CraftFund Featured in Milwaukee Business Journal Click to read the full Article Close Alert
Disruptive Capital For a Disruptive Industry
Craft is disrupting the beer industry. Craft breweries are disrupting the Big Beer business model by instead focusing on variety and smaller batches. A movement that started innocuously has now seized 10% of the total beer sales. It is expected to be a $17 billion industry by 2017. In short, the craft category shows no signs of stopping.
Crowdfunding is disrupting the capital markets. Previously, only the very wealthy could invest in breweries and other small private businesses. Once the SEC finalizes the JOBS Act, these same investment opportunities will for the first time be available to the average American and craft beer enthusiast. The potential to source smaller investment amounts from a much larger pool of investors will disrupt and democratize the traditional finance model.
The perfect pairing. Crowdfunding will help disrupt the beer industry in two ways. First, as an alternative source of capital to banks, crowdfunding will help craft beer gain more market share by providing capital for breweries in planning to get off the ground and established breweries to expand. Additionally, crowdfunding is disruptive capital that reinforces craft beer’s independence and anti establishment.
Investment VS. Rewards Crowdfunding
Rewards crowdfunding. Rewards crowdfunding is the process of sourcing capital online from a larger group of individual contributors. The contributions are best understood as donations since current laws do not allow the sale of equity to the general public. In exchange for a donation, individuals receive “rewards” such as a sample product or gear.
Brewery rewards crowdfunding. Startup breweries are increasingly using rewards crowdfunding to access seed money. So far breweries have raised over $800k through rewards crowdfunding. However, because of shipping regulations, breweries are effectively prohibited from providing a sample product as reward. This partly explains why the average brewery rewards campaign raises a modest $11k. Nevertheless, rewards campaign is not just about seed money and is great medium to broadcast a brand message. CraftFund currently offers a rewards platform for startup breweries looking to access seed capital and broadcast their brand.
Investment crowdfunding. Investment crowdfunding is the process of sourcing capital by selling equity online to a larger group of investors. Previously, companies were only permitted to sell shares to the very wealthy. Once the JOBS Act is finalized, small businesses will be able for the first time to sell shares directly to the general public. Therefore, an investor receives a stake in the company as opposed to a t-shirt.
Future brewery investment crowdfunding. We believe investment crowdfunding is the future in craft beer. Startup breweries will have access to more seed capital. Mid sized breweries will have a new source of capital to finance expansion. Regional breweries will have an opportunity to brand small by selling shares to customers and offering them a chance to become part of the brand.
All Eyes on the SEC
Timing unclear. The general public cannot engage in investment crowdfunding until SEC writes final rules implementing the JOBS Act. The SEC missed its December 31, 2012 deadline and the status of the new rules remains uncertain due to significant turnover in agency leadership.
Leave no craft beer lover behind. Other portals are launching investment campaigns for accredited investors while they wait for SEC final rules. We’re not going to do that. We believe an investment in craft breweries is as much about community and belonging as it is about a financial transaction. It’s hard to build that community when 90% of the population can’t participate.
Disruptive investor community. Therefore, we are seeking to form a unique and disruptive community of craft beer lovers interested in investing in craft beer growth once investment crowdfunding becomes legal. Join us and prepare to become a part of history.
A Disruption Based Out Of The "Brew City"
Join Our Disruptive Mission >CraftFund Story
The CraftFund story is firmly rooted in the "Brew City"--Milwaukee, Wisconsin. The story began with two good friends sharing a beer and discussing our passion for craft beer and the city of Milwaukee. We discussed our love for how craft beer disrupts the status quo as well as our passion for seeing our local place thrive. We also discussed visiting new places, discovering new beer, and experiencing others' passion for where they live. The conversation then shifted to a shared frustration over the relatively small number of craft breweries in Milwaukee given its rich brewing heritage. The more we talked the clearer the question became: how can we help advance the craft category?
