Equity crowdfunding by breweries overseas has been effective overall, despite some high profile failures, according to Pozible.
The largest reward-based crowdfunding platform in the Asia Pacific, Pozible recently announced the launch of Birchal, a new equity crowdfunding platform.
The spin-off will apply to ASIC for a financial services licence when the new crowd-sourced funding regime starts on September 29. It hopes to be operational with live offers later this year.
The arrival of equity crowdfunding in Australia coincides with the release of a new report by British beer writer Martyn Cornell, in association with investment comparison company OFF3R, analysing crowdfunding by breweries in the UK.
Beer fans have invested almost £50 million in breweries via crowdfunding over the last four years, says the report, with at least six companies raising sums in excess of £1.7 million at a time.
It says more than half the money raised went to BrewDog, with other major beneficiaries of the remainder including Chapel Down Group, owner of Curious Brew in Kent (£5.66 million raised), Camden Town Brewery (£2.75 million raised), Innis & Gunn of Edinburgh (£2.2 million raised) and the Wild Beer Company of Somerset (£1.8 million raised).
The report quotes statistics from UK funding platform Crowdcube that 85 per cent of brewery investors are male, “suggesting a strong element of ‘fanboy’ investing by male beer drinkers in their favourite brew”.
Successes and failures
It says that while investors in companies such as BrewDog and Camden Town have seen some “spectacular paper returns”, they have not always had liquidity in their investments.
“When BrewDog sold a 22 per cent slice of itself to TSG in April this year, Equity For Punks
investors were allowed themselves to sell just 15 per cent of their individual shareholdings,” the report says.
And the results achieved by BrewDog and Camden Town were rarities, adds the report, “even among crowdfunded ventures as a whole”.
Failures identified include Delavals, founded in Blyth, Northumberland in 2010, which attempted to raise £400,000 in January 2015 by selling 30 per cent of the company via the Investingzone.com crowdfunding platform.
“The fundraising failed, and Delavals went into liquidation in May 2015, blaming market saturation and extremely competitive beer pricing, and the fact that it had not raised sufficient cash to pay for the marketing support to bring in sufficient sales to keep it going,” the report says.
Other failures called out include London’s Brüpond, which raised £45,000 from 45 investors in 2012 but went into liquidation in September 2013; and Little Brew, which raised £109,000 on Crowdcube for 27 per cent of its equity early in 2014, before collapsing at the start of 2016.
“Beer-loving investors need to be aware that while enormous returns are certainly possible, equity crowdfunding does not always make it easy to get the money you have made on paper out of the enterprise and into your bank account,” says the report.
“In addition, as with all investments, it is possible to lose your funds if the company you invest in does not succeed.”
Start-ups are always risky: Black Hops
However, breweries are not alone in posing significant risks to investors during the start-up phase, according to Black Hops Brewing co-founder Dan Norris, who welcomed the launch of Birchal.
“I can’t say I’m that surprised that any start-up would have a reasonable failure rate. I don’t know if breweries would fail more than others, but I would have thought that other industries would be way worse,” he told Brews News.
“If you look at investors in tech companies – they basically assume that one ten or one in 20 will work and the rest will all fail.”
Prospective investors do need to be aware that breweries are not profit machines, says Norris, who is also a tech entrepreneur and author of business book The 7 Day Start-up.
He said Black Hops made this abundantly clear in its recent investment round, which concluded successfully, having quickly raised all the sought after funds.
“We specifically told people we don’t expect to be paying dividends on profits any time soon and being in [the] growth phase means everything goes back into the business,” he said.
Crowdfunding in beer phenomenal: Pozible
The growth of craft beer as a category for equity crowdfunding has been “phenomenal” since 2014, Pozible and Birchal co-founder Alan Crabbe told Brews News.
“For the most part, you can clearly see that it continues to be a very effective tool to raise capital, launch a brand and/or accelerate growth of a brewery in the UK,” he said.
“Similarly to the tech industry, we’ll experience both star performers like BrewDog along with some very public failures.
“It’s still very early days to make a judgement whether equity crowdfunded breweries are a good investment or not.”
Almost a fifth of brewery investors on UK platform Crowdcube have put money into two or more brewery ventures via the platform, the Cornell report says.
“It’s encouraging to see investors investors in the UK starting to take a portfolio approach with their investments,” commented Crabbe.
“At the same time, it’s very beneficial for breweries to have greater insight into the failures to better understand the secrets to success and using equity crowdfunding effectively for marketing, scale and growth.”
Federal Corporations Regulations were amended in June to require that all equity crowdfunding offers include the following warning:
“Crowd-sourced funding is risky. Issuers using this facility include new or rapidly growing ventures. Investment in these types of ventures is speculative and carries high risks.
You may lose your entire investment, and you should be in a position to bear this risk without undue hardship.
Even if the company is successful, the value of your investment and any return on the investment could be reduced if the company issues more shares.
Your investment is unlikely to be liquid. This means you are unlikely to be able to sell your shares quickly or at all if you need the money or decide that this investment is not right for you.
Even though you have remedies for misleading statements in the offer document or misconduct by the company, you may have difficulty recovering your money.
There are rules for handling your money. However, if your money is handled inappropriately or the person operating the platform on which this offer is published becomes insolvent, you may have difficulty recovering your money.
Ask questions, read all information given carefully, and seek independent financial advice before committing yourself to any investment.”