Craft beer has become over-reliant on crowdfunding to compensate for unsustainable business practices, London brewer Pressure Drop has claimed.
In a state-of-the-nation style address to the industry, Pressure Drop co-founder Sam Smith said the proliferation of craft beer buyouts by big brewers in the 2010s had led to a swathe of breweries being founded “directly for the purpose of being acquired”.
These brewers, Smith said, often had “no regard for the year-on-year sustainability” of building their business. Many had turned to crowdfunding to grow in order to “risk other people’s money rather than their own”, he claimed.
“As with the large-scale expansions we saw in the craft beer world in the late 2010s, my thought watching this happen was: this can’t possibly work for everyone,” Smith said. “And of course, it has not worked for everyone.”
Crowdfunding, Smith claimed, was a “great concept” in principle, but had been “corrupted and abused” by brewers using it to fund unsustainable practices such as under-pricing their beer and to offset “large losses year after year”.
“I have no doubt that ‘craft beer’ is a sector in which crowdfunding has been abused more than most,” Smith said. “There are breweries who go back to this cash well time and again, always with a transparent … story about some grand investment that is planned with the money, or some noble cause that will be served.
“Then when you look at the financials of the business it is clear that what they are looking for is simply cash that will keep them going until, presumably, the messiah arrives and they are acquired for some vast sum.”
He added: “It is obvious that their day-to-day activities do not sustain the costs of the business.”
Although Smith declined to name which craft brewers he believed were guilty of “abusing” crowdfunding, several of those to have raised money from the crowd have gone bust or been sold in distressed deals in recent years.
Wild Beer Co, which raised close to £2m with the stated ambition to build a new state-of-the-art brewery in 2017, was sold in a pre-pack administration to private equity firm Risk Capital Partners in January 2023. It was subsequently offloaded to St Peter’s Brewery owner Sunrise Alliance Beverages in September last year.
Brew By Numbers raised £530k via crowdfunding in 2020, but was sold on to private investment group Breal in a distressed deal in August 2023. Investors saw their shares wiped out as a result.
Earlier this week, Gipsy Hill was sold as a going concern to Sunrise, with investors from its 2022 raise told they would not see a payout before the business returned to profitability in 2028 at the earliest.
Gipsy Hill had racked up cumulative losses of almost £7m since 2014, filings at Companies House showed.
“At times it feels like companies like ours are a quaint anachronism,” Smith said.
Pressure Drop was just “trying to run a sustainable business that makes a good product and sells it for a price that bears some relation to what it cost to produce”, he added.
No comments yet