THIS Isn’t Nice: Crowd Investors Angry at Post-Series C Valuation of Plant-Based Meat Brand

Crowdfunding backers of UK plant-based meat maker THIS have reacted furiously to a significant drop in the business’s valuation, following its £20M Series C round last month.

In 2022, when THIS closed its Series B fundraise, it was valued at £150M. But its Series C round – which saw private equity firm Planet First Partners invest a further £20M in the business – decreased this valuation by 67% to £50M.

As part of the deal, £12M was set aside for THIS’s growth, while the remaining £8M was taken off the table by founders Andy Shovel and Pete Sharman, as well as some of its earliest shareholders.

This has angered crowd investors who have injected £13.4M into the company over three rounds, who criticised the move on a Seedrs discussion board, according to the Grocer. They said the plant-based meat manufacturer wasn’t allowing them to trade shares publicly on the crowdfunding platform’s secondary market.

THIS, which claims to be the UK’s fastest-growing meat analogue company, announced the details of the financials in a letter sent to crowd investors by Shovel, Sharman and new CEO Mark Cuddigan.

It revealed that the share price negotiated for the Series C round was £28.73, representing a 71% dip from the £98.63 price before the latest raise. To date, the company has secured £50M in funding from institutional and crowdfunding investors, including BGF, Backed VC, FiveSeasons Ventures, Idinvest Partners, Manta RayVentures, Seedcamp, ITV and footballer Chris Smalling (among others).

THIS’ valuation suffers from ‘extremely difficult’ investment market

On Seeders, THIS’ indicative valuation – based on the company’s share price – stood at £171.6M before the Series C round. This was an increase from the £150M valuation set when THIS raised £8M from over 3,000 crowd backers in 2022 (as part of its Series B round).

In anticipation of the Series C, crowd investors pumped in another £1.4M in a convertible round earlier this year, with loan notes converting to equity. But the letter to Seedrs investors confirmed that, now, the pre-money valuation is £50M, which, “on the face of it, isn’t great for those investors who participated in those [earlier] rounds”.

“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,” Shovel told the Grocer.

“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 pointed to an “extremely difficult” investment market for food and drink businesses to explain why the valuation was lower. Food tech financing nosedived by 61% in 2023, amid a wider dip in VC funding – for plant-based companies, this fell by 24%. And, across the UK, overall Series C valuations were down by 77% year-on-year, with plant-based startups faring even worse and some forced to shut down before being sold for “virtually nothing”, the letter stated.

THIS’ executive team argued that the Series C was a positive development for all shareholders, since the company is now “really well capitalised”. “We have enough cash to take us all the way to net profit in a year or so,” they wrote in the letter. While gross margins were 0% until recently, they’re now “growing strongly”, with plans to reach 30% or more in the next 12 months.

“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.”

‘Zero chance we’re shortchanging our crowd investors’

Despite the letter’s arguments, crowd investors complained about the deal. “Shockingly bad human behaviour” was one backer’s consensus. “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,” they wrote.

In response, Shovel said the valuation was decided upon after a “quite long and thorough” process involving hundreds of 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 said.

Shovel and Sharman have retained an 18% stake in the business they founded in 2019. Since then, they have invested £100,000 of their savings into THIS.

“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,” said Shovel. “So, there are various checks and balances in place to ensure that the Seedrs investors’ interests are looked after.”

He added: “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. 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.”

With a superfood in the pipeline, THIS aims for profitability in 2025

Addressing the £8M of secondary funding, Shovel said this only arose because Planet First agreed to a very low valuation for THIS at first, and so the team’s investment bankers advised offering the secondary sale at around an 18% discount to lower the entry price and keep the headline valuation at £50M.

“Whilst the earliest investors are okay 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,” said Shovel. “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.”

He continued: “The idea that it’s some money-making ruse for us is absurd. It’s the lowest valuation the company has seen in years.”

Shovel added that offering shares on the Seedrs secondary market could have affected the employee share scheme valuation in the eyes of HMRC (the UK’s revenue and customs office). “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,” he said.

“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.”

Targeting profitability by 2025, THIS is the third-largest meat analogue company in the UK, with revenues up by nearly 50% last year, reaching £19M. The company has streamlined its operations, consolidating its production from 17 sites to just three.

Cuddigan – who Shovel endorsed as an “outstanding” person to lead THIS to over £100M in profitable sales in the future – has hinted at the company’s product development plans, telling Sifted that it was working on a tofu-life plant-based superfood that can be used as an ingredient in several ways, and has more nutritional value than anything currently available on the market.