December 7, 2012

Brewery Crowdfunding by the Numbers

At the recent Brewbound conference, Townsend Ziebold of First Beverage Group bluntly stated that banks are not lending to startup breweries.  With over 1300 breweries in planning across the county, it’s no surprise then that there has been a spike in brewery crowdfunding campaigns.  Just launched, CraftFund was formed to serve as a niche platform and resource for the craft beer industry.  We want to help breweries raise capital and build brands.  To this end, we have analyzed previous crowdfunding campaigns on Kickstarter to better help breweries plan successful campaigns.  I confess that I was not a math major, but here are our numbers as of last week:

Total campaigns Total donations Total $ Committed Avg. Target
71 8,416 $818,678
118 donations   /campaign $11,530/campaign $21,869/campaign
$97/donation
Successful Campaigns  Donations to Successful Campaigns $ Committed to Successful Campaigns Avg. Target
29 (41%) 6,705 $644,522 total  
231 donations /campaign $22,224/campaign $17,724/campaign
$96/donation
Unsuccessful Campaigns Donations to Unsuccessful Campaigns $ Committed to Unsuccessful Campaigns Avg. Target
42 (59%) 1,711 total $174,156 total  
41 donations /campaign $4,146/campaign $24,730/campaign
$101/donation
Campaigns with no video Successful campaigns with no video $ Committed to campaigns with no video $ Committed to campaigns with video
13 3 (23%) $4,015/campaign $13,215/campaign

A few observations based on the numbers:

1. It is important to set a reasonable target based on personal network

Breweries must be realistic in setting a target amount.  The most money a brewery has crowdfunded is $52,000 and only 7 campaigns have raised over $30,000.  Successful campaigns on average had a lower target ($17,224) than unsuccessful campaigns ($24,730). The fact is you won’t likely raise all your needed funds through crowdfunding.  Set a target based on what you think you can raise and not the total amount you need. By setting an unrealistic goal you risk leaving money on the table.

Breweries should instead set a goal that they are confident they can hit based on their personal network, which is the biggest source of funding.  Take into account the extent of your personal network and assume an average donation of $96.  Set a reasonable target based on this calculation.  Ideally your network will expand through the campaign as you get your message out. CraftFund’s 75% tippling point takes this into account and allows campaigns to aim a little higher in their target amount.

2. Video is critical

By choosing to not use a video you not only fail to capitalize on an excellent marketing opportunity but you also cut your success rate by nearly half (41%-23%).  Indeed, studies have shown that crowdfunding campaigns using a video raise on average 140% more than campaigns that do not use a video.  The discrepancy is even greater with craft beer as campaigns that used a video ($13,215) raised on average an incredible 229% more than campaigns without a video ($4,015).  The critical role of video reinforces the importance of story in the craft beer market, a topic I previously wrote about.

3. Stories, stories, stories

Stories are arguably even more important to a brewery crowdfunding campaign.  The reality is that the quality of your beer will not have a great impact on the success of your campaign.  Because of shipping regulations, beer cannot be offered as a reward.  Therefore, the people who have tried your beer will be limited to your geographic area, many of which are already part of your personal network. Your personal network will likely support you regardless.  Those outside your personal network who have tried your beer will decide for themselves about the quality. Everyone else will not have a chance to try your beer and will have to make a decision to donate on some other basis.

You should by all means hold tastings and try to expand your network based on the quality of your product.  However, don’t simply use the video to talk about how good your beer is. Instead, focus on communicating a unique brand and message that resonates. Tell stories. That is why CraftFund focuses on helping startups connect their message with their local place.

4. Equity crowdfunding has great potential

Over $818,000 has been committed to startup breweries from 8,416 donations.  That’s a lot of money contributed for rewards especially considering that the final product is not one of the rewards offered.  A new law (JOBS Act) is going into effect next year that will allow breweries for the first time to offer equity in exchange for online investments.  If over $818,000 has been contributed to startup breweries on a rewards basis, imagine the capital that established breweries with strong social media could raise by offering a chance to become a part of the company.  BrewDog’s Equity for Punks campaign is the perfect example of what will soon be possible here in the U.S. Equity crowdfunding is not yet legal, and breweries seeking to sell shares online to the general public will need to do so through an intermediary crowdfunding portal registered with the SEC.  We are working towards developing a portal specific to breweries.

The bottom line is that breweries can turn to the craft beer community for capital.  We’re a defined group who are passionate about a unique product and committed to seeing the industry grow.

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