A good amount of criticism regarding online capital formation swirls around valuations and quality deals. Too frequently, issuers raising money online from smaller investors are not the best firms in need of capital. At the same time, valuations can veer toward the ridiculous, where a down round should be easily predicted if the company is able to raise any money at all. So when there is a funding round that has been offered to smaller investors and the investment turns into a huge success, it is interesting to review what went right.
Credit to Guillermo Flor, a founder and investor, who did the legwork to break down how smaller investors in digital bank Revolut’s early securities offering listed on Crowdcube.
Back in the day, Revolut offered shares on Crowdcube totalling £1 million. 433 investors took a swing on this, and according to Flor’s numbers, it was a good decision. Based on today’s valuation, that million-pound investment is now worth a whopping $1.34 billion. Revolut was little more than a startup, an idea to transform banking away from the analog past to the digital future, and the company had generated around £120,000 in revenue at that time. Revolut completed later securities offerings online, but the first investors, of course, performed the best.
For VCs, the return has probably been a bit better, and Flor notes that Balderton Capital received a multiple of 2050X on a mere £1.5 million investment – now worth around $6.15 billion. That’s a home run.
While most early-stage firms fail, and investing in startups is risky business, providing access to private securities to the masses is important as it provides diversification and gives smaller investors the opportunity to participate in the growth of young businesses. Understanding the risk of any investment is vital, but sometimes a company nails it, and investors who supported the venture at its most risky moments get to join in the benefits of wealth creation and innovation.
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