HOW BREWDOG CHANGED THE FACE OF FINANCING
bankers” and venture capitalists that it’s apparently so eager to avoid. “We spoke to a few VCs and had a lot of offers,” says Watt. “It just feels like selling your soul to the devil – there are so many conditions, so many constraints.”
But Watt’s mistrust of the “men in suits” doesn’t mean that he’s content to explore other funding mechanisms. A generic crowd-funding campaign organised through a platform such as Kickstarter would have been one way of getting hold of the cash the company needs, but it was another option that he and co-founder Martin Dickie decided to avoid.
“There are challenges facing crowd-funding,” explains Watt. “If there’s no real regulation, the more companies that do it, the higher the risk of it getting a bad reputation. That could kill this thing that has the potential to revolutionise business before it’s even got out of the starting blocks.”
As a result, Brewdog has spent time and money doing “things that we don’t strictly have to do – verification, audited accounts and making sure the scheme adheres to Section 21 of the Financial Services Act”.
“In crowd-funding there are grey areas, but we wanted to do everything properly and give investors comfort,” Watt says.
That might not sound very
The founders of Brewdog have – at one time or another – held the record for the world’s strongest beer (the 55pc ABV End of History), driven a tank through the City of London and railed against the “self-important pen-pushers at the [Advertising Standards Authority] in their Burton suits”.
It’s no surprise, then, that when it comes to fundraising – and generating £4m for ambitious expansion plans – the independent company has elected to beat a somewhat different path once more.
The business, which sold its first bottle of beer in 2007 and opened its first bar three years later, has invited the public to invest in its own “equity for punks” scheme for the third time, in a share offer that values the company at £111m.
Some of the capital (£1.5m, if all 42,105 shares are sold at £95 before the closing date in January) will be used to scale up production at the brewery in Ellon, near Aberdeen. This, the company says, will enable it to quench customers’ thirst for its specialist craft beers – demand currently outstrips supply by 35pc.
Funds will also be used to add to Brewdog’s portfolio of bars. It currently has 11 in the UK and one in Stockholm, with five others planned for the UK as well as Tokyo, New Delhi, Sao Paulo, Brussels, Rome and Berlin. The brand will also attempt to break into America next year.
According to the company’s 31-year-old frontman, James Watt, the fundraising scheme, which has prompted 5,500 people to invest £2.5m since it opened in June, has been developed to fit with the ethos of the business.
“It’s about so much more than raising finance,” Watt says, perched on a bar stool in Brewdog’s glass-fronted Shoreditch outpost. “It builds this culture and community around what we do, locks in our best customers and takes advantage of the interconnectivity that social media allows you to have with your audience.”
Crucially, it also allows the company to be less reliant on the “pretentious investment
We spoke to a few VC's- it feels like selling your soul to the evil
“punk”, but Watt also reveals that, somewhat ironically, the company’s unorthodox way of doing things has actually opened the door to relationships with the banks. “Once you have capital of your own, it’s much easier to get banks to match funding. It opens up bank finance that wouldn’t have been available without it.”
But alongside this pragmatism, could there be a conflict between Brewdog’s upstart image and its ambitions for growth – one that could limit the potential upside for investors?
Watt says that he thinks 20 is about the right number of bars for the UK – enough to be accessible without being ubiquitous – and makes the point that Brewdog’s current share of the UK beer market is 0.01pc. “Maybe we’ll have an issue if we hit half a per cent or one per cent, which is 50 or 100 times bigger than we are now, but we’re still so niche.”
Monthly sales currently stand at around £1.75m, and have been growing exponentially. Annual growth has averaged 167pc over the past five years and the business has been the fastest-growing food and drinks manufacturer in the UK for the past three years.
It will look to broaden its horizons – and create another revenue stream – by opening a beer academy in East London’s Dalston that will teach people about brewing and offer the chance to become an accredited beer sommelier.
“The industry is changing,” says Watt. “But it’s still dominated by the big industrial companies who produce the lowest common denominator – that people drink for the effect, not the experience. We want to elevate the status of beer.”
All this, along with a booming craft beer culture in the US (where a beer-based TV series hosted by Watt and Dickie will be broadcast this autumn), suggests that there is further scope for the company to grow, even if Watt himself admits that the current valuation (up from £28m in 2011) is “punchy”.
For now, equity-holding “punks” are unable to cash in on the company’s success. But if all goes to plan, Brewdog will introduce a share-trading facility to its website in 2015 to allow investors to buy and sell at will. Further down the line, a bona fide public listing might be an option. With a 38pc and 32pc holding respectively, this could make Watt and Dickie extremely wealthy. But neither will commit to a time frame just yet.
Asked which businesses he admires, Watt, who left a job as a trainee solicitor to haul herring and mackerel out of the North Atlantic before launching Brewdog, gives an instructive reply. He liked the online clothing business Zappos with its commitment to customer service and the way it treated its staff, but went off the company once it was sold to Amazon.
He also admired the alternative, irreverent positioning of Innocent. “But only in the early days,” he adds. “After the sell-out to Coca-Cola, it all rings hollow.”
So, can Watt rule out anything similar ever happening to Brewdog? “It would go against everything we’ve done,” he says. “I can think of nothing worse than doing that and sitting on a beach somewhere while some idiot in a suit tears to pieces everything that we’ve worked so hard to build. That’s not why we’re doing it.”
Brewdog founders James Watt, left, and Martin Dickie. Demand for the company’s craft beers outstrips supply by 35pc