Friday, 13 February 2015

The ethics of crowd funding

Another brewery is raising money by crowd funding and once again I'm troubled. The first time I saw this was when a prominent craft brewery offered a small share of the company at a very high price, shortly after selling a chunk of shares to another business at a much lower price. The shares were all snapped up by dedicated fans of the brewery, and share ownership did give discounts on purchases so it could be thought of as expensive fan club membership.

The latest brewery crowd funding share offer values the company at over eight times its turnover. Now, my interest in economics seldom goes beyond "it's high time we abolished money" but I can't help but think that this doesn't look like a great investment. Fan club type benefits are again offered to shareholders, this time on a sliding scale.

It's the general unsoundness of these monetary investments that troubles me. Is getting your fans to pay a premium for token share holdings in your brewery a decent way to run a business? I suppose it does make your customers more involved with the company, even if it's only akin to having a fan club. Or is it simply cynically milking your most dedicated customers for all their worth?


  1. It's an illusion of involvement though, innit? A fanclub operation is at least honest explotation of the fans. None of it really does anything about all that underlying alienation, but.

  2. I haven't made the effort to work out which brewery we're talking about, but it's impossible to say whether or not it's a good investment based solely on turnover. One would need to know how much of that is profit.

    But I'm splitting hairs. You've hit the nail on the head - it's just a big fancy fan club, and there's nothing wrong with that as long as subscribers are not wilfully misled into thinking it's anything more.

  3. Very good point. That being said, I find what those breweries are doing a lot more acceptable and ethical than what Stone did with their crowdfunding scheme.

  4. As an investment they are piss poor.

    They are souvenirs, expensive beer mats for fans. Like a football fan having a share certificate of Manchester United in a frame on the wall next to a picture of Charton/Best/Law/Cantona & Giggs.

    I think the football fan knows his certificate is not an investment and does not treat it like his ISA, hoping to have something he can cash in. I hope the beer fanboys know the same about their certificate.

    1. That's exactly where I was going with my analysis!

      (Sorry Ed, I know you've seen it already.)

  5. The people keen to hand over their money seem to think they're making a sound investment, which is certainly not what the figures say to me.

  6. As someone who has just invested in said brewery I think most people are probably well aware that as an investment it's probably not an overly good one. Although I imagine the first round of equity punks have seen a fair old increase in the value of those shares. It would be interesting to see the average amount of investment and if many people had gone above the basic reward levels.

  7. I think there's a change of vibe.

    Back when I paid my £460 into James & Martin's retirement fund there was zero element of "investment" for me and neither for almost all the other folk I know who got into it. (That was 2x "shares" by the original pricing, one each for Kat and I.) The vibe was very similar talking to folk during the 1st AGM.

    It was all a bit like buying your patch of Laphroaig, or whichever distiller it was who was doing that stuff. Sure a bit more £££ - though really £460 isn't all that much to a lot of folk. (It wasn't to me at the time.)

    They tell us our BD shares are worth more now (and are 20 shares, not 2). Not that there's a ready way to test that or cash it in :) [If there was I'd have cashed in half to buy Yeastie Boys shares!]

    Subsequent BrewDog funding rounds felt a bit more iffy TBH and I was worried folk were putting more than "throw away" money into it.

    This current gig has that different feel but a bit worse, or maybe I'm just a lot more cynical. We have amateurs putting on financial adviser hats and talking up the value of the investment, etc. Which also makes me pretty uncomfortable. If I were some influential beery type person I'd be pretty worried about telling the world they ought to be *investing* money in this scheme. If folk look up to you and think your opinion carries weight then you may be influencing a serious investment decision on their part. It is of course ultimately their fault if it all goes titsup...but still, that'd weigh on my mind.

    IMO spend your money on the beer, if you've got more then spend it on other tat too. Fund these businesses properly by buying their stuff and let them use sound and professional funding sources that have a better idea about judging the risk involved.

    I'm not anti-crowdfunding. I like the sort of crowdfunders that build a new thing and offer a tangible reward, even if at a slightly higher price. But the "share" concept bugs me, especially when it is wrapped up as sound "investment".

  8. Additional: I would have tossed some money at Yeastie Boys by the way, in for the minimum to go along for the ride. Because I like their ride and their story, and love the crazy beers they devise. But by the time I got up that day the chance was well and truly over.

    And I've no problem with people tossing money at Camden to jump onto their ride too. (Seems a bit of a merry-go-round compared to the Yeastie Boys roller-coaster IMO, but hey, each to their own.) So long as these folks realise the odds are very much that they will not see returns above the market average. (But I hope when Camden "exit" [Sell to Molson InBev in 2025] they get a big wad of cash.)

  9. But Yvan, they're not actually along for the ride. They're merely spectators. Just like the rest of us who didn't fork-out whatever sum. Merely giving money to someone doesn't auto-magically make them mates.

  10. Folk only need to _feel_ they're "along for the ride". And it doesn't take much to do this. Give them their certificate and a sort of membership card and you're pretty much there. Throw a little party or provide some other sort of fanservice every now and then they're your mates for life.

    If those folk are happy to buy into that club then good for them. People spend their spare £££ on all kinds of daft crap. I think I'd be happier with them putting £100 into Camden than some idiot football club, for example :)

  11. Yes, but the question isn't about the ethics of investing in this kind of scheme, it's about the ethics of fleecing your fans. People are free to be as daft as they like with their own money, but that doesn't mean it's a good thing to treat them like mugs.

  12. Is it a fan club? Or is it cynical milking? I'd have to wonder, do the folk behind such schemes really get up in the morning and think with glee: "OK, so how many fans can I fleece today!?" Seems unlikely. Perhaps I'm just not actually cynical enough.

    They're tapping into cheap funding and the reason it is cheap is that the funders haven't much of a clue.

    Somewhere in between? Because they think real proper investment or lending is too expensive or inaccessible they've turned to what has recently arisen as a viable alternative. Too attractive a deal to ignore. Is is exploitative? Almost certainly IMO. Should this weigh on the conscience of the folk making the offer: yes. Are they fraudsters: no.

    Is there a chance folk will be "suckered" by this and put more money up than they really ought to. Yes, IMO. There's a total lack of sufficient warnings regarding the quality of the investment - it doesn't smell honest enough to me. So, is it ethical?: not in my opinion. Not due to what it is, but due to how it is presented.

    Was EFP ethical: no.

    That's the current state of my thinking at any rate. (It is always subject to change.)

  13. Well, no, I don't suppose many people are honest enough to say to themselves "how many fans can I fleece today?" I expect they delude themselves by talking about "monetizing the fanbase". It really doesn't matter how we try to euphemize it away. It's still a con. All good cons leave the mark happy (at least for a while).