“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.