Hot Chip with balloons

10 days ago, we announced our latest funding round of £71 million. We see it as an incredible vote of confidence in the work we’ve been doing so far, and a huge boost to our plans for 2018 🚀

Over the past nine months we’ve grown really fast, from around 80 people to more than 220 today. Our team work incredibly hard to make Monzo amazing and we want to keep hiring the most talented people we possibly can.

Every offer we make to people joining Monzo includes a salary and share options. These options mean that employees have a real stake in the bank that they’re helping to build, and aligns the interests of the company with those of our staff. If people work hard to make Monzo a success, they can rightfully expect a share of the future rewards.

However, candidates often tell us that they find it difficult to evaluate the value of these share options. Advice online is mixed, with some dismissing share options as totally worthless, while others suggest people accept salaries below the market rate, and take more options instead.

Companies are also taking much longer to IPO than they did in the past, so share options often remain locked up (or “illiquid”) for a long period of time. If employees were already struggling to value share options, figuring out their value at an uncertain point in the future is even harder. We’ve built a tool to try and make this easier for people starting at Monzo.

The issue is exacerbated here in the UK and in Europe. Compared with the US, far fewer startups based on this side of the Atlantic have seen large exits, and so we haven’t yet established a pattern of employees making a return on their options. In the US, on the other hand, there are employees from companies like Google and Facebook who’ve made significant amounts of money from their options, and as a result new recruits really seem to value options grants.

Combined, these factors can mean that candidates treat share options as “lottery tickets” and discount their value when agreeing compensation, choosing higher salaries over more options. This costs us more as a company in the short term, and means employees lose out in the long term if we’re successful.

I’ve been keen to try and combat this for a while, and am excited to share the first part of our solution today.

In future investment rounds, any employee who has been with Monzo for three years or more will have the opportunity to sell up to 10% of their options, provided there is demand for those shares from new investors.

The value of your share options after three years will still be somewhat uncertain, but at least it seems a less distant prospect than waiting ten years for an IPO.

We put this into practice for the first time as part of the investment round we closed last week. People who have been with Monzo since the very beginning were given the option to sell some of their shares, and a few early employees who have either left or will soon be leaving Monzo were also able to sell a larger percentage.

This latest funding round saw high demand for shares in Monzo from our investors - we were planning a £60 million investment round, but had more than £100 million of demand. By giving employees the chance to sell some of their shares, we were able to offer more shares to new investors, with less overall dilution. Of the total £71 million investment, approximately £11 million was in the form of secondary sales.

There are, of course, a few potential pitfalls with a scheme like this and I thought it’d be worth talking a bit about them in case others are exploring similar options.

We grant share options to align the long-term financial success of employees with that of the company. We’re keen to make sure that everyone remains incentivised to make Monzo a success, which is why existing employees can only sell up to 10% of their shares. We plan to keep building Monzo into something amazing, and we hope and anticipate that the value of shares will increase as that happens 🚀

People also need to realise that they are selling an asset today that may be worth much more in future. However, the options may also be worth nothing if Monzo doesn’t do well, so by selling a little today, the downside risk is reduced. We need to help employees make this decision for themselves and their families.

We’re also keen that this doesn’t lead to any ill-feeling internally if some employees have earned significant sums of money, while others haven’t yet. Our commitment to transparency starts within the company, so we are extending this same opportunity to everyone that works at Monzo and communicating clearly how people can take part.

Finally, our ability to do this will always be dependent on demand among investors in each funding round. We can only give employees the option to sell their shares if a round is oversubscribed!

I believe that giving people this opportunity will be of huge benefit to existing employees, prospective candidates and to Monzo as a company. As we continue to grow rapidly, it allows us to keep hiring the best people and make sure everyone at Monzo will be able to realise some of the benefits of our success so far! Oh and we’re hiring 😉

Share post