Earlier this month, U.K.-based challenger bank Monzo announced that it had raised a further £71 million in a round led by Goodwater Capital, giving the startup a post-money valuation of £280 million. However, what wasn’t reported at the time was that the round included £11 million in secondary investment, meaning that only £60 million entered the company’s balance sheet and a number of existing shareholders were permitted to cash in.
TechCrunch understands that a total of 13 early shareholders, made up of Monzo founders and other early employees, sold a portion of their holding, and to varying degrees. This was done partly to enable more new investors to be squeezed into what I understand was an oversubscribed round and without further diluting the company.
In a call with Monzo co-founder and CEO Tom Blomfield, who confirmed the secondary investment, he said it also points to a new formalised arrangement the challenger bank is introducing regards how it plans to let long-term employees sell shares in future.
Specifically, the new policy being introduced will mean that in any future investment rounds, employees who have been with Monzo for three years or more will have the opportunity to sell up to 10 per cent of their options, provided there is demand for those shares from new investors.
The thinking here, he says, is an attempt to solve a particularly European startup problem in which current and prospective employees don’t always know how to value stock options as part of an overall compensation package, and are rightly skeptical about how long it will take to cash in, even if they believe the chances of an eventual successful exit are reasonable.
Companies are also taking much longer to IPO than at other times in history and, reading somewhat between the lines, going public is clearly Monzo’s ultimate long-term ambition. Blomfield, after all, has previously said that selling early to one of the incumbent banks would be the equivalent of a startup bank bailout plan. “It means you haven’t accomplished what you set out to do,” he told me in an interview in February.
Regarding Monzo’s latest funding round and how it relates to the new policy, Blomfield says that employees who have been with Monzo since the bank was founded — which, of course, includes its founders — were given the option to sell some of their shares. Separately, a few early employees who have since left or are soon to be leaving, were able to sell a significantly larger percentage of their holding, although I haven’t been able to confirm who they are.
Notably, Monzo is advertising for a new CFO (a position currently held by co-founder Gary Dolman). One member of Monzo’s founding team, Jason Bates, left at the end of 2016 to start fintech consultancy and investment firm 11:FS, which is also behind the insightful FinTech Insider podcast.
Update: Blomfield has blogged about the new policy here.