The REAL story behind BrewDog’s ‘sellout’ is that crowdfunding will only get you so far

The real story behind the news that BrewDog is copping more than £200 million from the private equity firm that also part-owns Pabst Blue Ribbon, is not, despite the howls of “hypocrisy!”, that nobody can resist a big juicy cheque, no matter how punk they claim to be. It is, rather more sadly, that crowdfunding will only get you so far, and if you have really big ambitions, you’re going to have to get in bed eventually with The Man.

Crowds of crowdfunders: a scene from the BrewDog AGM in Aberdeen earlier this month

The deal with TSG Consumer Partners, the $5bn 30-year-old San Francisco-based private equity firm, sees TSG acquire “approximately” 22 per cent of BrewDog for what the Sunday Times says is £213 million, split between a £100 million investment in the firm and £113 million paid to existing shareholders.

Of the two founders, James Watt is seeing his stake in the firm drop from 35 per cent to 25 per cent and Martin Dickie’s slice goes down from 30 per cent to 22. It’s not clear (to me, anyway) if that dilution is because the pair are selling 18 per cent of the firm between them to TSG, or some of the fall in their percentage ownership comes from new shares being issued: the Sunday Times says one of the motions passed at last month’s BrewDog AGMEGM in Aberdeen saw the creation of a new class of preferred shares, which would guarantee TSG a minimum compound annual return of 18 per cent if the company is bought or floated. There’s a fair bit of dilution, I reckon, or the figures for how much existing shareholders are getting out of the deal don’t add up. But even so, I’d say James is receiving north of £50 million and Martin more than £40 million. Not bad for ten years of being rude about the rest of the UK brewing industry and winding up the Portman Group. Looks like Dr Johnson’s comment more than 230 years ago about selling a brewery being the way to become rich beyond the dreams of avarice is still true. According to Watt, the sums in the deal mean BrewDog now has an enterprise value of £1bn (I make it £968 million, but hey, £32 million is mere loose change), thus making it the first new British brewery “unicorn”.

The most important figure, however, is the £100 million BrewDog now has to play with. That’s four times the amount the company has raised so far through its Equity for Punks crowdfunding schemes, which have given it more than 50,000 shareholders, but taken six years. The company is currently attempting to get $50 million through Equity for Punks USA, though this does not appear to be going anything like as well as its British crowdfunding efforts: the latest figures seem to suggest only $3.5 million or so has been gathered in. That size of sum doesn’t go very far: the hotel and sour beer plant BrewDog is building next to its new brewery in Columbus, Ohio, which finally opened in March, several months late, is costing $6 million. Earlier this month the company announced that it was looking to open breweries in Asia and Australia: based on how much it spent on the Ellon brewery in Aberdeen, that’s £40 million to £50 million that will be needed, in addition to the money required for the planned expansions in Ellon and Columbus. Crowdfunding simply won’t cover expansion of that magnitude.

Tying up with someone like TSG was pretty inevitable, then, if Watt and Dickie wanted to maintain the momentum they have built up with BrewDog. And why should they not? Is it somehow not “punk” to want to be as successful as you can be? Are they meant to say: “No, that’s it for us, really, we’re just going to sit on our arrises from now on”? If you believe in your product, surely you should want to reach as many people with it as possible, however that possibility has to come about? As Watt said in the note that went out to shareholders announcing the TSG deal, it represents “a launch pad for us to turbocharge our mission to make the world as passionate about craft beer as we are.”

Some have declared the TSG deal a betrayal of all the people who bought shares in BrewDog apparently believing that Watt and Dickie would never “sell out”; but this “betrayal” involves a pretty enormous return on those Equity for Punk backers’ investments. As Watt said: “Shares purchased in Equity for Punks I, which closed in February 2010, are now worth 2,800 per cent of their original value. Even craft beer fans who invested in Equity for Punks IV last year have seen the value of their shareholding increase by 177 per cent in just one year.” You don’t get that sort of return putting your money in Nationwide.

Mind, it was perhaps a little naughty of BrewDog to describe TSG as “one of the world’s leading growth funds with successful investments in global brands like Pop Chips and Vitamin Water” without adding that it also has a substantial minority holding in Pabst, purveyor of just the sort of industrial brews Watt and Dickie swore they would never sell out to. I am sure Alastair Hook and the guys at Meantime, whose beers BrewDog withdrew from its bars after the Greenwich brewer was bought by SAB Miller, are smiling sardonically.

Best-selling business advice from a BrewDog

As the only beer writer on the planet with an MBA (probably), it falls to me to give a business school-style review on behalf of beer drinkers to Business for Punks, the just-published “how we succeeded and how you can too” guidebook from BrewDog co-founder James Watt.

Not that any review is likely to make much difference to the book’s popularity: it is already the number-one best seller in the “entrepreneurship” section of Amazon’s UK website, and in the top 350 best-selling books on the site overall, despite only being published last week. The book, it appears, is as popular as the beer.

