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September 16, 2014 - Latest:

BrewDog: Rise of the fanvestor

  • 11 May 2012

Forward looking investors have to decide what is better value. They must select between six months of a chief executive's time and the same amount going into beer making and distribution facilities. It's a decision between institutional investors and "fanvestors", the near 6,000 beer drinkers who have backed BrewDog with their own cash as well as bar purchases. Finally, they have to choose between a global company with a marketing budget of tens of millions and one whose skilful use of social media has produced publicity and growth that its larger competitor can only drool over.

But before looking at what goes and does not go for the two models, Diageo investors have to work out who is to blame for the fiasco which saw the Guinness and Johnny Walker owners with interests from Malaysia to Mayo handing the micro-brewery countless millions of free publicity while generating bad headlines for itself.

If the chief executive can take the credit for successes – including a doubling of the Diageo share price over the past three or so years – then he should also take the blame for one of the most outrageous acts of corporate stupidity. This ensured that the many millions who had never heard of BrewDog and its Fanvestor financing now have the Scottish firm and it money raising strategy on their radar.

Last weekend, the British Institute of Innkeeping held an awards dinner for the Scottish drinks trade in Glasgow. It was sponsored by Diageo. BrewDog knew it had been voted "top bar operator" because it had been told so and the trophy had already been engraved with its name.

But for reasons still unexplained, Diageo executives told the organisers that they would withdraw future sponsorship if BrewDog was awarded the prize.  Despite the engraving, the awards organiser tried to give the trophy to another firm which promptly refused to accept it.

Cue for BrewDog, which has based its success so far on its clever and low cost use of social media, to unleash a torrent of Twitter protest, ensuring that an awards evening which should have been of little interest outside the Scottish drinks trade went global.

Diageo has now been forced to grovel and apologise – the fate of those responsible for the costly and pointless pressure on the awards organiser is not known.

BrewDog's finance model appears to be unique in the UK outside of the music industry. Fanvestors are simply people who are enthusiasts for the product who have the  money to invest in an idea.

How does fanvesting differ from other methods of raising finance?

  •  Unlike conventional start-up finance, fanvestors do not start with a financial proposition. Instead, the starting point is the product itself. Fanvestors in the music arena, for example, hear the words and tunes, like them and then see the possibility of profitable expansion.
  •  It can be the reverse of crowd-sourcing where social media is used to publicise a proposition, convince investors and take their money. Fanvestors are already convinced of the proposition because they already either listen to the music or – in the case of BrewDog – already like the beer.  So they have an incentive to invest in order to further spread their taste, joining others to what you do is central to social media strategy.
  • Fanvestors become individual ambassadors for the firms in which they invest. It is not a passive or purely financial involvement.
  • Fanvesting needs Financial Services Authority regulation and approval while other methods of raising capital do not.

What other industries could raise money via fanvesting?

Almost anything in the consumer arena. This could include:

  • food where specialist products have their fan base which would be willing to spread the message and put their money behind it.
  •  Fashion where the costs of entry can be low but expanding past that starting base demands more capital.
  • Specialist electronic goods which need to better publicised. Conventional advertising can be prohibitively expensive so a mix of social media from incentivised investors can produce dividends.
  • Websites  -  many fans of  blogs and other sites often wish they could expand their reach. Fanvesting gives them the chance to do this.
  • The essential is that the product can start from a low cost base. It would not be suitable for projects that demand large amounts of capital upfront.

 

More on Mindful Money:

Does ‘crowdfunding' stack up for investors?

Attack of the fund-sucking Zombies

The future of brands

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