still a 15x investment return on the latest share price after EIS in 5 or 6 years. If it happens even quicker then that’s incredible. If freetrade IPO with a30 quid share price in 5 years time with those financials you would bank on the share price doubling in a year too

[matthieu (Matt)]

Thanks. Helpful. I may be mistaken, but it doesn’t look like your share price calculation takes future funding rounds into account. There’s going to be a significant amount of dilution occurring before you get to any of these figures.

[Rollingskies]

Everything is quite vague, lots of assumptions, maybes and ifs. But if the share price reaches £25 in a few years I’m not going to be worried about a bit of dilution.

[matthieu (Matt)]

You’re quoting a share price with 2 decimal points and gross profits down to the actual pound…so I was assuming you were trying to be precise in your approach .

Joking aside, my point is just that at a valuation of 1.55bn, a 28gbp share price is just wrong if you don’t account for future funding rounds. That’s just not how share prices work.

And lucky you if you don’t mind a ~20% reduction in your proceeds!

Thanks for putting that spreadsheet together though, its a good way of summarizing what was said on the call on that particular topic (share price aside).

[hookedinvesting (@hooked_investing(IG))]

I think I’ll retire if we hit over £30 per share

[Rollingskies]

Not if. When.
Over the next few years we will look back at these posts and go wow.

[Wulfy]

If they hit £30 a share I’m having a 6 month holiday

[Dueprincipati (Massimo Testa)]

Hi. Did Simon replied to these questions? What did he say? Thank you

[Dueprincipati (Massimo Testa)]

@Raul

What were the reasons behind Draper Esprit’s (DP) decision to waiver their pre-emption rights in the context of Freetrade’s crowdfunding Round 6 in CrowdCube (14th May 2020 to 19th May 2020)? Why surrender your rights in favour of the crowd? What value do you see in it? Is this a usual modus operandis for DP, i.e. have you done it before with other companies? What’s the rationale?

Do you plan to increase your position in Freetrade in future VC rounds?, are you happy with what you’ve got and have no intention to add to the position?, or we’ll see how it goes and take it from there?

PS: I’m not complaining. The questions are written in the most neutral way possible, for my abilities that is.

I’m referring to these ones

[Raul (Ann Onymuz)]

I don’t recall my questions being read to Simon. Someone else asked a similar question with a lot less words and that was the one presented to Simon. Nevertheless, in his answer Simon addressed the specifics listed in my post. For that reason I think Simon took the time to read this thread before the AMA. I appreciate that. The way I see it that shows Simon respects the forum members. I may be wrong of course. It may happen he didn’t read the questions prior to the AMA and that shows his awareness of crowdfunding sentiment. Worst case scenario Simon is smart. Best case scenario Simon is wise. Take your pick.

Paraphrasing Simon’s answer:

Draper Esprit talked with Freetrade’s management about participating in the crowdfunding Round 6 (some non specified time before launch). From Draper’s perspective joining the round with £1M and leaving £6M for the crowd wouldn’t make sense. £1M would be a small commitment that wouldn’t make sense because £1M is too small an amount to move the needle on their portfolio. For Draper, in order to make sense to invest in Round 6 they would have to invest the full £7M. In order to make financial sense in terms of moving the needle for their returns on investment. But in their perspective, investing the full £7M allowed for the Round 6 would upset the crowd because the crowd would then be left out of the Round. Thus they decided not to take part. And by not taking part that would allow another 1000 people to join the Freetrade story and that would be beneficial.

Regarding follow up investments in Freetrade Simon says (I’m not sure if the pun is intended or not, I mean I wasn’t thinking about but it came out so… just enjoy it)… so, Simon says

@szb

Draper Esprit is looking to double down on the winners in their portfolio with a round of multiple tens of millions and participating in the relatively small crowdfunding round just a couple of months after the series A was not something they usually do.

In other words, if Freetrade performs Draper Esprit will be happy to invest more in Freetrade.

In case I offer a misrepresentation of Simon’s words please feel free to point it out so I can edit it.

Thanks for asking @Dueprincipati. Hope your curiosity is satisfied.

[Dueprincipati (Massimo Testa)]

Thank you very much indeed

[Juno17 (Brian Whittington)]

I think Drapers judgement is absolutely spot on,the value in the engagement of Freetrade community and investors is worth millions,to upset them would/could have sent Freetrades momentum on a downward spiral. It makes perfect sense for them to come in next year with another substantial investment.