The fintech revolution might be a threat to major financial institutions, but it’s creating new ways for startups and growing businesses to raise capital and deepen their relationships with customers.
The latest example of that: BrewDog, Scotland’s largest independent brewery, is using a new crowdfunding law to raise money for its US expansion.
Thanks to Regulation A+, which contains new rules adopted by the United States Securities & Exchange Commission that allow companies to raise up to $50m from non-accredited investors in what have been described as “mini IPOs,” BrewDog has launched a crowdfunding campaign called Equity for Punks USA.
Modeled after BrewDog’s four rounds of equity crowdfunding in the UK, which saw over 40,000 individuals invest, BrewDog’s American crowdfunding campaign represents one of the highest-profile Regulation A+ offerings yet.
It also demonstrates how companies can now tap small investors in the world’s most attractive consumer market without going the IPO route.
Under Equity for Punks USA, American investors can purchase shares in BrewDog’s US business for $47.50. The minimum investment is two shares.
According to the company’s prospectus:
With BrewDog USA we plan to combine the experience and success of our explosive European craft brewery with the world’s largest craft beer market.
BrewDog beers have been available in the US in limited quantities since 2008, but our Scottish brewery has simply not been able to keep up with the demand for our beers in America.
What’s in it for shareholders?
BrewDog is in the process of building a brewery outside of Columbus, Ohio and is “close to finalizing distribution deals with many craft beer distributors in the US ready and waiting for our beers.”
Craft beer is expected to be a $22bn a year business in the US by 2020, so if BrewDog can replicate its British success in the US, it will have a lucrative business on its hands.
But potential shareholders looking to profit from Equity for Punks would seem to face a high bar.
As with BrewDog’s Equity for Punks IV crowdfunding campaign, the valuation of BrewDog’s American operation implied by its Regulation A+ offering – $250m – is quite high, especially when one considers that the American business has not yet launched and will face fierce competition when it does.
But even equity crowdfunding isn’t always motivated by the desire to profit.
BrewDog is offering Equity for Punks USA shareholders a slew of benefits that could make the offering appealing to BrewDog fans and customers.
These include a 5% discount in all BrewDog bars globally, a 20% lifetime discount in the BrewDog USA shop, free tours and an invite to BrewDog’s shareholder-only American beer, music and food festival.
Additionally, investors who invest $500 or more will receive additional benefits.
Will such benefits lure investors?
While BrewDog’s Equity for Punks IV crowdfunding campaign fell short of its £25m funding target, perhaps due in part to the valuation, it did raise £19m.
This suggests that as equity crowdfunding gets underway in the US, companies that take advantage of Regulation A+ and Title III of the JOBS Act will want to think about prospective shareholders differently and develop shareholder benefits that encourage investors to become loyal customers and brand ambassadors.
The impact on Wall Street
Equity crowdfunding could add fuel to the crowdfunding fire, especially in light of the fact that many young companies have been shut out of the IPO market in recent years due to regulations like Sarbanes-Oxley.
Given the shareholder-customer-evangelist dynamic, financial services firms involved in raising capital for companies may also need to adapt as equity crowdfunding in the US gains a foothold.
Already, WR Hambrecht + Co, an investment bank founded by the investment banker who helped take companies like Apple, Adobe and Genentech public, is betting that the regulation making BrewDog’s Equity for Punks USA offering possible will become an increasingly important part of how growth companies will raise capital.
Expect upstarts and other established investment banks to crowd into the equity crowdfunding space as it becomes a common way for companies to raise capital and build relationships with their most loyal customers.