BrewDog is back in the news today. Past and present employees have banded together under the guise of “Punks with Purpose” to release a letter. Allegations include a culture of fear, concerns for employee welfare and safety, lies and deceit, and governance built on a cult of personality. However, - there is one line in the letter that sticks out:
“Growth, at all costs, has always been perceived as the number one focus for the company, and the fuel you have used to achieve it is controversy.”
In 2015 ArchOver published a blog on the back of a really interesting AltFi piece written by Rupert Taylor which followed BrewDog’s unprecedented in £25 million fundraise. Raising the money over their own “Equity for Punks” platform meant eschewing the marketplace platforms such as Crowdcube and led to a campaign characterised by sticking two fingers up at pretty much anyone and everyone across the UK’s financial services spectrum. As of October 2020, BrewDog had raised more than £80.5m through crowdfunding.
Front and centre was James Watt, the CEO. Today he is the embattled founder that the letter makes a point to address directly. You may have seen him in an episode of BBC’s “Who’s the Boss” in 2016; his behaviour was judged as a “PR Disaster.” However, 6 years ago pretty much to the day, he was basking in the success of a record breaking crowd fundraise and was taking aim at the City and its “fatcats”:
“We are not the Rockefellers. We are Guy Fawkes. This is about changing small business finance for ever. By making profit king, the financial institutions of the City gave rise to the bastardisation and commoditisation of beer. We are burning the established system down to the ground and forging a new future for business from the flames.”
The letter suggests that BrewDog failed to live up to that Guy Fawkes monika. Perhaps their 2015 fundraise was a leading indicator that the anti-establishment rhetoric belied a voraciously establishment growth plan. Indeed, in Watt’s double-fast response to the letter he seems to blame the allegations of poor staff governance issues on the fact that BrewDog is a growth business, as if that offers fair justification for the actions alleged in the letter.
What can we learn from this? It is clear that the remarkable success in raising funding through such an unconventional route (especially in the post financial crisis époque of 2015) meant that BrewDog may have been able to avoid crucial checks and balances on directors.
By consistently going down the alternative finance route between 2015 and 2020, BrewDog was able to raise funding for vanity projects, list a bond offering investors 6% offering absolutely no security in the event of default, and even brew an “eco-friendly” beer with glacier water with the proceeds going to charity.
It seems like BrewDog was able to operate outside the carefully curated and moderated alternative finance ecosystem. There was a natural circuitousness in BrewDog’s 2015 fundraise; it was over their own platform instead of over a platform that will verify and analyse the proposition. For the bond, an interest rate of 6% does not seem to offer a fair return for the risk in lending without any security offered as back up in the event of default.
Secondly, the fact that BrewDog was able to run the “Equity for Punks” campaign themselves, completely unregulated and away from the glare of the FCA, will certainly have ramifications if BrewDog as a brand suffers lasting damage from the fallout of the “Punks with Purpose” letter. It would seem that the 3rd party analysis that should have addressed BrewDog’s ESG and corporate responsibility goals was instead filled with BrewDog’s own kitsch marketing ploys and headline grabbing stunts.
ArchOver is regulated by the FCA and is held to the highest standards as a result; it seems outlandish to think that BrewDog is able to offer numerous equity crowdfunding campaigns to retail investors without any regulation at all, particularly given the huge level of media interest and the amount of money that was raised, often in excess of what they initially pitched for.
Lastly, equity crowdfunding should be a force for good to prevent this type of behaviour. The fascinating recent proxy battle for seats at the Exxon Mobil board table will act as a cathartic line in the sand, and perhaps crowd funders and crowd lenders will be inspired to act in a similar vein. Over from more than 145,000 investors (as of October 2020) have contributed to BrewDog’s funding rounds; that is a serious amount of clout and noise that could prove a force for good in the long term, providing they have a proportionate say in how the directors run the business that is representative of their collective investment.
I shall leave you with Rupert’s unerringly accurate conclusion in his 2015 AltFi article on BrewDog:
“This particular dog looks to me more like a wolf – in fact I would be far happier to take my chance amongst the fat cats…“