Crowd investors at meat alternatives challenger This have reacted angrily to a dramatic drop in valuation at the business, following new backing from a private equity firm last week.
The £20m Series C round valued This at just £50m, a significant fall from a £150m valuation during the Series B fundraising in 2022, The Grocer has learned.
As part of the deal from investment firm Planet First Partners, announced last week, £12m will go towards the company’s ongoing growth, while founders Andy Shovel and Pete Sharman, along with the earliest shareholders, took £8m off the table, according to a letter sent to crowdfunding backers at Seedrs.
Some crowd backers – who have pumped £13.4m into This across three rounds – were critical of the move on a discussion board on Seedrs and many were angry the business was not allowing them to trade shares publicly on the platform’s secondary market.
The letter from Shovel, Sharman and new CEO Mark Cuddigan revealed the share price negotiated for the Series C stood at £28.73, a 71% fall in value from the price of £98.63 before the new round. The indicative valuation of This by Seedrs, based on the share price of the company, sat at £171.6m before the investment by Planet First.
It had risen from the £150m valuation set when This raised £8m from almost 3,000 crowd backers in 2022 as part of a £15m Series B round, with investors now sat on paper losses. The £150m price was set after This registered a loss of £5.9m in 2021 on revenues of £12m.
Crowd backers also invested £1.4m earlier this year in a convertible round ahead of the anticipated Series C, with loan notes converting to equity in the business following the Planet First deal.
Sharman told The Grocer: “Our earliest investors and founders did sell some shares at this round at a significant discount versus the ‘primary’ money that went into the company, to lower the overall entry price of our lead investor without increasing the dilution for all existing shareholders.
“To be clear, if the business had been able to take the full total as a ‘primary’ investment into the company, all existing shareholders would have experienced significantly more dilution. Therefore, we believe that selling some discounted secondary was the best option for shareholders, as well as our incoming investor, whilst importantly setting the company up for the next exciting stage of growth.”
The letter to investors sent after the Planet First deal was announced confirmed the pre-money valuation for the primary investment was £50m, which it said “on the face of it, isn’t great for those investors who participated in those [earlier] rounds”.
It also spelled out why the value was lower, pointing to an “extremely different” investment market for food and drink companies compared with 2022, with valuations coming down across the board.
Across the UK as a whole, the letter added, Series C valuations were down 77% year on year, with plant-based startups faring even worse and a number going bust before being sold for “virtually nothing”.
The letter went on to argue the Series C was “positive news” for all shareholders as the company was now “really well capitalised”.
“We have enough cash to take us all the way to net profit in a year or so,” it claimed.
It added: “In spite of us kicking off the fundraise in very good time, it took far longer than expected to find the investment, so our cash runway was running quite low. We had around two to three months before we would have had worryingly low cash reserves, at the time of closing this round.”
The letter said This was still the fastest-growing brand in the plant-based category, and gross margins, which were at 0% until recently, were “growing strongly”, with a plan to get them to 30%+ in the next 12 months.
Despite the arguments set out in the letter, crowd shareholders complained about the deal on the Seedrs discussion board.
“If they were so confident in the company, they would allow us to trade our shares on the secondary market now, instead they just want to take large chunks of money out whilst the value of everyone else’s investment tanks,” one wrote.
Another said it was “shockingly bad human behaviour”. “This doesn’t happen with private companies that raise money directly from investors as the founders have more accountability and less autonomy. Andy and Pete should be really ashamed.”
Sharman told The Grocer: “The discounted secondary share purchase was also only applicable for ordinary shares, which do not carry any special rights or protections (e.g. liquidation preferences) that were negotiated by the institutional partners who led subsequent rounds.
“If that weren’t the case, and it had been available to investors who hold series A and B shares (which includes all investors from previous crowdfunding campaigns who invested on the same terms as the institutions who led those respective rounds)… in our opinion the uptake would have been very low.
“It wouldn’t make sense for those people to sell now when many came in at a higher valuation and have shares that carry downside protection, since, valuation aside, the company is fundamentally in better health than it’s ever been. That’s taking into account revenue growth, margin growth, team expertise & experience, cash in hand, product quality and R&D pipeline.”
