Small Talk: Will investors in the maverick brewer BrewDog end up nursing a hangover?

BrewDog, now Scotland’s largest independent brewer, has a great tale to tell

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The Independent Online

What are we to make of the amazing success of BrewDog in raising £5m in the first three weeks of its latest crowdfunding campaign? While some small businesses are still struggling to raise finance, it’s clear that a slickly marketed brand faces no such difficulties. However, the BrewDog share issue also seems to suggest that some investors in crowdfunding are not doing their due diligence as thoroughly as they might.

BrewDog, now Scotland’s largest independent brewer, has a great tale to tell. It has repeatedly increased revenues, with turnover climbing to almost £30m last year, continues to recruit staff, and has an impressively sustainable business model.

The business is, moreover, a sophisticated marketer. In seven years, it has built a loyal customer base of people who love the product and appreciate its maverick image. A stunt last week, in which BrewDog dropped stuffed fat-cat toys from a helicopter over the City to celebrate reaching the £5m mark without the help of financiers, is typical.

This approach has not only enabled BrewDog to sell more beer but also to reach out to its customers – and a broader network – for growth capital. It raised £4.3m of equity in a previous crowdfunding round two years ago – on this occasion, it hopes to raise £25m by the time its campaign ends. The company hasn’t even felt it necessary to appeal to investors through an established crowdfunding platform; it is running the issue itself.

So far, so good. But analysts who have looked closely at BrewDog’s business are finding it very difficult to justify the £305m valuation which this latest fundraising puts on the company. All Street, the boutique analyst specialising in equity crowdfunding issues, thinks it is “difficult to see how investors will make a financial return on this deal”.

The ability of BrewDog to bypass crowdfunding platforms is also causing concern. Some executives at those platforms archly note that while they’ve had to seek authorisation from City regulators, BrewDog, as an individual issuer, faces no such hurdles. The UK Crowdfunding Association has written to the Financial Conduct Authority to complain that BrewDog should have to comply with the same rules as its members.

In fact, BrewDog has already found itself in hot water, issuing a correction a couple of weeks ago after publishing potentially misleading claims about compliance, but all it really has to do is not fall foul of the City listing rules.

BrewDog is a well-run, innovative business, but there is a danger that it is setting itself up for a fall. While investors are clearly enjoying being part of a business story they admire and support, most will hope to make a few quid in the end – if they don’t, or they lose some of their money, expect them to look up from their pints and ask some awkward questions.

BrewDog is on target to raise more from an equity crowdfunding campaign than any UK business has managed, suggesting that crowdfunding has the potential to be more disruptive to traditional corporate finance than many have realised. Nevertheless, BrewDog investors may not be the only ones nursing a hangover in years to come.

Experts in financial IT head for Silicon Beach

You know about London’s “Silicon Roundabout” and Cambridge’s “Silicon Fen”. Now meet Silicon Beach, an area of the south coast that extends all the way from Brighton to Bournemouth, claimed to be one of Britain’s fastest-growing technology hotspots.

Silicon Beach specialises in technology businesses in the financial services sector, according to BrightPool, a recruitment company, and is also home to operations run by large companies in the industry including American Express, Lloyds Bank and Legal & General. BrightPool says there are 1,680 job vacancies at these technology businesses, accounting for 4 per cent of all financial services vacancies nationwide.

“Both banks and smaller tech companies are increasingly seeing Brighton, Bournemouth and Poole as lower-cost alternatives to London, with salaries and costs of office space significantly less than in  the City or Shoreditch,” says Angela Hickmore, managing director of BrightPool. “At the same time the quality of the talent pool is being enhanced as talented, skilled programmers move there for lifestyle reasons and lower residential property costs.”

Seminars will help small firms grow overseas sales

Look out for events in your area as UK Trade & Industry’s Export Week starts today. The government agency, which supports businesses hoping to increase sales overseas, is running hundreds of seminars and workshops throughout the country until Friday. See www.exportweek.ukti.gov.uk for details.

The initiative takes place as figures reveal that exporters are increasingly buoyant about their overseas operations. The British Chambers of Commerce will reveal today that 46 per cent of manufacturing firms recorded higher export orders in the first quarter, while 38 per cent saw overseas sales grow.

The success of these businesses overseas – many of them are small, specialist operators with hi-tech facilities – is one factor in the recent increase in employment. Some 44 per cent of the companies surveyed added staff during the first quarter, the BCC says. Even better, more than four-fifths of the jobs created were full-time.

Small Business Person of the Week: Matthew Scott, CEO, Navada Group

“My business partner Jeremy Forsberg and I set up Navada three years ago. I had worked in the digital sector for 17 years, while Jeremy’s background is in politics and campaigns. One of his campaigns, a fantastic initiative on road safety in the North-east, was effectively our first contract, and we started out as a digital marketing business. High-quality content is the thing that really engages people when you’re campaigning and building brands, and that’s where we specialise.

“We work with large companies around the world, but also with other organisations including the BBC, the NHS and NoBullying.com – an anti-bullying video we did for them reached 3 million people. It’s all centred on engaging with the end user through story-telling, but with content that has high production values and quality – so much of what you see doesn’t have that.

“Our business is now moving in a new direction, with the development of our first feature film, Pranking Rachel, which we’ve made using some of the best talent from YouTube and Vine. We think we have a real opportunity to disrupt the film and television industry, offering beautiful content, but distributing through digital platforms.

“With that in mind, Jeremy is about to move out to Los Angeles to open our office in North America – it’s a really exciting opportunity.”

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