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Wednesday, July 10, 2013

Will U.S. Investors Soon Be Involved in Crowdfunding?

BrewDog IPA is Dead 2013
BrewDog IPA is Dead 2013 (Photo credit: Billy's Booze Blog)
By Investment U

Washington, Jul.10, best stock .- Across the pond in the United Kingdom, a brewing company's recent success in raising money from small investors holds promising implications for crowdfunding here in the United States.

BrewDog, Scotland's largest independent brewery, successfully raised over 1 million pounds ($1.5 million) in its first 24 hours in late June of this year.

The company, started in 2007 by James Watt and Martin Dickie (both 24 years old at the time), now employs more than 135 people, has a brewing capacity of nearly 1 million gallons of beer and has 12 of its own BrewDog bars. Its growth is thanks to more than just a great product and marketing. A big part of its success can be attributed to its unique fundraising model.

Funding on Their Own Terms

Watt and Dickie realized their growing business needed more capital, but raising money is one of the hardest things for small-business owners to do. Yet they were able to do it on their own terms thanks to the Financial Services and Markets Act of 2000, a British law that allows private businesses to sell equity in their business to anyone.

The company has essentially transformed part of its website into an equity crowdfunding platform. The crowdfunding scheme they launched, called "Equity for Punks," has yielded impressive results.

In 2009, right in the middle of the Great Recession, 1,300 people invested in BrewDog through Equity for Punks. At the same time its business grew by 200%. It raised additional capital in 2010 from more than 6,000 investors.


Then in 2011, it sold 500,000 pounds' worth of shares in two weeks. All of those capital infusions preceded its most recent, which set a record for crowdfunding in the U.K.

Watt noted that, "Equity for Punks is rewriting the rules of business finance and it's putting our customers right at the heart of our operation."

BrewDog has announced it is looking to raise an additional 3 million pounds by January 2014, with shares priced at 95 pounds ($144.71) each. Anyone who buys shares of BrewDog becomes a part-owner of the business and receives a lifetime 5% discount at BrewDog bars, up to a 20% discount on BrewDog's online shop and is invited to attend the company's annual party.

The Future of Crowdfunding

The company's capital-raising model is a perfect preview of what the future holds for equity crowdfunding.

BrewDog removed the banks from the equation. And at the same time, it gave its fans even more reason to continue drinking the brewery's beer... a stake in the company with discounts and benefits.

"With Equity for Punks, beer fans are able to become part of a revolution - not just redefining beer in the U.K., but shifting the balance of power away from the banks and back into the hands of the people," Watts said.

Implications for Equity Crowdfunding in the United States

BrewDog's story has big implications for crowdfunding in the United States.

The JOBS Act that passed in 2012 will give American non-accredited investors a chance to invest in private companies like BrewDog.

Any investor who has a love for a small private business or believes he has found a company that could grow substantially in the next few years will have a chance to get in early on the game. Something only accredited investors (those with a net worth of $1 million or more) were able to do in the past.

Of course, those companies will have to choose to take on crowdfuding through special SEC portals, but I believe the number of businesses being listed will blow current public exchanges out of the water.

Currently $1 million is the proposed maximum limit for fundraising on the U.S. equity crowdfunding platform. But with BrewDog as an example, $1 million seems far too small. It will severely limit the potential of equity crowdfunding.

Let's hope Congress and the SEC realize this and raise the limit. This will allow businesses to raise more capital and will allow more investors a chance to have ground-floor investments.

Industry insiders currently believe the SEC will finalize the U.S. crowdfunding legislation sometime early in 2014. I'll be watching carefully. And so should you.

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