In the United States, equity crowdfunding is still on hold as the SEC hashes out regulations following the passage of the JOBS Act. Meanwhile, our neighbors on the other side of the pond have already started allowing the crowd to get a piece of new ventures. Here at Launcht we’re keeping a bead on equity funding in the UK. Their experiences can provide valuable insight as entrepreneurs and would-be investors gear up, so that when the bell rings, we’ll all be ready.
One of the hottest crowdfunding stories from the past week is the burgeoning success of UK craft brewery BrewDog, which is seeking £4 million through equity share offerings, following a similar £2 million round in 2011. Their current campaign is on the fast track to success after raising over £1 million on day one. Clearly, investors believe in BrewDog.
This is, on one level, surprising. BrewDog’s owners have publicly stated their distaste for big banks and VC firms in addition to indicating that they have little to no interest in driving towards an IPO. All this calls into question how shareholders could ever hope to see value in their investment, barring a (fairly unlikely) acquisition several years down the line. How can potential investors justify purchasing equity when there is no clear exit strategy and their individual voices are too small to push for a buyout?
To respond to this issue, BrewDog learned from the successes of perk-based crowdfunding campaigns, and created a mixed reward system. £95 buys you one share in BrewDog, but also gets you a 5% lifetime discount on suds at any one of their 11 pub locations, plus a £10 beer voucher. Investors also get increasing discounts at the brand’s online stores for purchasing more shares. A purchase of fourteen cases is enough to make it worth your while.
BrewDog’s solution is crowdfunding at its best, and it offers a clever solution to a bigger problem with equity crowdfunding: larger VC investors centralize shareholder control, and that power is lost when shares are spread among so many investors, obstructing the pathway to a profitable exit strategy. The crowdfunding-inspired answer: offer perks (like cheap beer) that might not be enough to sway a big time investor, but help justify a small-scale equity purchase.
BrewDog’s model may be one for entrepreneurs to follow as they seek to demonstrate value to shareholders. If you can’t win ‘em with equity alone, win ‘em with beer.