June 10, 2013

A Critical New Source of Capital for Breweries

Once the SEC writes final rules implementing the JOBS Act, small businesses will for the first time be able to sell up to $1 million in equity per year to the general public through online funding portals. I have already written about how equity crowdfunding will appeal to breweries of all sizes that are looking to brand small and bridge the gap with customers. BrewDog's "Equity for Punks" campaign is an example of what will soon be possible here in the U.S. and should appeal to every brewery as an excellent grassroots marketing strategy.

However, the new law will also be a critical source of capital for an industry that constantly requires infusions of capital. While the JOBS Act's $1 million cap has been critcized by some as too low--and this could certainly be the case in tech and other industries-- $1 million is actually a sweet spot in the craft beer space.

Financing Startups

Rewards crowdfunding is not a major source of capital for startups. Therefore, a startup brewery needing capital in addition to bank loan must seek private capital from wealthy investors under a securities law exemption.  A recent article listed the funding targets of startup breweries raising capital under this exemption over the past 6 months.  The 27 breweries listed sought $920k on average.  When you remove a significant outlier from the calculation ($8 million by Wisconsin Brewing), the average raise amount is $647k, well within the JOBS Act cap.  There is speculation that most companies selling equity to the crowd will set funding targets below $500k in order to avoid extra audit costs written into JOBS Act for raises above $500k.  However, even if this occurs, $500k still represents a sizeable new capital source for startup breweries.

Financing Expansion

$1 million is also a sweet spot for many micro and regional breweries seeking to finance expansion.  Lakefront Brewery, Fullsteam Brewery, Port City Brewing, and New Holland Brewing are just a few of the breweries that have recently announced or completed expansion projects under $1 million. 

Get Prepared

In short, we expect breweries to approach equity crowdfunding as both a branding and capital solution.  Craft beer businesses and investors can join our growing community in anticipation of this exciting new capital source.

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