Around the same time we were having these conversations, one of Milwaukee's storied breweries--Pabst Brewing Co.--was at the center of a seismic shift in securities regulations. Specifically, Pabst's search for a buyer inspired a grassroots campaign to crowdfund the purchase of the iconic brand. The attempt was wildly succesful, receiving over $200 million in pledges from over 5 million investors. Unfortunately, the campaign technically violated securities laws and was shut down by the SEC. The attempt to crowdfund the purchase of the Pabst nevertheless garnered attention from Congress and was an impetus for the historic JOBS Act that will allow companies to sell shares online to the general public.
It became clear to us that the JOBS Act could be a significant development for advancing the craft category. A desperately needed new form of capital will help more quality beer get to market as well as help existing breweries finance growth. Additionally, crowd sourced capital provides a new avenue of engagement that will energize a customer base and create the kind of brand advocates necessary to grow the craft category.
CraftFund is therefore the next chapter in a beautiful story about how small breweries are disrupting the beer industry and improving local places. Platforms have popped up around niche industries with passionate followers such as gaming and film. Why not the $10 billion craft beer industry? Our mission is to help unite the craft beer community in a disruptive project of growing the craft market and improving local places.
Join us and become a part of the disruption!
David Dupee, Craft Beer Enthuisiast & Founder
Read His Latest Blog Post >About David Dupee
David Dupee, Founder and Captain of the Ship
David grew up in Cincinnati, a city that shaped him and instilled a long-suffering love for the Reds and Bengals. After graduating from Davidson College and Marquette University Law School, David decided to put down roots and commit to the great city of Milwaukee. Professionally, David is an entrepreneur at heart who happens to have a legal and compliance background. Specifically, David has experience in the fields of civil litigation and government regulatory compliance. He loves to think about how current regulations can be used creatively to support growth in craft beer. He lives in Milwaukee with his wife and two sons.
Favorite beers: Zombie Dust (Three Floyds), Little Sumpin’ Sumpin’ (Lagunitas), Fixed Gear (Lakefront), Drafty Kilt (Monday Night).
Contact: david@craftfund.com
Advancing Industry Growth Through The Craft Beer Crowd
Join our growing community >JOBS Act
President Obama signed the Jumpstart Our Business Startups Act (“JOBS Act”) into law this past April, a development that could significantly impact the craft beer industry by creating an alternative source of financing based on new investment opportunities for the general public. Previously, SEC regulations precluded companies from offering shares to the general public without first registering the shares, a process that proved cost prohibitive for small businesses. A provision of the JOBS Act changes this reality as small companies will soon have the opportunity to offer up to $1 million in equity per year to the general public through crowdfunding intermediary portals.
What it means for craft beer investors:
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Individuals with annual income or net worth of less than $100,000 may invest up to $2,000 or 5 percent of their annual income or their net worth, whichever is greater, over a 12 month period. Individuals with annual income or a net worth of $100,000 or more may invest up to 10% of annual income or net worth, capped at $100,000 maximum aggregate amount, over a 12 month period.
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Craft enthusiasts can invest in one brewery or several companies as long as they do not exceed the annual cap.
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Subject to certain exceptions, an investor must wait a minimum of 12 months before selling crowdfunded securities.
What it means for breweries and other craft beer businesses:
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A brewery or small business will be able to sell up to $1million in equity online over a 12 month period.
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The crowdfund raise must be conducted through an intermediary crowdfunding portal.
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Principles with 10% or greater ownership in the company must undergo background checks. Additionally, the company must provide full and adequate disclosures with a business plan and a full description of their ownership and capital structure.
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Crowdfunded shares are exempt from counting towards the shareholder cap for private companies.
What it means for crowdfunding portals:
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To facilitate a transaction, portals must either be affiliated with a broker dealer or registered with the SEC.
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Crowdfunding portals must conduct due diligence on the company and its disclosures prior to approving a raise on its platform.
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Portals must ensure that each investor reviews the disclosure materials and understands the overall risks of investing.
June 10, 2013
Latest Blog:
A Critical New Source of Capital for Breweries
Once the SEC writes final rules implementing the JOBS Act, small businesses will for the first time be able to sell up to $1 million in equity per year to the general public through online funding portals. I have already written about how equity crowdfunding will appeal to breweries of all sizes that are looking to brand small and bridge the gap with customers....
