According to the Cincinnati Business Courier, a startup brewery in Walnut Hills has raised more than 500K through equity crowdfunding. The project is inspiring for several different reasons. First, the project seeks to transform a dilapidated building, once iconic, into an anchor commercial space for the Walnut Hills neighborhood. Second, the
Considering Esoteric Brewing’s success, we’d like to explore the potential return on investment
(As the campaign is ongoing, we won’t discuss specific aspects of Esoteric Brewing’s campaign or their financials, but will explore early-stage craft breweries in general).
Crowdfunding Local Retail
Equity investment is an attractive form of capital for small businesses and retailers for several reasons. First, the firm could leverage equity financing to obtain more debt financing for equipment and space. For first time founders, a down payment on debt financing at 10%-20% of the total loan is a significant hurdle. Many can’t draw that capital from savings, especially in today’s economy and especially if they are young.
Second, equity financing allows a small business to expand the scope of their business so they can more realistically find a break-even level of production that accounts for their own labor. For local retailers it is difficult to find a business model that is expansive enough to reach a healthy break-even. That might include adding a new line of business or more production capacity. Scale doesn’t mean finding a business model that becomes the next Billion Dollar Unicorn. For local businesses, scale can simply mean financial sustainability through adding one or two complementary lines of revenue.
For a brewer, having the opportunity to immediately launch a restaurant and food service might help speed up financial sustainability.
We can look at industry data to understand the potential upside of an investment in a brewery. Breweries and restaurants are common among equity crowdfunding opportunities.
The Brewers’ Association provides industry benchmarks based off a survey of craft brewers. The cost per barrel of craft beer varies greatly based on how much volume a brewer is shipping. If they are less than 1000 bbl. per year the cost ranges from $32.31 to $65.78. The report breaks down electricity, natural gas, water, CO2, and wastewater costs. If the company is producing over 100,000 bbl., then their total costs per barrel may not exceed ~$7.00.
The economy of scale is crucial to a brewer’s profitability. However, even at the early stages, brewers can turn a healthy per barrel revenue as each barrel might sell for hundreds of USD.
In a recent article, we explored the continued growth of craft beer’s market share that craft is winning from domestics. If those trends continue, an available market share exists for new or expanding local brewers.
Can an early-stage shareholder earn a return on investment?
The Brewers Association ranks the top 50 American craft brewers. Three brewers are listed below. If a brewer were to crack the top 50, an early investor via crowdfunding could earn a substantial multiple. Below we found revenue for
|Brewer||Brewers Association Rank||Revenue/Barrels||Source|
|Sierra Nevada||3||$250 Million in 2014; 1 Million barrels||Source|
|21st Amendment Brewery||26||105,000 barrels in 2017; estimated at ~25 Million||Source|
|Troegs Brewing Co.||30||100,000+ barrels in 2017; estimated at ~25 Million||Source|
What if the brewery doesn’t scale up?
Adding a restaurant to a brewery is smart business. According to Restaurant Business, the 100th top restaurant in the US earns approximately $12,950,000. If the restaurant earned a more modest $250-$500K in revenue annually, combined with revenue from the brewery, the enterprise is still valuable. The asset-intensive nature of production is a bonus to shareholders. Modest revenue of approximately 350K for the restaurant and 150K for the brewery allows shareholders to break-even on a pre-seed valuation of 3 Million USD.
Demystifying Early Stage Investments
To further evaluate a seed investment into a brewery, one could explore local demographics such as how many people live nearby, resident’s discretionary income, foot traffic, etc.
The experience and capability of founders are also an important metric, but one could dive deeper by analyzing nearby competitors, searching for critical reviews of the product, and evaluating the founders’ strategic plan.
In conclusion, early-stage equity investments into breweries can return money to shareholders (assuming a healthy secondary market for investor liquidity) and receive the same rigorous analysis as