Brewdog record falls as crowdfunding model fails

For the 220,000 ‘equity punk’ investors who put money into BrewDog, the final insult came in an email early March. It reminded them that while their investments were effectively worthless, they were still entitled to a free beer on their birthday — and a 20% discount if they showed a staff member a tattoo of the firm’s logo.

The Aberdeenshire-based brewer’s downfall has been greeted gleefully in some quarters. It’s horrified the small army of crowdfunders attracted by a non-conformist, anti-corporate brand that promised to do things differently. The fallout from its sale to American cannabis and alcohol group Tilray Brands at a knockdown price has also raised questions about the concept of crowdfunding itself.

How equity crowdfunding became mainstream

Equity crowdfunding — exchanging investment for some form of equity, rather than interest or non-monetary rewards — has moved well beyond its niche origins. UK market leaders Crowdcube and Republic Europe now often raise £1m or more for businesses, and have become financial institutions in their own right.

BrewDog raised the majority of its crowdfunded £75m on its own platforms. That concept has now “definitely backfired,” said Ross Brown, professor of management at the University of St Andrews. “It’s really [been] quite a distasteful exercise,” he said.

“Equity crowdfunding as a general principle is still quite a good idea. It’s been very useful for some very entrepreneurial companies and small investors — but not many investors make a lot of money from it.”

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The UK has adopted the concept since the Financial Conduct Authority began regulating it in 2014. Platforms collectively raised £300m in 2024. Around a fifth of UK investments in early stage start-ups, and a sizeable chunk of seed-stage deals, are now crowdfunded.

The concept has thrived partly because the banking environment for UK SMEs is imperfect and the debt market is expensive. As Brown put it: “Banks do not like start-ups — they’re too risky, and UK banks especially are exceptionally risk-averse. Start-ups have no collateral, no turnover, no IP in many cases, so banks won’t touch them.”

Many firms are so attracted by the idea of a ready-made fanbase with a financial commitment that they’ll crowdfund even when it isn’t particularly necessary. Bruce Davis, chair of the UK Crowdfunding Association, said investors get equal benefit from a sense of connection. “People want to invest in things that are more connected and real, that they can relate to and where they feel their money is making a difference,” said Davis.

Proponents say crowdfunding increases the diversity of who gets British capital, by taking power from a London-centric VC community and encouraging a meritocratic marketplace. Whether it brings financial benefits is harder to gauge. Republic Europe, in its earlier incarnation as Seedrs, claimed a 12.9% rate of return, while more recent estimates for the British market have hovered around 9%. Within that, most investors will end up losing their money — it is, said Brown, “effectively like gambling.”

The potential prize is to follow in the footsteps of Revolut: the financial app attracted £1m from 433 investors on Crowdcube in 2016. Industry observers believe those investors enjoyed an 800-fold return as Revolut reached a valuation of £75bn.

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BrewDog — despite only undertaking one funding round on Crowdcube — will become just as synonymous with crowdfunding. The brewer repeatedly broke crowdfunding records with its ‘Equity For Punks’ scheme, and its downfall has been hideously public. That arguably began when private equity firm TSG took a stake in 2017, requiring a rate of return that grew its share exponentially as performance nosedived, squeezing out the ‘punks’ to the extent that when the company was sold early this year, what little was left will likely go only to TSG and its preferential status.

The BrewDog story is a reminder that crowdfunding, for all its democratic appeal, still operates within the same hard rules of venture finance that have always favored large investors. The structure that let founders and private equity cash out while retail investors were left holding near-worthless shares isn’t unique to this case — it’s baked into how these deals work, even if the marketing suggested otherwise.

The dilution problem most investors miss

Dilution of that kind isn’t something most investors prepare for, even though it’s made clear in crowdfunding terms and conditions. It can occur even if a firm is successful, for example if it undertakes a new funding round that gives preference to new investors. That is compounded by a lack of exits, meaning crowdfunders see a return only if a business is sold. Davis called the exit issue a “regulatory failing” he’d like to see addressed. He pointed to the potential for secondary market opportunities and new deals — including one between Crowdcube and the London Stock Exchange — that would give retail investors broader access to private markets. New regulations enacted by the FCA in January will also bring a wider swathe of larger businesses into the scope for crowdfunding.

Crowd investment, said Davis, is marketed as high risk and comes with an “appropriateness test” all investors must pass and a cooling-off period other forms of investment don’t have. He believes the level of regulation has had a “significant and immediate impact on the industry” and should be reviewed.

“The people who are involved and currently investing in crowdfunding are very aware of the risks,” he added. “While I disagree with the level of constraint, we are fully supportive of having regulated platforms that make sure people understand the risks they’re getting themselves into.”

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For those prepared to look deeper, the warning signs were perhaps always there with BrewDog. Co-founder James Watt wrote in his 2015 book, Business For Punks: “Why spend your own money when you can spunk someone else’s?” TSG has lost out considerably on the deal since BrewDog is now worth only a fraction of its peak valuation — which the company once claimed had reached £1.8bn. Watt says his failings “will stay with me.” But so, ‘punks’ might add, will the money, since he and co-founder Martin Dickie cashed out £50m each when private equity piled in.

Past peak crowdfunding?

BrewDog has done nothing illegal and worked within the regulations. The wider concern is what Brown called an “information asymmetry” in crowdfunding literature that means small investors don’t understand the market as well as they should. Some appear to be voting with their wallets: the UK market peaked at £773m in 2021, though regulatory requirements on investors are also a factor in its subsequent fall.

“We’re past peak crowdfunding,” said Brown. “A lot of investors are realising there’s not a big pay day. They end up owning shares, but if you own shares of a company that isn’t going anywhere you’re not actually getting any kind of actual return.” For Davis, BrewDog is an opportunity to reflect and create a market that works better for all parties. “If you look at BrewDog’s lifecycle, it had all the positive elements in the beginning — it grew the brand, it grew the business, it created customer advocacy — but when that business was going through problems, it needed a more flexible structure in order to raise capital and allow investors, as the business changes, to make sales [of shares]. We don’t have that structure at the moment.”

The future of crowdfunding, at least the kind aimed at mass market investors, is murkier than a pint of BrewDog Black Heart. Demand remains, from both businesses and investors, but another high-profile misstep may be one too many, for the market or its regulators.