Is Monzo A Good Investment?

Monzo logo on a black background

Disruptor bank Monzo is equity crowdfunding on Crowdcube again.  The UK only, digital only bank wants another £22 million to launch current accounts in the UK this year. The company'  has just closed £19.5 million in 'Series C' funding from three institutional  backers, Thrive Capital, Passion Capital and Orange Digital Ventures. and is offering £2.5 million worth of equity on Crowdcube.

Monzo became famous last year when it raised a million pounds in 96 seconds. The funds came in so quickly it broke the Crowdcube platform. This time, the minimum investment is £10 and the maximum is £1,000. So - is it worth putting your money in?

First, let's be clear that we are not financial advisers, and we don't know whether buying into Monzo will be right or wrong for you.

The reason we've written this article is to guide our readers through some of the things you need to think about, and the questions you need to ask, before you buy an equity stake in a startup business - not just this one, but any business.

In order to know what you're getting for your money, you need to relate the little bit of the company you're being asked to buy to to the company  So, think about this:

1. Company Valuation

According to this piece on Business Insider, the pre-money valuation of Monzo for this round is £65 million. So if you put £650 into the company, you would expect to own 0.001% of the business, or one part in a hundred thousand. 

Is that a fair price? That depends very much on what assets the company owns, and how much turnover it has. We would look for evidence that the company has used the shareholders' money in ways that increase the company's value. 

We know that in the company was valued at £30 million in March 2016, while in October 2016. an interim funding round valued it at £50 million. So the valuations are rising. But we need to know what the company has done to make it worth more than a pile of cash under a mattrrss.

2. Assets

Monzo holds a banking licence, which is something very few Fintech companies have. Obtaining a banking licence is a costly exercise. In addition, the company has spent a lot of money on information technology. And it employs senty staff. This all makes a lot of sense to us. THe company needs the money, and it's spending it on the right sort of things - we think. But it's early days yet.

The management team needs to do a lot of work before the assets they're creating work well enough to earn their keep in terms of revenues.  If the company was shut down and its assets sold tomorrow, would they realise what it had cost to build them? Perhaps not.

3.Revenue and Growth

The Finanser blog published an interview with Monzo founder Tom Blomfield this week. It's a good place to start  forming an opinion about how capable you think the management team are, and whether you expect them to keep the company on track. Blomfield explains the company's current customer base - over 100,000 users of prepaid debit cards - and is very pleased with the rate of growth - seven per cent week on week. 

4. Terms And Conditions

Finally, you need to understand what rights your shares grant you; whether rights are the same as other shareholders,' and where you are in the 'pecking order' when it comes to distributing dividends, or other good things.

We can't check the details of the offer now, because it won't be published online until Tuesday 28th. When it's published, read it carefully. Are you being invited in on the same terms as the institutional investors? Are you being offered the same class of shares, at the same price?

We think Monzo is going to be a interesting and disruptive player in the banking industry. But we don't know that.  We don't know how many million current accounts it will open, how much money it will make servicing them, and whether it will pay dividends. And we don't kno if it will ever be worth more as a going concern than the money the shareholders have already put into it.

Real the small print very carefully before you decide whether you want to invest it. Based on last year's round, it could be a stampede. Hold your nerve, and don't put in money you can't afford to lose.