Author: Jaine Organ
Marillion, a UK rock band, recognised the power of crowdfunding in 1997 when they appealed to their fan-base by email and succeeded in funding a US-wide tour to the tune of £40k. The term hadn’t yet been coined but hot on the heels of Marillion’s success crowfunding sites began to emerge. Crowdcube, started in 2011, has become the platform of choice for UK craft brewers but following a series of well-publicised failures has the crowdfunding bubble finally burst?
The majority of schemes are investment-based receiving a stake in return, with the platform typically charging fees of around 5-7 per cent of the money raised. BrewDog and Camden Town Brewery were among the first craft brewers to raise large amounts through crowdfunding; BrewDog, raising over £25m on its latest Equity for Punks V offer alone and Camden Town Brewery £2.75m before it was sold to AB InBev in 2015.
What are the benefits and risks?
It’s often quicker with less scrutiny; banks and capital investors would want to see a sound business plan and projected returns whereas crowdfunders often buy into the ethos of being part of the beer community. BrewDog pitches its Equity for Punks scheme to “like-minded individuals” with an opportunity to “get involved in the company and get some beery benefits in return.”
But it’s also risky, government bodies such as the FCA (Financial Conduct Authority) say: “Due to the potential for capital losses, we regard investment-based crowdfunding in particular to be a high-risk investment activity.” According to Crowdcube’s COO, Matt Cooper, “the majority of businesses we see are early adopters of technology and often manage their finances through on-line banks like Monzo. The idea that these businesses have a meeting with their high-street bank manager is outdated.”
Some beer industry insiders have expressed concern about this lack of expertise. Justin Hawke, Bristol-based Moor Beer founder, told The Guardian that crowdfunding is “a largely unregulated way of investing used by people who a bank wouldn’t lend to because they don’t have a sound business model. That’s great in that it gives opportunities but it allows people to enter the market who don’t have the skills or business acumen to be successful.”
Hopstuff raised £734k in February 2018 before going into administration in July 2019. Redchurch went into administration in May 2019 shortly after a second wave of crowdfunding. Both breweries have since been sold with investors losing their money. Despite criticism of “a lack of empathy with investors”, crowdfunding still has its supporters with Leeds-based brewery Northern Monk and Verdant, in south-west England recently raising over £1m each.
Neil, in his late 20s, from Leeds was an early investor in BrewDog. “I went to BrewDog’s first bar in Aberdeen in 2011. At the time there was very little, if anything, like it, only good, old-fashioned pubs with great cask ale. So I had an interest in what they were doing: creating good beer and reviving pubs. I saw a ROI 35%+ for the first few years but I’ve had a steady rate since of 10-12%. Investment wise I had faith that it would do well but I didn’t put enough in so that I was worried if it didn’t. My money’s currently tied up otherwise I would have definitely invested in Northern Monk.”
Pictures: Jaine Organ