The genius of Brewdog
Brewdog, the fast-growing Scottish brewer based just outside Aberdeen, is pulling in the funds with its unorthodox crowdfunding exercise – and showing marketing genius too. Andrew Davis explains
Brewdog employs around 300 people and makes a variety of beers and ales that are heavy on both artisan purism – it is a leading part of the rapidly expanding craft beer movement – and on distinctive and unorthodox marketing. The company is seeking to raise up to £25m direct from retail investors via an equity crowdfunding offer and announced in May that it had passed the £5m mark after just 20 days. It celebrated by dropping stuffed ‘fat cats’ with parachutes over the City of London, saying it had gone “behind enemy lines to conduct a symbolic gesture that heralds the extinction of the City fat cat. This is our way of showcasing the viability of alternative forms of finance. It is our own anti-propaganda propaganda.”
£25m
The amount Brewdog seeks to raise direct from retail investors via an equity crowdfunding offer
Isn’t the posturing a bit tiresome?Possibly, but don’t be too hasty to write Brewdog off as a bunch of loud-mouthed attention seekers riding for a fall – if nothing else, no one can accuse them of lacking ambition or chutzpah. The company, which was established by James Watt and Martin Dicke in 2007, already has 14,500 shareholders and is raising its fourth round of equity direct from the public in an offer that will remain open until 20 April, 2016. Bagging a fifth of its target in less than three weeks is impressive and suggests it might just go all the way. If it does, this will be by far the biggest equity fundraising direct from the crowd in this country, and quite possibly in any other.
Brewdog deserves credit for transparency as well. Given the size of its fundraising round, the company has had to produce a full prospectus and disclose detailed, legally vetted information to potential investors.
What the financials revealThe company is aiming to raise £24.8m net of about £200,000 in costs at a pre-money valuation of £280.3m. In 2014, Brewdog had net profits of £2.65m, up 19.5% on 2013. So assuming it raises the full £24.8m, its 2014 earnings per share on a fully diluted basis would have been 41.25p. Given the offer price of £47.50 a share, this suggests a multiple of 115 times last year’s earnings. If net profits grow another 20%, that drops to a still-giddy 96 times for 2015. This is a fast-growing company, for sure, (revenues rose 70% in 2013 and 63% in 2014), but that’s still a hell of a multiple to pay.
The prospectus also makes clear that financing rapid growth in a business like brewing (as well as opening branded bars, Brewdog’s other priority) is very capital intensive. The company invested nearly £5.5m in 2014 and had a net cash outflow of just over £1m. By the year-end it had liabilities falling due within a year of just over £7.8m – almost double the total a year earlier – and cash in the bank of £2.23m. To keep growing, it clearly needs a lot more money.
70%
The percentage that Brewdog's revenues rose by in 2013
In 2014, revenues increased by
63%
It’s expensive – but that’s not unusualYou can certainly criticise Brewdog’s offering for being expensive. But the same could also be said of AO World, the online appliance retailer that sold its shares to institutional investors last year at an even more stratospheric valuation. You might also criticise it for having two share classes, A shares for the founders that give them overwhelming voting control and B shares for the crowd that offer discounts on Brewdog’s products but little or no influence over its governance. But that simply makes Brewdog less radical than its founders suggest, following as it does the pattern set by many of the old brewing dynasties who used dual share classes to preserve the family’s control of businesses that needed a lot of capital to grow. The vestiges of that system are still visible on the public markets today: Young & Co’s Brewery, for example.
A genius for marketingBrewdog calls its crowdfunding share offers Equity for Punks and that provides the most useful clue as to what’s going on here. Choosing a name like that will naturally put off a lot of ‘serious investors’ and attract those who buy into the company’s ethos and marketing. And that’s the whole point – these shares may or may not be an astute financial investment, but Brewdog has definitely made them a ‘positional good’ that identifies their buyer as part of its anti-establishment clique.
If it can persuade beer enthusiasts to regard shares that are painfully expensive on conventional measures as a desirable extension of their relationship with the brand, then Brewdog clearly has something going for it – a genius for marketing and publicity. In a consumer goods business such as brewing, there are few skills more important than this. Perhaps those retail investors aren’t so stupid after all.
The original version of this article was published in the June 2015 print edition of the Review.