Thanks, James we get the idea

Selling like hot … um … ale … James Watt and book

Business manuals from stars of the American craft brewing scene have been popping up like mushrooms in the past few years: Ken Grossman of Sierra Nevada, Steve Hindy of Brooklyn Brewery, Sam Calagione of Dogfish Head, Tony Magee of Lagunitas, Steve Wagner and Greg Koch of Stone Brewing and Jeremy Cowan of Schmaltz have all written books about how they started and grew their businesses, Calagione has a second book out in December, Off-Centered Leadership: The DogFish Head Guide to Motivation, Collaboration and Smart Growth, and Jim Koch, founder of Samuel Adams, has his “how I did it” book out in April 2016 .

Britain’s craft brewers have been slower to get their experiences on paper: maybe they’re too busy brewing. It’s not as if we lack an audience for how-to-be-a-successful-brewer books: large numbers of people apparently want to brew commercially. Some 200 new breweries have opened in the UK in the past 12 months, and the country now has more than twice as many breweries per head as the United States: 1 to 38,000, against 1 to 80,000. More likely, we lack the “superstar” brewers that the US has, people whose name on the cover will attract the buyers. I doubt that Watt wrote the book and sought a publisher: much more likely that someone at Penguin Random House approached Watt with the idea

Watt, of course, and his fellow founder of BrewDog, Martin Dickie, are among the very, very few candidates for “star brewer” in the UK. More than 6,000 people turned up to BrewDog’s annual general meeting in Aberdeen in June. Six thousand people. In Aberdeen. Admittedly this is not so much an AGM as a beer festival-cum-love in, with something on the order of 40,000 pints of beer consumed. But there isn’t another brewery in Britain that could hope to attract that level of support. And as Pete Brown once pointed out, when even his Stella-drinking mother in Barnsley has heard of BrewDog, you know you’re looking at a powerful brand.

So: what’s Watt’s book like?

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The discreet charm offensive of the BrewDoggies

Casks at the Fraserburgh breweryThere is, I suggest, a thick slice of what the Irish call begrudgery in the responses around the British beerosphere to the success of BrewDog. Here are these young guys, starting in their early 20s, who managed in a few years to build one of the best-known and fastest-growing breweries in Britain, worth on the order of £10m, in part through a series of stunts including reporting themselves to the drinks industry watchdog just for the publicity, selling beer at £500 a pop in bottles that had been stuffed into dead animals, and calling the Advertising Standards Authority “motherfuckers”.

Martin Dickie and James Watt now have their beers on bar and supermarket shelves not just in Britain but around the world, a growing and increasingly international chain of bars of their own, and even their own American TV show, FFS, now entering its second series. Uniquely among British brewers, Dickie and Watt have made a huge success of crowd-sourced funding, raising around £9m from some 14,000 customer-investors to fund their extremely impressive growth (that’s about £650 an investor, to save you working it out). Around 5,000 of those investors are expected to make the trip to Aberdeen this summer for the BrewDog AGM. You wouldn’t be the first to suggest that it’s Kool-Aid rather than Punk IPA they’ll be drinking.

While their fan base is clearly considerable, and happy to hand over lots of its cash, you certainly won’t search long to find vicious criticism of BrewDog on the web: “BrewDog are horrible marketing-type suit people who make terrible beer”; “a lot of juvenile rhetoric, devious marketing stunts and grotesquely cynical ‘punk’ references”; “There’s absolutely nothing ‘punk’ about Brewdog. We’re sick and tired of their shit marketing and faux-persecution complex … their beer is total shite.”; “shallow, arrogant hyperbolic fuckwits”; “Next to a genuinely class brewery like Beavertown or The Kernel, BrewDog are an embarrassment … Punk IPA – a truly dreadful beer … they’re a successful marketing company who happen to use beer labels as their medium, rather than a genuine craft brewery” – you’re getting the picture.

There is, of course, a simple answer to all that criticism: you say that, but you don’t have 14,000 investors and your own American TV show, and nor are your marketing tactics being used as case studies for other businesses.

I’ve had disagreements with BrewDog myself, but I’ve always thought that Dickie and Watt had no reason to care about what I thought, any more than they would be bothered by any of their other critics: if some people don’t like their beers and their marketing tactics, a more-than-sufficiency of others do. So I was surprised to be approached by the company and asked if I’d like to join nine other beer bloggers and writers from as far away as Finland, Norway and France to be flown to Aberdeen, taken round the 13-month-old Ellon brewery and beered and dined at BrewDog’s expense. Were BrewDog on a charm offensive? Apparently so: last week they flew up a load of journalists who had written about BrewDog in the past, for a similar jolly, which resulted in, eg, this review in the Morning Advertiser. But why woo me? According to Alexa, this blog ranks number 32,360 among UK websites: that’s really not very influential.

But, hey, I like looking around breweries at other people’s expense, even if it means having to get up at 4am to drive to Gatwick for a flight on the EasyJet red-eye. And yes, I was interested in meeting Dickie and Watt, probably the finest guerrilla marketers currently operating in Britain (and easily the best guerrilla marketers the British brewing industry has ever seen). I don’t know how much they actually spend on marketing, but I doubt it’s a huge amount, which makes their ability to generate column inches all over the world from apparently tangential events quite brilliant – come on, what other British brewer do you know who could get stories in newspapers from Sweden to Thailand publicising their new beer launch? Continue reading