F.A.Q.
Investment crowdfunding is both a capital and branding solution for breweries as it will allow breweries to build a brand in the process of raising capital. Investment crowdfunding is a much needed alternative source of capital in today’s tough lending environment. Additionally, it is a means to build brand advocates and win shelf space. Investment crowdfunding will provide the average craft beer enthusiast an opportunity to invest in breweries and become part of their favorite brands.
It’s delicious and contributes to and enhances a sense of place. Not only is it a distinct product of local pride that we rally around much as we do local sports teams, but it is one of the few products that naturally fosters discussion, congregation and community. It’s no surprise then that craft beer is a key economic driver in many cities. Craft beer is also a booming $10 billion industry that has been growing double digits the past several years at a time when the beer industry overall has contracted. Today there are now over 2000 breweries in the U.S. for the first time since Prohibition. With millennials as a key driver of this segment, craft beer looks to have staying power.
One of the greatest concerns with investment crowdfunding is investor protection. Because we are niche platform focused on craft beer investments, we will be able to tailor our investor education to highlight the risks specific to the craft beer industry. We will therefore attract like-minded investors that fully understand what they are getting into. If you are looking for the next Facebook, don’t invest on this platform. If you are looking for a company with a clear exit strategy, don’t invest on this platform. If instead you are looking for an ownership stake in a craft beer business, modest dividend returns, and potential shareholder discounts, then CraftFund might be a good fit.
No. CraftFund is dedicated to advancing the craft industry. Any business that is part of the craft beer ecosystem - brewpub, craft bar, hop farm, canning line, etc. - is welcome on this platform.
No, we believe CraftFund will be a capital and branding solution for breweries of all sizes. Start-up breweries will have access to more seed capital. Mid-sized breweries will have a new source of capital to finance expansion. Regional and larger breweries will have an opportunity to brand small by selling shares to customers and offering them a chance to become part of the brand.
Investment levels will depend on net income calculations. In effect, the maximum amount most investors will be allowed to invest every 12 months will range between $2,000-$5,000.
That will depend on the terms of each offer. In addition to the chance to become a part owner of your favorite brewery, we expect offers will include dividends as well as discounts and other shareholder perks.
Not right away. The JOBS Act prohibits the resale of crowdfunded shares for 12 months after the initial purchase. After the 12-month waiting period, investors will be able to sell shares through secondary markets.
No. We are still working out details but expect that most breweries and craft beer businesses will offer a separate class of securities with no voting rights. Owners will retain management control.
The JOBS Act requires the SEC to write rules implementing the new crowdfunding provision before investment crowdfunding is legal. The SEC did not meet its December 31, 2012 deadline to write the rules. The status of SEC rule making is up in the air as there is currently significant turnover in SEC leadership. Many are hopeful the rules will be released over the next several months and that crowdfunding portals will be operative by January 2014.
No. Securities regulations currently prohibit general solicitation.
Investment crowdfunding offers investors equity in a business. In rewards crowdfunding, on the other hand, your monetary contribution is best understood as a donation. Your contribution does not entitle you to any ownership stake in the company. Instead, as a contributor you receive perks such as free products and gear as well as the satisfaction of helping get an idea off the ground.
Yes. We offer a rewards platform in the interim period while we wait for investment crowdfunding.
The Numbers
Craft beer and crowdfunding are two nascent and trending industries. For the past several years, the craft beer market has grown double digits, including 17% growth in 2012. Today there are over 2400 breweries in the U.S., the most since the 1880's. Despite this growth, craft beer still only claims 6% of the total beer volume and 10% of total beer dollars. The craft category is expected to continue its steady growth and become a $17 billion industry by 2017. Crowdfunding is also in its early stages, having raised around $2 billion in 2012. However, new laws will open investment crowdfunding to average investors, which could dramantically expand the market. For example, the crowdfunding market would stand at $300 billion if the average investor invests just 1% of assets in crowdfunded projects.