Craft beer’s a crowd-puller
February 17, 2016
Could crowdfunding be the next big thing in the consumer goods market? The craft beer sector suggests it might. When AB InBev bought Camden Town Brewery for a rumoured £85m it caused almost as much froth in the beer market as AB InBev’s proposed acquisition of SABMiller, though admittedly for very different reasons. We’ve all watched crowdfunding go mainstream over the last year or so, but for every Oculus Rift fairy tale (a Virtual Reality headset bought by Facebook for $2bn) there have been hundreds of unhappy endings where investors made virtually nothing or lost all their money, as the UK Financial Conduct Authority is quick to point out. But the Camden Town deal was the first example of a UK consumer goods company that went from small-scale crowdfunding to a major trade sale – and they did it in under a year. So is this the start of something big?
It’s easy to see why crowdfunding appeals to consumer goods companies. Crowdfunding is essentially a consumer market, so consumer brands are ideally placed to appeal to that investor base. Money can be raised at relatively little cost, and involve a tiny fraction of the equity a VC or business angel would demand. And managed well, the fundraising exercise doubles as a targeted marketing campaign - every new investor is a potential brand champion, with their loyalty reinforced both by a sense of ownership, and by exclusive discounts and special promotions.
The UK crowdfunding market is still small at the moment, and some of the biggest successes so far have been in the drinks sector, especially craft brewing – not just Camden Town, but Chapel Down, and Brewdog, which has done several rounds of crowdfunding for both equity and bonds. Brewdog has been particularly adept at using the crowdfunding mechanism to build a consumer base, offering bigger discounts to bigger shareholders, and taking these discounts into account when quantifying the return on the shares. And even with those discounts, the healthy margins on craft beer mean that Brewdog is still getting a good deal. We have also seen examples of non-equity crowdfunding in the drinks sector, for example Naked Wines. Naked raises capital to invest in wineries and in return investors get discounts on wines, rather than an equity stake. This succesful model led to the acquisition by Majestic Wines in 2015 for £70m. The scope for other consumer goods companies to do the same is clearly there, which means that, yes, crowdfunding could well become a significant disrupter, most obviously for the established VCs and business angels.
On the other hand, investors are having to pay a high price for the stakes they buy. Brewdog’s latest round valued the business in excess of 60x historic EBITDA, which is many times higher than the 10x to 20x multiples that would be typical for listed companies in the sector. But then again, the price reportedly paid for Camden Town by AB InBev implied a similar multiple, which translated to a 68% return on investment for its canny crowd funders according to the FT. So the real question is, was Camden Town an exception or the first of a new rule? With only one example to go on it’s far too early to say, but definitely a case of Watch This Space…
To learn more about some of the key trends in the Consumer Goods sector, read our latest edition of 'the Consumer'.
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