Q&A - BrewDog's Equity for Punks

Craft breweries are lapping up alternative finance faster than a hipster can sink a pint of hoppy ale. But if Scotland's BrewDog succeeds in its new crowdfunding round, it will leave previous efforts in the shade: the makers of Punk IPA are seeking £25m from the public over the next year.

Set up in 2007, BrewDog quickly became Scotland's biggest independent brewer, and last year had operating profits of £3.9m. It is inviting drinkers across Europe to "love the beer, own the company". Should you join the party?

What exactly is on offer?

BrewDog is selling B-shares for £47.50 each, with a minimum investment of £95 for two shares. They come with discounts and loyalty bonuses; for example, all investors get at least 5 per cent off in BrewDog's bars. The offer has been dubbed Equity for Punks, after its signature Punk IPA.

They can also attend the brewery's annual general meeting, which goes far beyond the usual votes and sandwiches: this year's will feature live performances from indie band Idlewild and alt-rockers Twin Atlantic, along with beer tastings.

"BrewDog is widely known, and therefore this funding will in my view attract plenty of interest," says Gervais Williams, small-cap fund manager at Miton Group.

What's not to like?

If you're after discount beer and a good time, not much. If you're seeking a financial return, it is worth looking more closely at the numbers.

BrewDog, a crowdfunding pioneer, already has 14,500 individual shareholders; it says those who bought in its first funding round were able to cash in at a return of more than 500 per cent in a recent selling opportunity.

However, the current fundraising values the company at an ambitious £300m-plus, creating a trailing price-to-earnings ratio of 116 times.

This valuation "could limit the upside potential for investors in this round," says Emanuela Vartolomei, chief executive of All Street, a crowdfunding analysis service.

While she expects the company to keep growing, she says investors should be realistic about their goals. "For example, if you want to make 10 times your money, you need the company to be worth over £3bn at your exit point."

Mr Williams highlights concerns over valuations in the crowdfunding sector. "Often there isn't a market price, so the pricing of the issue is justified on theoretical grounds," he says.

Another brewery, Camden Town, recently raised £2.8m on Crowdcube, but slashed its valuation from £75m to £50m when it sold 20 per cent of the company to a separate group of investors.

Can I sell my shares whenever I like?

No - BrewDog is unquoted, so you can't sell shares on an exchange, but there is an annual opportunity to sell them on the Asset Match platform. However, this depends on buyers coming forward who are prepared to buy at a price acceptable to you.

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BrewDog founder James Watt says the company will eventually list on a market, but that is a "longer-term aspiration" and there are no current listing plans.

This is regulated, right?

BrewDog's prospectus is approved by the UK Listing Authority, but its Equity for Punks platform is not regulated by the Financial Conduct Authority, so it does not have to fulfil requirements imposed on big crowdfunding platforms such as Crowdcube or Seedrs.

Among other things, this means you cannot see live updates on how much the company has raised, and investors are not required to demonstrate that they understand the risks, as they are with other crowdfunding rounds.

So how risky is it?

Crowdfunding investments are risky. The FCA warns that "you are very likely to lose all your money" in the sector.

While BrewDog is comparatively well-established, Ben Yearsley, head of investment research at Charles Stanley Direct, highlights that there are more strictly regulated ways to invest in unquoted companies, such as through venture capital trusts, private equity investment trusts, or enterprise investment schemes.

"You also need to think through whether you will actually make money out of [this investment], and how and when do you exit," he adds.

Will I get dividends?

BrewDog has a policy of not paying dividends, instead reinvesting excess cash back into the company.

Will I have voting rights?

Yes, but more than three-quarters of the company is owned by founders and staff, so they could have the ability to push through initiatives you don't like.

Where will my money go?

BrewDog has set out its priorities, starting with building a bigger brewery, increasing its canned beer range, and opening more bars in the UK. If it raises less than the £25m it hopes for, the company will start with the top priorities on its list.

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