Monday 05 March 2018
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Of all the challenges facing a would-be brewer, one of the most frustrating is nothing to do with the beer at all: it’s money. Starting a brewery of any size requires a hefty chunk of capital, swallowed up in one gulp on premises, a brew kit, fermentation vessels, storage, packaging, design, licenses… the list goes on.
Brewers’ pockets not only have to be big, but deep too, as it can take a while before all this spending starts to see a return. Many a nascent brewery has been properly costed from a start-up perspective, only to fold within its first year because it couldn’t find the cash-flow it see it through the tough early months.
Yet for an industry in which customers will cheerfully get their favourite brand’s logo tattooed onto their body, this seems wildly counter-intuitive. Surely, you would think, the borderline-psychotic passion of craft beer fans could be harnessed to get new breweries off the ground? And you’d be right, of course. Crowdfunding is now a well-established way of raising capital among craft brewers, not only for startups, but also for established breweries looking to expand, upgrade their kit or even launch a specific new beer.
Crowfunding takes a number of shapes, depending on the aims of the brewery. Most of us probably associate it with schemes like BrewDog’s Equity for Punks, in which investors basically become shareholders in the company, complete with an invitation to its Annual General Meeting.
BrewDog’s first Equity for Punks round was way back in 2009, and raised almost £700,000 from 1300 people, paving the way for what would go on to become the most successful crowdfunding programme in the world. Since 2009, it has held three further equity rounds in the UK, cumulatively raising over £25 million. The brewery now has more than 55,000 Equity Punk shareholders worldwide, all of whom own equity in either BrewDog PLC or Brewdog USA Inc.
That first round was not only a landmark for the brewery, for the crowdfunding model itself, as ‘commander in chief’ of BrewDog’s Task Force, Sarah Warman recalls: “Not many people knew about crowdfunding at that point in time, and it was still quite a difficult concept to launch without scaring people with the idea of equity and shareholdings. But the growth BrewDog has seen ever since can be traced back to those individuals who backed the company in the early days, knew what we stood for and stood alongside us. They literally put their money where their mouth is.”
At the other end of the spectrum, Toast Ale, a social enterprise that uses waste bread to supplement its grain requirements, has just completed its second round of crowdfunding. Investors in Toast’s scheme are essentially pre-ordering its new lager and IPA, with funds going into recipe and brand development, as well as the ingredients for brewing. As welcome as the cashflow was though, the greatest benefit arguably came from the publicity and brand-building that arose from Toast’s successful campaign, says founder Rob Wilson.
“We needed the cashflow in order to invest in the recipe production and brew. But it also created a huge buzz and gives you something to talk about from a media perspective. Rather than just launch a new product, the crowdfunding campaign allowed us to really galvanise support and build a buzz around it. Alongside our activity on social and traditional media, we were able to grow our Twitter following over the course of a single month, and ended up going 50% over our original funding target.
While many of Toast’s investors have been fans of the brand – and its fundraising activity for the food waste charity, Feedback – since its early days, many other are new, having been referred by friends or picked up on the buzz online.
Hop Stuff, one of the breweries featured in this month’s Beer52 box, is another crowdfunding veteran, having been established on the back of a successful campaign in 2013. With 632 investors, it is also London’s “most invested” brewery, according to owner James Yeomans, who is about to move into shiny new premises following a second round of funding.
“This second round went through in just 21 days – I thought I knew what to expect after the first round, but it was incredible.
“Shareholders get equity, plus a few perks, but people’s motivations are surprisingly varied. We did a little survey during the second round; things like ‘where do you prefer to drink’ and ‘what package format do you like’, ‘where's the nearest city’. We also asked about their motivations for investing: was it the brand, the track record, the projections for future growth?
“It was really interesting to see how much of an overlap there was between our shareholders and our target consumers, which indicates to me that this was people buying into the vision, rather than just seeing us as a sound investment.”
Making this sort of effort to find out who is investing and why seems key to successful crowdfunding, particularly if you’re considering multiple rounds and want to improve your offering over time.
