Advertisement
Life

Invested Money in a Craft Beer Company? We Have Some Bad News

The crowdfunding boom among breweries in the UK is leaving a sour taste in many investors' mouths.

by Rob Eveleigh; illustrated by Alex Jenkins
21 November 2019, 9:30am

For a few months, it looked like Simon Young’s minuscule stake in Britain’s craft beer boom was building into a tidy little nest egg. The Suffolk-based copywriter spent years trickling investment – £1,500 – into south London brewery Hop Stuff, and his 0.3 percent share in its nascent success was worth a reported £60,000. Every Hop Stuff pint he supped was drinking in a little bit more of the good times to come.

Then, like a Friday lunchtime sesh degenerating in queasy slow motion to 4AM gutter oblivion, it all went wrong. The writing was quite literally on the wall – in the form of a forfeiture notice from Hop Stuff landlord for unpaid rent.

Weeks later – in July this year – administrators took over, and the 1,300 or so investors who crowdfunded city banker turned brewery boss James Yeamons’ pipe dreams to the tune of £1.5 million were left with nothing.

As a final fuck-you, the Hop Stuff brand, brewery and three taprooms were snapped up for £679,000 by Molson-Coors, the Canadian firm behind Carling – precisely the kind of global mega-corp that riles craft beer enthusiasts.

“I was gutted,” recalls Simon. “For me, it wasn’t just a financial investment – I’m a craft beer fan and I’d bought into the whole idea, being part of the journey. It was nice to be able to say to my mates ‘I own a bit of this brewery’.”

You can’t move for the number of craft beers on tap in certain pubs. Brewery openings slowed dramatically in 2018, but the last five years has seen nearly 1,000 new players in the UK. These might taste better than a watery Budweiser, but the craft beer boom has exacted its fair share of victims, too.

With banks reluctant to lend to small businesses, many have used equity crowdfunding (ECF) to tap up supporters and fund expansion. Investing anything from the cost of a large round to thousands of pounds, ECF means backers get shares in the business, plus a chaser of perks like bar tabs, brewery tours and merch. Gear like hats, hoodies and keyrings helps bolster the culture of brewery fandom. Unlike stock market shares, there’s no way to trade ECF shares publicly, so it can be hard to value them – but for most craft beer investors, it’s rarely about the money.

“One of the wonderful things about the craft beer scene is the sense of community it offers, and drinkers can feel incredibly loyal towards their favourite brewery,” says Jen Ferguson, co-owner of East Dulwich-based bottle shop, Hop Burns & Black. “Chucking a bit of cash into a crowdfund offers them the chance to feel like they're making a difference to a business they feel connected to.”

Brewdog started the trend back in 2010 with their Equity for Punks crowdfund. They’ve gone on to net £74 million from their fans, crowdfunding the firm to a global empire worth £1.7 billion. Attempts to emulate the model have met with varying degrees of success and costly failure.

Rob Murray Brown is a businessman who runs an ECF database – ecf.buzz – where he scrutinises the financial minutiae of campaigns, and calls out the faintest whiff of bullshit.

“The beer industry is probably the most populated sector in the ECF world, and you get lots of people doing it who haven't got a clue,” he says. “Hobby brewers might know how to brew a nice pint, but a lot of them don’t know how to run a business. And they’re securing free money – no one’s coming after them if it all goes wrong.”

One such hobby brewer who hoovered up close to £1 million in two campaigns on Crowdcube, the UK’s largest ECF platform, is ex-commercial lawyer Gary Ward – formerly of Redchurch Brewery, founded in Bethnal Green, London.

He expanded to a new site in Harlow, Essex, in 2016 off the back of £500,000 crowdfund. A year later, he scored another £400,000 to “accelerate ambitious plans and satisfy demand”, according to a Crowdcube campaign.

But investors got nothing when Redchurch collapsed in May, one of a slew catastrophic failures to shake the beer world in 2019. The Harlow site was bought out of administration for £240,000 by new owners – who had incorporated their new firm in the name Redchurch (London) Brewery Ltd at Companies House two months prior, and is still trading under its almost identical new guise. To add insult to injury, VICE has learned that the Bethnal Green brewery and associated assets were bought from administrators by Gary Ward himself. He paid just £10,000 plus VAT and appears to be having another stab at brewing under the guise of Sundays Brew Co.

