Equity for Chumps: BrewDog’s Crowdfunding Model a Dubious Deal for American Investors

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In June, a group of former employees of the Scottish craft brewer BrewDog published an open letter accusing the firm of behaving less like a “punk” craft outfit and more like the rapacious multinational macrobrewers it set out to counter. “Growth, at all costs, has always been perceived as the number one focus for the company, and the fuel you have used to achieve it is controversy,” read the letter, which has since been signed by over 300 former workers from the rapidly expanding craft brewer. Calling themselves “Punks with a Purpose,” the authors detailed a “rotten” company culture dominated by fear, greed, and exploitation. “In a post-truth world, you have allowed the ends to justify the means, time and time again,” they said.

The letter marked the latest scandal in a decade-long cloud that stretches over BrewDog’s rise to global prominence in the craft beer industry. Despite a steady drumbeat of controversies, BrewDog, founded in 2007 outside of Aberdeen by partners James Watt and Martin Dickie, has thrived. It is Europe’s leading craft brewer, and its bars and brewing operations can now be found in the United States, Germany, and Australia. The “Good Ship BrewDog,” as Watt (a former fishing captain) is fond of calling it, hopes to build a new brewery in Asia as soon as next year.

All the expansion comes at a cost. If BrewDog’s former workers are to be believed, the company’s remarkable rise has been paid for with their blood, sweat, and tears. More literally, it’s been paid for with money, over $100 million of which has come from sales of shares to rank-and-file drinkers. These “Equity Punks,” as they’re called, have bought into BrewDog’s disruptive outsider model via its powerful, industry-leading crowdfunding program known as Equity for Punks (EFP), with average-Joe fans purchasing stock to help underwrite BrewDog’s international expansion. The program, which has delivered a consistent stream of cash to BrewDog’s coffers nearly annually since its inaugural run over a decade ago, is integral to the enterprise. Watt, the company’s chief executive and frontman, is fond of saying that equity punks are BrewDog’s “heart and soul,” but they also help line its wallet.

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Currently, the company is running two EFP crowdfunding campaigns, one in the U.K. and one in the U.S. Both are named “Tomorrow,” a nod to the company’s promise to use the money raised to reduce the environmental impact of its operations. Watt and Dickie have said this will be its last before the Scottish parent company, BrewDog public limited company (plc), becomes a publicly traded company.

What they don’t say — not loudly, at least — is that new investors, especially in the U.S., stand very little chance of seeing a return on their investment if the Scottish brewer goes public. But that is what BrewDog’s financial filings and EFP materials suggest. Those documents indicate that the company is overvalued, and that a major private equity firm’s holdings will cut into plc punks’ returns at an IPO unless the company can keep growing at industry-beating rates. Meanwhile, the structure of its U.S. subsidiary allows BrewDog proper, and its CEO, to grab low-risk cash from credulous American equity punks beguiled by the company’s “anti-business business model” without offering them any clear way of participating in any future public listing.

“It’s just a really bad situation for those punks,” remarked one independent analyst after examining the current American EFP offering.

BrewDog declined to make an executive available to interview for this story. The self-styled renegade brewer also refused to answer any of the 20 detailed questions VinePair sent via email about its EFP program, U.S. subsidiary, and other relevant aspects of its business. But VinePair’s reporting shows that even as the Scottish brewer touts its growth and stokes anticipation of an IPO, BrewDog’s investment offer to American fans is long on risk, short on reward, and overpriced to boot. Here’s a closer look at our findings.

The EFP “secret weapon”

Many have pointed out the naked contradiction of a company marketing itself as “punk” while accepting private-equity funding and engaging in sophisticated financial maneuvers. But few have ever reported on just how sophisticated those maneuvers are.

BrewDog’s ability to convert fans and drinkers into investors who’ll fund its exploits dates back to 2009. After lying their way into a bank loan the year prior, Watt and Dickie turned to crowdfunding to finance the then-small brewery’s growth, bringing in a reported $975,000 from 1,330 investors. This was EFP I, and more would soon follow. Since then, BrewDog has run such a raise roughly every year, refining the model with which it has convinced 200,000 fans to exchange hard-earned cash for shares in the company. Today, EFP is a powerful growth engine that Forbes deputy business editor Kristin Stoller dubbed BrewDog’s “secret weapon.” Secret, the program is not. But it is formidable. At publication, the company’s current EFP rounds in the U.S. and U.K. have raised $585,000 and £27.5 million, respectively; a conservative tally of funds raised in 11 EFP rounds to date puts the total take for BrewDog plc, and its American and Australian subsidiaries, well north of $100 million. “It’s an amazing business model because we don’t see [equity punks] as investors,” Watt told Stoller in January 2020. “They’re advocates, they’re ambassadors, they’re on this journey with us.”

Equity punks are investors by definition. But Watt is right that EFP is an amazing business model. In a world where anyone with a smartphone can easily invest in highly regulated, easily traded securities on mainstream financial exchanges, the fact that BrewDog has been able to convince investors to buy their less regulated, illiquid shares is a testament to the company’s capacity for self-mythology. But it’s not just slick marketing that lures potential investors in. The company used to hawk the shares alongside beers in its bars, and has long offered a variety of perks to equity punks that increase with the size of investment. These bonuses range from very basic (a free beer on your birthday, discounts at the company’s 100-plus global bars) to merchandise, more booze, and exclusive experiences.

For example, a U.S. investor who buys a single $60 share in the American firm today gets a lifetime discount of 5 percent at BrewDog’s taprooms and online stores; if they buy $3,000 worth of shares, they’re entitled to a YETI cooler full of BrewDog beer, among other beer and swag. Of course, equity punks would be hard-pressed to recoup their investment from these perks alone.They’d have to knock back $1,200 worth of BrewDog food and drink at one of the company’s U.S. taprooms (or run up that tab at the company’s online store) to clear the $60 share price. If it’s YETIs they’re after, they could buy 10 of the brand’s popular Tundra 35 coolers for $3,000, and still have enough cash left over for oodles of BrewDog beer and merch, too. But for potential punks intrigued by the idea of investing in a brewery, these loyalty club-style perks sweeten the deal. Or at least they’re supposed to.

Posts on the shareholders-only, company-run BrewDog EFP forum, reviewed by VinePair, suggest that the brewer has at times struggled to deliver on the perks it has promised its punks. A November 2020 thread has become a 2,000-posts-and-counting clearinghouse for equity punks’ grievances, ranging from long-delayed deliveries and reduced “lifetime” discounts, to poor communication from the company in which they’ve invested. “By the way still no EFP beer after waiting nearly 2 years,” posted a frustrated punk. “For a beer company that makes beer, wastes beer, pours away beer, makes more beer … is it really too much to send said beer to it’s [sic] shareholders as promised?”

If the perk problems become too much to bear, punks have just two options to cash out: find someone willing to buy their shares, or engage a dedicated third-party broker that specializes in liquidating BrewDog stock….

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