“We did it better this time round, because we already had an investor base and ere a bit more clued up,” continues James. Our financials and forecasts were probably a bit more accurate than they were… We were just a bit slicker the second time round, particularly in our investor materials and ongoing communication.”
BrewDog’s Sarah agrees: “With every single round of Equity for Punks, we spend a significant amount of time on research to find out why people invest in BrewDog, what they want in their benefits package, and how we can make them feel as involved in our business as possible.
“One great example of this was the referral programme which was introduced with Equity for Punks IV. Previous rounds had seen a lot of people driven to our website via friends and family who’d already invested… so we introduced a referral programme that would shine a light on the awesome Equity Punks who told their communities about the campaign top referrers were invited for a brew day with our cofounders, and reaching lower milestones also got you some special, exclusive merchandise and beers. People loved it.”
If this sounds like a lot of work, that’s because it is. BrewDog, one of the larger crowd-funded breweries, has an entire team dedicated to investor relations, because the reputation stakes are so high. In the US, where craft brewers have been using crowdfunding for considerably longer than here in the UK, several breweries have taken heavy fire after disgruntled investors felt they hadn’t delivered on their promises. Even the much smaller Toast Ale and Hop Stuff invest significant amounts of time and resources in two-way communication with their investor communities; something anyone considering the crowdfunding route would be well advised to factor into their plans.
“Crowdfunding isn’t free money – you have to work for it,” confirms Rob. “It means being on top of social media and PR, getting all your investor material ready and presented in an attractive way, making sure your business plan is rock-solid… It’s stressful too; you’ll find yourself constantly refreshing to page to find out if anyone has pledged. Those first few investors can take a while, but once the momentum arrives it’s a great feeling.”
As much as it can be a double-edged sword though, crowdfunding remains a uniquely direct way for breweries to connect with their fans. For those who get it right, it can be a rich source of cashflow at a time when it’s badly needed. More importantly though, it can be a recruiting tool for supporters who will stand by the brand whatever way the fickle winds of craft beer fashion may blow.
“This isn’tt just about the money,” says Sarah. “It’s about growing a global community of people who care about amazing craft beer a much as we do, and giving them the opportunity to join us on our journey. They are our biggest advocates as well as our harshest critics, all because they really really care. That’s unrivalled by anything else. Nothing can give you a bought-in community of like-minded individuals like crowdfunding can.”
Around 50% of crowdfunding pitches do not reach their target, so for any brewing businesses considering this route, they need consider how they can maximise the opportunity of pitching to a crowd of potential investors. Here are Crowdcube’s top tips for a successful crowdfunding campaign:
1. Get investment ready
Before pitching for investment get your paperwork in order. Ensure you have a detailed business plan and financial forecasts readily available so investors can evaluate your business and make a fully informed decision about investing.
2. Create a killer pitch
When it comes to writing a pitch, it is a case of quality over quantity. So start with a crystal clear proposition, which concisely outlines what makes your business unique, the potential market opportunity and what the strategy for growth is. While investors will also want to know when and how they could see a return, many want to be part of a business’s story, so don’t forget to tell investors what the investment could help you achieve.
3. Engage your own crowd
Breweries, which already have a network of existing customers and suppliers, are at an advantage, so engage your existing community and offer them the opportunity to invest. Reaching the first 10% of an investment target is the hardest part, so breweries that are able to leverage existing networks to raise investment and get early momentum are more likely to succeed.
4. Promote your pitch with passion
The most successful crowdfunding campaigns are those that have been supported by proactive promotional activity. Breweries will need to make is an investment of effort and time, as most promotional activity can be done at a relatively low cost. For example, inviting potential investors along to meet the brewers, as well as promotions such as posters, beer mats and employee t-shirts and emails to existing customers.
5. Maintain investor relationships
Once you’ve reached your investment target be sure to maintain a relationship with investors by keeping them up to date on how the business is progressing. Not only are they investors but they are potential customers, brand advocates, business contacts and even potential suppliers or partners, so it’s important to keep them happy and engaged.
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