Sundays Brew eBay listing
The SundaysBrew eBay listing for used brewing kit. Screenshot via eBay

As VICE went to press, an eBay account registered as SundaysBrew and listed with the same mobile number on Sundays Brew Co’s Facebook page was flogging off old brewing kit on the auction site for £15,000.

Pete* says he lost all of his £1,000 investment in the company. He handed VICE an open letter shared in an online beer chat group, supposedly from an ex-employee who worked for the original Redchurch. It painted a bleak picture of chaotic mismanagement, and claimed investors’ cash was squandered on “stereo equipment, fast cars and partying.”

Interestingly, the other eBay listings for SundaysBrew include a used Mercedes Benz and four Tannoy Puma speakers – and Gary Ward is listed as the business seller for both. Gary did not respond to multiple requests for comment that VICE made via his mobile number, Facebook and eBay.

Sundays Brew eBay listing for speakers
The eBay listing for used speakers. Screenshot via eBay

“Redchurch had zero engagement with their shareholders,” Pete laments. “They’re a classic example of how not to run a brewery crowdfunding campaign. But I always knew there was a risk – there’s no point being dramatic and crying over it. You win some, you lose some.”

He still has several thousand pounds invested in craft breweries that are trading well, but stresses share value isn’t his main focus.

“I believe in the products and want to encourage them,” he says. “And I don’t want the big industrial brewers cornering the market.”

But it’s exactly this sentiment – giving the little guy a leg up – that means crowdfunding catastrophes which play into the hands of large corporations can leave a bitter taste.

London-based wholesaler, Bottle Shop, went bust in March after raising £400,000 through Crowdcube to refrigerate their entire warehouse, with owner Andrew Morgan admitting his commitment to chilled distribution “was probably the undoing of the business”. The infrastructure paid for by investors – who lost everything – is now run as Beer Hawk Fresh, a distributor owned by global drinks conglomerate Anheuser-Busch InBev (AB InBev), the world’s largest brewer. Andrew Morgan has landed a new role – helming Beer Hawk Fresh.

Meanwhile Camden Brewery provoked Twitter controversy after raising £2.75 million on Crowdcube only to sell out to AB InBev a mere eight months later. A return of almost 70 percent sweetened the deal for investors, and although it secured Camden’s future, many saw the sale as a dilution of craft beer values.

Jen says: “The absolute last place investors would want to see their money end up is in the pockets of these global behemoths – organisations that pose a real and significant threat to the craft beer scene.”

Crowdcube say that 35 breweries – almost 80 percent of the total funded through the platform – are still trading, and point out that while 50 percent of UK start-ups as a whole will founder inside three years, the failure rate for ECF businesses is just 21 percent.

“Before people like us pulled down the barriers for producers to fulfil their ambitions, the craft beer industry was wildly underserved by angel and institutional investors,” they told VICE.

Serial investor and brewery owner Combie Cryan, who has small sums in around 30 breweries, agrees. He finds crowdfunding “extremely positive”, but says backers need to think beyond “do I Iike this beer?” before parting with their cash.

“People are not typically making sober judgements,” says Combie. “And for breweries, there’s some growing up to be done. They’re very good at raising the money, but they have to realise that it comes with certain obligations, not least communicating the progress of their plans with investors.”

In an information vacuum, the void is inevitably filled with gossip and rumour, and there are many now surrounding Somerset’s Wild Beer Co.

Their crowdfund secured £1.76 million in March 2017, on the back of forecast turnover doubling to £4.5 million. Despite almost hitting that sales target, it translated to a loss of nearly £375,000, and Wild’s promised new showcase brewery plan seems to be in limbo - two years after they were granted planning permission.

Wild co-founder Andrew Cooper declined to comment for this piece. But it’s certainly true that good beer takes time, and – for now – Wild’s investors will just have to wait.

* Name changed for privacy reasons

@robin_eveleigh

Tagged:
Booze
beer
Alcohol
crowdfunding
Craft Beer