Shattered dreams

Crowdfunding has dined out for far too long on the story of Camden Town Brewery delivering a highly profitable exit for its investors on Crowdcube in 2015.

Since then, the reality is there has been little positive news accompanied by the occasional blow-up to upset the party. Until recently, that is, as we’ve seen a increasing number of failures in recent weeks, with the craft brewing industry in the eye of the growing crowdfunding storm. The credibility and validity of this route to raise money is now firmly under the spotlight.

There’s no doubt crowdfunding has been a terrific boon for the craft beer industry and has been the first, middle and last port of call for many businesses looking to raise money. However, the ease with which they have been able to do this has sadly come at a high price. The lack of due diligence undertaken at the time of many fund-raises is coming home to roost.

Very little of what’s been contained in the crowdfunding documentation – I hate to call them prospectuses because that gives them more credibility than they deserve – has ultimately been delivered. Much has been promised to investors but, sadly, they’ve been badly let down on too many occasions.

One of the disappointments has been Two Heads Beer Co, which recently closed the three Beer Boutiques it acquired following a £375,000 crowdfund last summer. The objective of raising the money was to open more stores but the company seems to have adopted a reverse store-opening programme.

Then there’s been The Bottle Shop, which raised £400,000 to build a cold chain platform and open more units. While the former was delivered as promised, no headway was made on adding bars or shops to the business. The company called in the administrators earlier this year, wiping out all the crowdfunding investors.

Most interesting of the bunch has been Hop Stuff, which recently had its brewery seized by the landlord after failing to pay its rent – and taxes. It’s unclear exactly what Hop Stuff Brewery’s future holds but perhaps its parlous state shouldn’t have come as that much of a surprise because it had the most doubtful business model I’d heard in a long time.

The plan was to open a number of bars under its Taprooms concept supplied by Hop Stuff but with the “unique” aspect of selling beer from other breweries too. That sounds like a bog-standard pub to me – or am I missing something? I think I must be because the valuation placed on the business at the time of its latter fund-raise was a staggering £25m. I say latter as the company went to the crowdfunding well on three occasions and brought in a total of £1.5m from investors. I’m not sure exactly what the company is worth right now.

For anybody wondering where a figure as high as £25m comes from, I can tell you – it’s pretty much plucked out of the air. There’s nothing scientific about it – it’s all art. When businesses use crowdfunding platforms they are encouraged to use large numbers in their pitch because this shows they have big growth plans and it helps draw more investors into offering their money.

The most recent craft beer company to hit the buffers was Redchurch Brewery, which called in administrators last month. The company was immediately bought, with the new owners hailing the “great news”. Yes, it is good news the employees can remain on board but Redchurch had raised almost £900,000 in two crowdfunding rounds in 2016 and 2017 and in the company’s statement there was no mention whatsoever of those investors, who were wiped out once more.

Most startups fail but it seems to me many crowdfunded businesses adopt an attitude of easy come, easy go. The lack of reference to their investor community when these companies hit the rocks suggests they cared little for the enthusiastic investors who made it possible for them to reach for their dreams. I predict many more nightmares to come.