A New Era for Brewery Financing

In an era of sky-high interest rates and market saturation, brewery owners are facing unprecedented challenges in opening a new brewery or new locations, expanding operations, or even keeping their doors open. Wefunder has helped more than 30 breweries raise more than $13.8 million from their customers. Here, we explore how crowdfunding is emerging as a lifeline for breweries looking for funding.

As the graph above shows, almost 1,000 new breweries were opened in 2016. Another 900 were opened in 2017, and a similar number in 2018. Last year, that number was fewer than 100.

Five years ago, interest rates were low, there was widespread public enthusiasm for local taprooms, and the industry was booming. Now, the market has become saturated, and as the economy walks the line between recession and recovery, interest rates are higher than they’ve been in decades (most brewers we have spoken to are being offered interest rates higher than 8 percent), making it prohibitively expensive to open new businesses or keep existing ones afloat.

It has never been so challenging for aspiring brewmasters to open the business of their dreams, and even seasoned veterans are finding it nearly impossible to repair equipment, open new locations, or expand operations.

The Rise of Crowdfunding in the Brewing Industry

These conditions are driving more brewery owners and operators to explore alternative forms of financing, such as crowdfunding, and for many, the results are even more successful than had they gone with traditional forms of financing.

What is crowdfunding? Crowdfunding allows businesses to raise money from friends, family, and other members of the community. Depending on the platform, a person can invest as little as $100, making participation accessible to as many people as possible. With such a low threshold, a founder doesn’t risk losing an investor by asking for a $25,000 check when the investor is willing or able to contribute only $10,000.

The Crowdfunding Process for Breweries

Crowdfunding for breweries is a five-step process. To get started raising money through crowdfunding, owners need to craft their pitch, choose the investment structure, compile the required financial information, market the opportunity, and finally, launch the campaign.

Step 1: Craft Your Pitch

A successful pitch begins and ends with the story: Why should someone invest in you? This is your chance to really tell your story, explain your dream, and communicate the mission you’re trying to achieve with your brewery.

Step 2: Choose Your Investment Structure

Most breweries opt for debt-based financing, such as a revenue-share agreement or simple loan, but we’ve also seen equity options, such as selling a set percentage of the company for a specific price. It’s important to choose the option that makes sense based on your plans for the business and what is best for your investors. For example, if you don’t ever plan to grow or sell the company, it probably doesn’t make sense to provide an equity opportunity that would never see its value realized.

Step 3: Compile Financial Information

If you are looking to raise up to $124K through Regulation Crowdfunding (which enables eligible companies to offer and sell securities through crowdfunding), you can provide self-reported financial statements (e.g., balance sheet, cash flow statement). Anything from $124K up to $1.235M requires an independent CPA review of these financials for the past two years.

Step 4: Market Your Opportunity

Finally, no fundraise is possible without the many people in your network and community who would be willing to support you and your business. Sending personal messages to all of these individuals asking for their support goes a long way and helps the campaign to build momentum as future investors come in to participate.

Step 5: Launch Your Campaign

Most campaigns begin with a community round, which gives people in your own community an opportunity to invest in their community. By letting friends, family, and supporters invest in the success of the brewery, you’re giving them a financial incentive to frequent the establishment and tell others about it.

From Shark Tank to Community Funding

MobCraft Beer is the Milwaukee-based brewery behind one of the country’s most successful taprooms, bringing in $400K in annual profit from more than 90K visitors every year. And the company was far from finished: They were growing 30 percent and had their eyes on opening three new locations.

With this level of success, MobCraft wasn’t hurting for investor interest. In fact, founder Henry Schwartz actually pitched the likes of Mark Cuban and Lori Greiner on Shark Tank.

However, rather than take money from big-name investors on likely unfavorable terms, Schwartz looked at crowdfunding as the perfect way to raise money on terms that he controlled, bringing in $844,893 from 478 investors.

Kayla Thomas, MobCraft director of operations, said in the company’s announcement that “bringing our unique crowdsourced model and great beers to new U.S. locations allows us to build new relationships and invest in communities while cultivating a culture for beer.”

Would Schwartz have gotten these same terms from a bank or other institutional investor? Unlikely. However, even in the case that he did, would you rather take that investor’s connections, plentiful though they may be, or the networks of almost 500 individuals who may have access to any number of distributors, strategic buyers, and potential suppliers?

Restoring History through Community Investment

Harlan County Beer Company in Kentucky also recognized how attractive crowdfunding is as a form of financing, so they decided to restore a 100-year-old building downtown and open Harlan County’s first legal brewery by organizing a revenue-share agreement through Wefunder.

The company set the terms of the deal so that 5 percent of gross earnings were distributed every quarter. If the business made $100,000, the brewery would send $5,000 to Wefunder to distribute to individual investors.

Over the course of 6 months, Harlan County Beer raised $239,953 from 356 investors. The most frequent check size was $100, and the average check size was just $250. For cofounder Geoff Marietta, capital on friendlier terms made crowdfunding a no-brainer.

“I'm no fan of Wall Street,” Marietta says. “So when we were raising, I told people, ‘Whether you give me 100 bucks or 1,000 bucks, you can walk by the building, look inside, and see the carpenter, the plumber, and the electrician, who are all local, that your money is being invested in.’” Even for an investor, the decision makes sense. As evidenced by the widespread interest in Harlan County Beer’s raise, the appeal of crowdfunding goes beyond the terms of the deal. It’s about the community.

Community Rounds

Community rounds give people in your own community an opportunity to invest in their community—a place that they love. Many founders sweeten the deal by offering their investors perks. For example, let’s say that a brewery offers investors who contribute at least $1,000 a free appetizer once per month.

Assuming that the item costs $5 to make but is listed on the menu for $12, the investor ends up getting a multiple of their investment back in cash (for example, the terms might dictate 1.5x return), and they get a portion in free food.

For the founder, it also makes sense to offer these perks. That free appetizer is likely to bring more traffic to the brewery, patrons are likely to order just as much (if not more) beer, and they’re likely to bring friends and family to “their brewery” because of the perks, creating an amplifying effect that pays for the perk and then some.

The Future of Brewery Financing

As we said at the beginning, over the past few years, more than 30 breweries have raised funding on Wefunder (some of them multiple times), for a total of $13.8 million. These businesses span 11 states, and they’ve created 9,861 new community “owners” in the process.

Financially, the terms are often better (flexible revenue sharing versus fixed high interest–rate loans), and the sense of community and engagement leads to even better business outcomes than what the money alone would provide.

It may be harder than ever to own and operate a brewery. But it has never been a better time to let your patrons invest. Learn more or get started on your very own community raise with Wefunder.