Parking a 1940s tank outside the Bank of England may not be every business’s idea of the right way to get investment but BrewDog has never been one to follow convention. In 2009, the craft brewer was pushing the limits of the cash available via its banks, as co-founder, and one of our Creative Leaders 50, James Watt describes in his book, Business for Punks.
“Raising finance in a way that does not simultaneously sign your own death warrant is key to growing your business whilst staying the driver’s seat,” he says in the book. Equity for Punks was BrewDog’s way of doing just that. In 2009, with said tank, it launched what was to be the first of four rounds of equity crowdfunding to date. BrewDog’s customers were given the chance to own a (small) part of the company for a minimum investment of just £95. This was before the advent of the specialist equity crowdfunding platforms of today, so everything was done via the BrewDog website. Over the four rounds to date, 30,000 people have now become BrewDog investors, generating over £15m in investment.
“From our perspective, the real beauty of the Equity for Punks model is not the financial side. It is in terms of how it entrenches the relationship between us and the people who enjoy the beers we make,” Watt writes. And it’s this community aspect, as well as the control compared to other finance models, that makes equity crowdfunding so attractive to creative businesses.
Plumen, for example, has just turned to Crowdcube for its latest fundraising round. The self-styled “creators of the world’s first designer low energy light bulbs” launched in 2010 with the Plumen 001 which went on to win many awards, including the Brit Insurance Design of the Year. Its range now includes two lightbulbs and the Drop Cap Pendant sets of lights. Later this year, it will launch two new ranges of LEDs. In order to do so it needed cash: not just to bring out the new products, but to beef up all the parts needed to make them a success.
Cofounder and creative director Nicolas Roope (also one of our CL50) says “You get to a point where you look at your business and say we could maintain complete control and ownership but we will have less cashflow to exploit what we’ve created, or you sell a chunk, release the capital and use that to exploit the opportunity.”
Plumen up to this point had been funded by a small amount of money Roope and his partners had made from their previous phone business plus the sales of the lightbulbs themselves. But developing the new products had cost the best part of a quarter of a million pounds and Roope says, the business needed strengthening in all departments in order to maximise the opportunity.
Rather than crowdfunding, they could have gone down the venture capital route but, says Roope, “The way VCs operate isn’t a particularly good fit for the way we want to do it. Most are in the tech space and are b very focused on key fashionable areas in that category. If you are not in that area you become an anomaly and therefore quite risky. We are passionate about what we’re trying to achieve, we love the process of creating and getting shit out into the world. I don’t particularly care if it takes three years or ten years. I’m not driven by trying to get as big and early an exit as possible at all costs – that doesn’t fit the VC mindset,” Roope says.
Instead Plumen turned to equity crowdfunding platform Crowdcube. It aimed for £500,000 and at the time of writing had raised £546,000, with a biggest single investment of £75,000.
Like Watt, Roope cites the community aspect of the process, where investors are also advocates, as a key part of its appeal. “It’s a means by which people can support or be part of something they love. It changes their relationship with us and leads on to the really interesting side to this. People spend an awful lot of money and time trying to create connections between people and brands – think of all those investors who now care about us in a way they never did before. They’ll tell all their friends, when people come for dinner and see the lights they will always tell the story [about investing]. It’s such a natural vehicle. Obviously we need money to make stuff happen but there are lots of other things being exchanged: the advocacy thing is incredibly valuable. Why would you go to a banker who has no clue about your business? Why not deal directly with your b consumers?” Roope asks.
Or readers, in the case of Marc Hartog, the founder and CEO of the British Journal of Photography. Having bought BJP out from its publishing company owners, Hartog had repositioned it and developed an app business. Earlier this year, Hartog decided that an injection of cash was needed to take things on to the next level.The magazine had scanned its 160-year archive of issues but needed money in order to create a front end for the subscription product it wanted to develop around that. In addition, the redesigned print magazine needed marketing support and the website needed redeveloping.
“I looked at bank finance, an overdraft, Kickstarting particular projects, and raising debt through crowd platforms, but they were all flawed for one reason or another,” he says. “So I started looking at the crowd, but I couldn’t see a precedent of a business like ours having done it. But it’s really about your story. One thing we can do well is create a narrative. We have a 160-plus year-old brand, people were quite excited about what we were planning to do with it.”
“Having a really compelling story and a nice brand is really important,” he says. “And the way you present your story is key too. [Having a beautifully designed business plan and well-made video] gives comfort to people. It’s not going to be why they invest but it looks professional. Along the way you can show people you’ve got great customers, testimonials and so on.”
Like Plumen, BJP had a b very successful experience with its Crowdcube campaign. Having set a target of £150,000, it raised £400,000 in investment, the largest chunk of which (£100,000) came from an individual reader.
Nevertheless, it was a nerve-wracking time, Hartog says. Like most crowdfunding processes, if Crowdcube campaigns fail to reach their target, companies get nothing, even if they fall just short of the line. Not only is this disappointing from a financial point of view, it can damage the brand too. “If it doesn’t work it’s really, really embarrassing,” Hartog says. “You have to accept that you are going out to the public and saying ‘hey this is our business, what do you think?’ If they don’t invest it means they don’t think much of it!”
“To make it work you have to put yourself out there, you can’t hide,” Roope says. “You have to get out and meet people, harangue everybody you’ve ever met.” Plumen’s campaign ran over the Brexit referendum, the day after which, “it went completely dead”, says Roope, an experience which he admits was “terrifying”. “You’re getting everybody you know to look at you and your pitch. If it doesn’t go well you are humiliated in front of all your friends and contacts.”
Thankfully for both Roope and Hartog, the process was a success. Read their tips on how to run successful equity crowdfunding campaigns here.