The conflict between Revolut and Republic, a crowdfunding platform, over a secondary share sale has intensified, potentially leading to a legal battle. Revolut has reportedly blocked the discounted sale of its shares through Republic, sparking outcry from early investors seeking liquidity. The dispute centers on the sale of 10,047 shares of Revolut stock by Jamba Europe, an entity owned by New York-based private equity firm HOF Capital.
The Conflict: A Blocked Sale and Accusations of Restrictive Practices
Republic and Jamba agreed to a £4.5 million deal to acquire shares from over 200 early Revolut investors, with shares priced at £447.69 each. This valuation represents a 32% discount compared to an August sale managed by Morgan Stanley, where shares were priced at $865.42. However, Revolut allegedly intervened, amending its articles of association to restrict such sales and blocking Jamba’s offer.
In a letter to investors, Republic claimed that Revolut’s sudden rule change specifically targeted Jamba and sought to prohibit legal entities, rather than individuals, from buying shares through the platform. The crowdfunding company has since sought legal advice, arguing that the changes made by Revolut were contrary to applicable law. “We very much hope to be able to reach an amicable solution that allows this transaction to proceed, but we have reserved our rights and will take appropriate action once we have a response from them,” Republic stated.
Tensions Over Share Valuation and Lack of Liquidity Options
Early investors on Republic have voiced concerns about the proposed sale’s undervaluation, citing other bids that valued shares up to £549.93 each. Republic defended the discounted pricing, stating that it was the best offer they could secure after previous attempts to arrange sales were blocked by Revolut. Revolut’s shareholders have long sought opportunities to cash out, particularly as the fintech has not announced plans for an IPO.
Republic’s letter expressed frustration, noting that while Revolut has allowed large-scale secondary sales for its founders and employees, it has blocked early investors from selling their holdings. Revolut’s resistance to these sales contrasts with other companies that have raised funds on Republic and typically facilitate secondary trades for investors seeking liquidity.
Longstanding Disputes and Regulatory Scrutiny
This latest conflict reflects an ongoing struggle between Revolut and early investors regarding secondary sales. Since raising £3.8 million in 2017 from Republic’s platform (then called Seedrs), Revolut has been consistently reluctant to approve such transactions. Republic, acting as the legal shareholder on behalf of over 4,000 early backers, has attempted to arrange share sales several times, only to be met with resistance from Revolut.
Adding to the complexity, the UK’s Financial Conduct Authority (FCA) demanded regulatory approval for Jamba’s initial offer, which led Republic to cancel the sale in October. In response, Republic revised its offer and disclosed Jamba’s connection to HOF Capital, a minority shareholder in Republic’s parent company, to comply with FCA requirements.
Criticism and Controversy Around Republic’s Handling of the Sale
Republic has faced scrutiny from investors and regulators regarding its handling of Jamba’s offers. The FCA intervened in the initial offer, classifying it as a “financial promotion” that required regulatory clearance. The revised offer letter omitted previous references to the August sale and concerns about capital gains tax, addressing issues Revolut reportedly deemed “predatory.” The omission of capital gains tax references was intended to avoid influencing investor decisions based on possible tax hikes.
Revolut’s Stance and Next Steps
A spokesperson for Revolut commented on the matter, stating, “Secondary sales of Revolut shares are only permitted in limited circumstances and with board approval. We remain committed to ensuring longstanding Revolut shareholders are protected from unauthorized attempts to purchase discounted shares.”
Revolut’s actions highlight its control over secondary sales, contrasting with Republic’s claim that Jamba’s offer was permitted under existing rules. The fintech’s recent change to its articles of association reflects a continued focus on controlling shareholder liquidity, limiting transactions it perceives as undervaluing shares or posing risks to investor protections.
Wider Implications for Crowdfunding and Investor Liquidity
Revolut’s resistance to allowing early investors to liquidate their shares underscores a tension within the crowdfunding ecosystem, where companies often restrict secondary trading despite investor demand for exit options. Other platforms, such as Crowdcube, have faced similar challenges with Revolut, and a planned secondary sale was withdrawn after Revolut obtained its UK banking license in July.
If unresolved, this legal standoff could have implications for how companies raising capital on crowdfunding platforms approach investor liquidity. The situation also raises questions about how future secondary markets will balance investor protections with liquidity needs, as well as the role of regulatory bodies like the FCA in overseeing these transactions.
In the meantime, Republic has pledged to seek a resolution, stating that any completion of Jamba’s purchase will be delayed as they await Revolut’s response.
