Crowdfunding in beer: danger sign?

Have almost started to think of crowdfunding as a danger sign. Why won’t a bank just lend them the money?”

We tweet­ed this in response to @bringonthebeer the oth­er day and it prompt­ed a few chal­lenges, includ­ing some that changed our think­ing, so we thought we’d unpack it a bit.

It’s just, real­ly, that it feels as if crowd­fund­ing is a com­mon fac­tor is a recent spate of beer indus­try takeovers and col­laps­es.

Mar­tyn Cor­nell gave a detailed run­down of some of the prob­lems with crowd­fund­ing in beer a few years ago: it’s not real invest­ment in most cas­es; and lots of crowd­fund­ed busi­ness­es fail, or fail to deliv­er on promis­es.

Most recent­ly, there’s been Hop Stuff and Red­church.

But we’re talk­ing about some­thing ever so slight­ly dif­fer­ent – that the very act of appeal­ing to the pub­lic for invest­ment seems increas­ing­ly like a red flag for the future of those oper­a­tions.

With hind­sight, in many cas­es, crowd­fund­ing often looks to us like a cry for help or act of des­per­a­tion.

Crit­ics of crowd­fund­ing some­times call it ‘beg­ging’ and it can feel that way.

When in day jobs we’ve been involved in rais­ing fund­ing, it’s been through banks. They’re unpop­u­lar, old school, not very ‘craft’, but they are part of our sys­tem of checks and bal­ances. If a bank won’t lend a busi­ness mon­ey, it prob­a­bly means that busi­ness has failed to present a con­vinc­ing case for its long-term suc­cess.

Some of the chal­lenges we got on Twit­ter did make us pause for thought, though: secur­ing fund­ing via banks usu­al­ly requires prop­er­ty as col­lat­er­al, which makes things tough for those who don’t own a house.

Some would no doubt say if you can’t man­age to buy a house, you prob­a­bly shouldn’t be aim­ing to expand a busi­ness to larg­er or mul­ti­ple loca­tions but giv­en the bizarre state of the UK hous­ing mar­ket, we’re not sure that wash­es.

Even so, when we see a crowd­fund­ing cam­paign launch, unless we know the brew­ery or retail­er in ques­tion has a cult fol­low­ing and strong mar­ket­ing game, it increas­ing­ly strikes us – right­ly or wrong­ly, on an instinc­tive lev­el – as a tar­get paint­ed on their flank: they’re weak, ripe for pick­ing off, and this is their last shot.

Of course we under­stand the appeal to busi­ness­es of crowd­fund­ing, and it’s not always bad news. We also know that many investors go into it with eyes open, as a bit of fun.

But the longer term prob­lem is this: if, as we read it, crowd­fund­ing is about the con­ver­sion of cus­tomer good­will into hard cash, every fail­ure or per­ceived betray­al reduces the amount of good­will in the col­lec­tive pot, and its val­ue.