Raising equity its own way

They want to raise about £2.2 million, but instead of asking venture capitalists for funding or floating on AIM, Scottish brewer Brewdog has chosen instead to run its own online initial public offering, Equity for Punks II.

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They want to raise about £2.2 million, but instead of asking venture capitalists for funding or floating on AIM, Scottish brewer Brewdog has chosen instead to run its own online initial public offering, Equity for Punks II.

They want to raise about £2.2 million to ramp-up production and grow their company, but instead of asking venture capitalists for funding or floating on AIM, Scottish brewer Brewdog has chosen instead to run its own online initial public offering.

It is not the first time the company, which was founded by James Watt and Martin Dickie in April 2007, has embarked on the innovative fundraising model. In 2009, the company secured growth capital by putting out their message to the general public in a process called, Equity for Punks.

In July this year, BrewDog launched Equity for Punks II, a fundraising to raise money for the roll-out of BrewDog branded bars and the construction of an eco brewery near Aberdeen to enable the company to ramp-up production. The new share offering, which will mostly be completed online, will see up to 90,000 New B Shares offered representing an 8 per cent stake in BrewDog if all the shares on offer are taken up.

The general people can buy New B Shares at four-a-time for £95. The offer opened on 8 July this year and will close on 6 January 2012.

Nicola Horton, corporate finance partner at Crowe Clark Whitehill, who is advising BrewDog on the fundraising, explains to GrowthBusiness the innovative concept, why the company has chosen this route and whether other companies could follow.

Why have BrewDog chosen this method of fundraising?

“It is because as a private company, what are the alternatives? Go to venture capitalists where you are going to have to give up a significant portion of your business or look at something like an AIM float, and while they’re publicly said an AIM float is not out of the question in a few years time, they are not ready for that yet.

“Also, given the associated costs of raising this sort of money, a couple of million pounds, on AIM or on PLUS, it is far more cost-effective to follow this route.”

Could you walk me through how the process works?

“It’s a financial promotion, which has to be approved by a FSA-regulated entity, but then it is put up on the company’s website, and also via online trading business ComputerShare.

“The company itself takes charge of the marketing, and, in this case, BrewDog have managed to get a lot of press. Companies have to let potentially interested people know that the offer is available, and if they log on, read the document, and like what they see, they can apply to purchase shares.

“Where it is different from other public offerings is this sort of thing is normally done through independent financial advisers or brokers. With BrewDogs, it is very much the company sourcing the investment itself, with the assistance of professional advisers who check that the documentation is all okay.”

When it comes to these investors, are they grouped into one, or is it each investor taking a share?

“Each investor is applying on their own behalf.”

How big are the investments?

“The minimum subscription is £95 for four shares. I believe a number of the applications have been at that level, but other people are committing more substantial amounts.

“Applications are currently coming thick and fast, so chances are the offer will close before the end date.”

When investors want to sell their shares, how easy are they dispose of?

“That’s the drawback at the moment. There is no market for these shares currently. In fact part of the restrictions on this offer, because of the state that BrewDog is in its development, means that the shares can’t be sold for a certain period anyway. The intention will be, in due course, to facilitate that market between shares. The company have talked about potentially listing on AIM in the future, but for now they are a hold [investment].”

What is the company’s target?

“The maximum money they are looking to raise is about £2.2 million. What they are looking to do is build a new brewery. They are effectively running up against capacity issues in what they have currently, and what they are looking to do is build a new and improved brewery to increase capacity.”

The model sounds very similar to other crowdfunding models that are currently on the market.

“It is, but with a regulated document and using a familiar point-of-access like ComputerShare, so it’s not just crowdsourcing via community or via the internet with an unregulated document which people have gotten into trouble with in the past. This offer has gone through the appropriate procedures and investor protection will be there.”

Is this a fundraising option that other companies should consider?

“It is definitely another route that companies could consider in terms of raising money, but what they have to consider is that they have to actively market it. There is no point putting together a document and sticking it on your website and then just thinking, ‘if you build it they will come’.

“You have to let people know that this opportunity to invest is out there – that is where BrewDog have been really good. They have received an awful lot of press coverage because they are good are marketing and PR, but that is really the key thing, otherwise how would a reasonable investor know that this opportunity exists?”

How rare is this plan?

“It is quite unusual. Certainly talking to ComputerShare, they had only done two or three similar things in the past whereby the application is all via the internet for an unlisted company with a retail share offering. It is quite unusual, but it doesn’t mean other companies shouldn’t consider doing it.

“I would say it is a quite cost-effective way of raising money and that is the main thing that people are concerned about. But it has to be a proposition that a large mass of people could be interested in, or could speak to a specialist community.

“In this case, it is for a craft brewery so there is a natural constituency of people who are interested in real ale or craft ale – it needs to be something that speaks to people and speaks to their passion. It’s not just a financial investment; it needs to offer more than that.

“And that’s the other thing with the BrewDog offer: it doesn’t just offer shares in the company. It says ‘get discounts on our beers’, ‘get a life-time discount in our bars’, ‘be part of our company and come along to our AGM’, ‘tell us what beers you like’ – it’s all about becoming a member of a club or a society, as well as making a financial investment.”

Has there been much interest from other companies seeking to follow the mode?

“On the back of this one, I have had quite a few people contact me about doing something similar. It’s a handful, but I am in progressive conversations with people about the model.

“I think you’ll see more of this type of fundraising occurring going forward because it used to be, up until the end of July, you could only raise up to the equivalent of €2.5 million via this route. This limit was increased to €5 million at the end of July as part of the changes to the Prospectus Directive. The fact that you can now raise up to €5 million is also going to make it more interesting.”

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