by Tom Beardsworth
(Bloomberg) -- Camden Town Brewery could seek the finance it wants to expand from a bank at historically low interest rates. Instead, it’s turning to crowdfunding to raise money and its profile at the same time.
The five-year-old company is seeking as much as 3.5 million pounds ($5.2 million) by inviting its customers and other investors to subscribe as little as 10 pounds -- the price of two pints of Hells lager in its own north London pub -- in return for equity. It plans to build a second brewery and triple its staff to 200, with a target to sell five times as much beer in 2020 as it did last year.
Little more than a buzzword a decade ago, crowdfunding has emerged as a challenger to traditional financing models by using Internet platforms to match those wanting money with the tens of thousands of individuals willing to stump up contributions of varying amounts. For young companies such as Camden Town Brewery, an online campaign not only brings in investment without the need for banks, it increases awareness of their products and services.
“The more we bring in the more security we have. It’s less bank debt,” the brewery’s founder, Jasper Cuppaidge, said in an interview. The campaign brought with it marketing spending the company normally wouldn’t have access to and “made us look a lot bigger than we are,” he said.
Financial Crisis
Equity crowdfunding and peer-to-peer lending, in which investors get their money back with interest, took off amid the financial crisis as startups and small firms had trouble getting loans from banks. For investors, it offered the prospect of returns at a time when banks and building societies paid next-to-nothing for deposits.
Now firms selling everything from salad dressing to pay-as-you-go electric cars are piling in, using matchmaking sites such as Crowdcube and Funding Circle Ltd.
Equity financing of the type used by Camden Town raised 84 million pounds last year, five times more than in 2012, according to a report produced by Cambridge University and London-based research firm Nesta. Alternative finance as a whole, which also includes peer-to-peer lending, accounted for about 1.7 billion pounds.
That represents a small slice of the small business lending market. Outstanding loans to private non-financial small and medium-sized enterprises totaled 155 billion pounds in January, Bank of England data show. And crowdfunding is more established in the U.S., though investment regulations there mean the market has been limited to high net-worth investors.
Growth Prospects
With bigger companies joining in, few restrictions on who can invest and the possibility that the Bank of England will increase interest rates from record lows this year, crowdfunding in the U.K. could grow fast, experts say. The average cost of new sterling loans to private non-financial firms fell to 2.5 percent in January, according to the BOE.
“Much in the same way as Amazon challenged Barnes & Noble, so will the financial industry find itself reshaped by online platforms,” said Gary Dushnitsky, an associate professor at the London Business School. “A more interesting question is whether the prevailing platforms will be led by new entrants or set up by existing banks. Cooperation rather than competition may be the hallmark of the future.”
For their money, Camden Town investors get freebies too. Subscribers who put in more than 1,000 pounds are invited to twice-yearly parties with free beer and receive a yearly case of lager. It’s a model used by Mexican food chain Chilango, which last year offered “burrito bonds” giving investors complimentary burritos in addition to fixed-rate payments.
Equity for Punks
For firms, crowdfunding doubles up as advertising and makes future networking easier, said Stian Westlake, research director at Nesta. A Scottish beer maker, BrewDog, started the trend in 2013 by raising 4.25 million pounds in an “Equity for Punks” campaign that included parking a tank outside the Bank of England.
It took less than a month for Camden Town to hit its initial 1.5 million-pound target. Since then, it’s continued to accept money, with almost 1,900 investors pitching in nearly 2 million pounds for 2.6 percent of equity, valuing the business at 75 million pounds. The company will have 3 million pounds of long-term debt this year, according to its accounts.
Over half of those investing through equity-based crowdfunding have an annual income of over 50,000 pounds and 21 percent of investors earn more than 100,000 pounds, according to the Cambridge University/Nesta report.
Ad Campaign
The brewery has taken out advertisements paid for by Crowdcube on the London’s underground rail network to entice commuters to invest some of their salary.
The ads compete for attention with those from retail stockbroker Share Plc, which says it has 260,000 customer accounts. “Gentlemen prefer bonds,” its ads say, in a pun on the 1953 Marilyn Monroe movie.
But with the BOE benchmark in its seventh year at 0.5 percent and yields on government and corporate bonds alike around all-time lows, the chance to invest in eye-catching projects may continue to draw people such as Jamie Smith.
Smith, a 34-year-old designer from London, invested 100 pounds in Camden Town “purely as a gesture of loyalty, being local fans of the brewery” since it began in 2010. “We have no expectations of this being an investment that will offer any real return, but I think our 100 pounds is pretty safe.”
To contact the reporter on this story: Tom Beardsworth in London attbeardsworth@bloomberg.net
To contact the editors responsible for this story: Fergal O’Brien at fobrien@bloomberg.netAndrew Atkinson
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