Q&A: How do a million investors impact dilution?
This Q&A is part of an ongoing AMA (“ask me anything”) with Legion M’s founders. If you’ve got a question you’d like to ask, please submit it here, and we’ll consider it for a future update!
Thank you to Khena for submitting this question.
Question: Doesn’t each round of funding dilute investors’ shares until they are worth next to nothing? How are investors protected from stocks being diluted?
ANSWER: This is a great question, Khena! The answer may surprise you.
Many people assume that Legion M’s funding strategy – i.e. the fact we have nearly 50,000 investors from 9 rounds of funding – is highly dilutive. Or that our long-term goal of uniting one million shareholders can’t be achieved without diluting early investors into oblivion. Neither of these are true – in fact you’ll see that the way we’ve structured our fundraising was specifically designed to reduce the impact of future dilution.
The first thing to understand is that dilution is a function of the amount of money raised, not the number of investors. In other words, one million fan-investors who each invest $40 causes the exact same amount of dilution as a single VC investor who invests $40 million. So dilution is not a matter of “how many people have invested?”, but “how much money have you raised?”, and “at what valuation?”
To date, Legion M has raised about $20 million over 9 rounds of funding. While this is a lot of money, it’s only a drop in the bucket compared to most startups. According to Statista, public companies typically raise $50MM, $100MM, or even $150MM prior to their IPO. Unicorns like Uber, Facebook and Tesla raised billions. Needless to say, the fact that Legion M has raised about $20MM (at a series of valuations that are all less than $60MM) puts our dilution squarely in the domain of an early stage startup.
In addition, we’ve raised our money over multiple rounds, each with a different share price:
NOTES: (1) Legion M's share price is not set on an open market the same way a publicly traded stock is. Instead it’s priced like a private or VC backed company, where the company sets a stock price, and investors decide whether or not they would like to buy it. (2) In January of 2022, Legion M shareholders voted to pass a 10-for-1 stock split. The prices listed on this table are presented on a post-split basis. (3) Beginning in Round 7, Legion M’s offerings included the opportunity to receive bonus shares as a reward, which can change the “effective share price” paid by the investors who receive bonus shares.
One of the benefits of breaking our fundraising into multiple rounds is that it creates dilution protection for early investors. I.e: investors in Round 9 are buying the same stock as investors in Round 1, but are paying over 2X the price per share. This means that no matter what happens from here – whether the stock goes up, down, or stays the same – Round 1 investors will have more than double the potential return of investors from Round 9.
Of course the real question for investors is “where will the company go from here?” As mentioned above, by startup standards, Legion M is still fairly early-stage. Over the past 8 years we’ve successfully grown Legion M from a mere idea (with no money, community, or track record) into an award-winning movie studio that has demonstrated an ability to finance, produce, and distribute films. In the coming years we hope to continue this trajectory – leveling up our capabilities into larger and larger projects. Our goal is to achieve profitability and reach the point where Legion M can IPO or have an exit that allows all of us – investors, staff and celebrity advisors alike – to sell our shares (hopefully at a huge profit!). If we achieve that goal we all win. If we die trying we all lose. That’s the fundamental proposition of a startup.
Either way, taking care of our shareholders will ALWAYS be our top priority. That includes doing what we can to prevent unnecessary dilution. At Legion M, our investors are more than just a source of capital – they are the source of the company’s power and the secret to our long-term success. We’ll do anything we possibly can to protect their interests. That’s what it means to be a FAN-OWNED company.
Got a question you’d like us to address in a future update? Click here to drop us a line!
ROUND ENDS SOON! Last chance to invest on StartEngine and lock in Round 9 Terms.
Investing in Legion M is speculative, illiquid, and involves a high degree of risk, including the possible loss of your entire investment. You should never invest more than you can afford to lose (not in Legion M or in ANY startup!). That said, if you can bear the risk and want to swing for the fences, we’d be honored to have you aboard our moonshot!
Read the Offering Circular as well as the risks related to this offering before investing. This Reg A+ offering is made available through StartEngine Primary, LLC, member FINRA/SIPC. In addition, as described in the Offering Circular, the Company retains the right to continue the offering beyond the Termination Date, in its sole discretion.
This post may contain forward-looking statements and information relating to, among other things, the company, its business plan and strategy, and its industry. These forward-looking statements are based on the beliefs of, assumptions made by, and information currently available to the company’s management. When used in the post, the words “estimate,” “project,” “believe,” “anticipate,” “intend,” “expect” and similar expressions are intended to identify forward-looking statements. These statements reflect management’s current views with respect to future events and are subject to risks and uncertainties that could cause the company’s actual results to differ materially from those contained in the forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The company does not undertake any obligation to revise or update these forward-looking statements to reflect events or circumstances after such date or to reflect the occurrence of unanticipated events.