As has recently been reported, BrewDog, once a standout user of online capital formation, leveraging a catchy “equity for punks” campaign to raise money on crowdfunding platforms, is no more after falling into administration and selling off assets.
BrewDog leveraged crowdfunding in both the UK and the US to fuel its expansion of breweries, pubs, and more. The key was to appeal to its customers, who then received perks and served as brand ambassadors. These investors also expected a return on their investment, something they will never receive.
A King’s College report published on the debacle estimates that over 200,000 retail investors who committed around £75 million have now seen their investments wiped out. As one can imagine, most of these “punks” are probably not very pleased with the outcome.
The report, authored by Dr. Hadar Gafni, Lecturer in Entrepreneurial Finance, explains that BrewDog is not an isolated failure as it “exposes a deeper problem in how equity crowdfunding is designed.”
Gafni states that investors’ enthusiasm for BrewDog caused “critical judgment” to be “crowded out.” He believes that rules must be tightened, financial information standardized, and “investors given tools to think.” He also believes that if changes are made, “crowdfunding can work.”
Investing in early-stage firms is very risky. BrewDog is emblematic of this fact. While examples of successful investments in the sector exist, most likely, most of these investments fail to return benefits to their investors, except for the tax write-offs they receive. We have seen platforms adjust to this challenge by offering more mature investments, creating funds, and doing a better job of cautioning individuals on what they are getting for their money. Yet more needs to be done to create an ecosystem where smaller investors receive the best offerings, structured as a professional VC or Angel would demand. And perhaps, more integration with professional money, which can help to signal risk and opportunity.
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