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Shovel replied to shareholders and said the valuation was reached after a “quite long and thorough” process involving hundreds of growth-stage investors.
“Once we entered into negotiations with Planet First Partners, the valuation was negotiated on for some time, but given the tough fundraising market, there was not that much competitive pressure to drive the price up,” he added.
Shovel and Sharman have retained about an 18% stake in the business between them following the deal.
“There is zero chance of us ever trying to shortchange our crowd investors, many (really a lot) of our friends and family are investors across multiple Seedrs rounds, and, in any case, Seedrs investors are aligned in terms of share class with various large institutional investors,” Shovel added. “So, there are various checks and balances in place to ensure that the Seedrs investors’ interest are looked after.”
He also argued raising £12m at more than 2x sales in this tough fundraising market was positive.
“Our £50m pre-money valuation is a symptom of how much interest (or lack of) the investment market had in our company at this investment round – not poor financial governance,” he said. “We are unfortunately unable to influence the macro-economic factors, which have led to an average of 77% decline in Series C valuations across growth-stage companies in the UK.
“As it stands, we have made sure that the company is well funded and can support its growth in the coming years, and we’ve installed a top-tier management team, have achieved outstanding growth from £0 to £20m+ annual sales in four-and-a-half years, and are now closing in on net profitability. I’m hoping that we have governed the company responsibly and effectively, based on that progress.”
Shovel added that Cuddigan, who took charge earlier this year as the founders stepped back, was an “outstanding” person to lead This to more than £100m in profitable sales in the future.
Another later response from Shovel addressed to all investors said: “Thanks for the comments but this is misguided and actually quite misleading nonsense, based on conjecture.”
He explained the £8m in secondary funding was split pro-rata between himself, Sharman and the earliest investors who came in at the start.
He added that he and Sharman had invested £100k of savings into This in return for shares on day one.
“We’ve given our whole lives to the company in the seven years since then.
“The secondary component to the round only arose because Planet First Partners would only agree on a very low valuation for the company at first, so we were advised by our investment bankers to offer the secondary sale at a big discount (c.18%) to lower their overall entry price whilst keeping the headline valuation for the company at £50m.
“Whilst the earliest investors are OK with selling some of their shares at that valuation, Pete and I weren’t thrilled about offloading c.35% of our shares at such a low valuation. But on balance, we’ve been working for the best part of a decade, and it was definitely beneficial for the company and its other shareholders for us to go ahead with it, so we did.
“The idea that it’s some money-making ruse for us is absurd. It’s the lowest valuation the company has seen in years.”
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He went on to address complaints that This shares were not on the Seedrs secondary market, as he said the business was advised by its lawyers that it could have affected the employee share scheme valuation in the eyes of HMRC.
“Any of us who are annoyed by the lower valuation simply hasn’t had any exposure to what’s gone on in the growth-stage investment market since 2022. It’s just tough out there.
“I would finally stress that funding round valuations may go up or down and serve up less or more dilution for us all, but the only valuation that really counts as far as I’m concerned is the one at a potential exit event in the future.
“Either way, I strongly refute any nonsense claims that Pete or I have acted without integrity at any point. Thankfully it seems that most investors on Seedrs have comprehended that the lower valuation is a symptom of a changed funding environment.”
This has raised more than £50m from institutional and crowdfunding investors since 2019, including BGF, Backed VC, Five Seasons Ventures, Idinvest Partners, ECG Research, CJ Corporation, Manta Ray Ventures, Kreos Capital, Seedcamp, ITV and footballer Chris Smalling.
Last year, This grew revenues by almost 50% to £19m to become the third-largest meat alternative brand in the UK.
However, it posted operating losses of £9.8m in 2022 and £5.9m in 2021, with official numbers for 2023 not yet filed at Companies House.
The supplier has recently streamlined operations, consolidating production from 17 sites down to three, in a bid to improve gross margins.
This, which was named in the Alantra Fast 50 as the UK food and drink industry’s fastest-growing brand in 2023, told The Grocer in October it was targeting profitability by 2025.
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