A Little Help: Breweries Turn to Crowdfunding Sites for Money, Marketing

The Business of Beer by | Sep 2014 | Issue #92

Over the past several years, fundraising through the internet—crowdfunding—has emerged as a means of raising seed money for a wide range of projects. Websites like Kickstarter, Indiegogo and CrowdBrewed have changed the game for upstart breweries seeking a foothold in a crowded beer industry. Despite its popularity, however, details on whether to and how to use crowdfunding to open a brewery remain scant. Many campaigns do not reach their goal, in part because this method of generating capital isn’t the best choice for every young beer business.

The first thing companies must decide is whether to raise money in exchange for specified rewards or by offering equity (i.e., a share of the business). While both options are potentially viable, most brewers chose the rewards-based model—and for good reason. Once someone becomes an investor they’re entitled to a say in the business and access to proprietary information. Plus, numerous stakeholders can potentially scare off more significant investors down the line. For this reason, brewers typically choose to raise funds through rewards where, for a certain donation amount, the supporter receives a specified good or service.

While money might be the ultimate goal, crowdfunding serves other purposes, too. For one thing, it gives brewers valuable insight into the level of interest and support within their community for a new brewery or brewpub. As Joel McClosky of Four Saints Brewing Co. puts it, their Kickstarter campaign was a “litmus test” to see whether Asheboro, North Carolina, which had been dry for over 50 years, was ready and interested in supporting a new brewery.

Timing is another important consideration. While there is no absolute right choice, the optimum time to ask for money is after a clear business plan has been drafted, but before the ribbon cutting. Breweries that launch too early may have a hard time identifying exactly how to use the money raised, and those that launch too late risk sending the message to supporters that their contributions don’t matter. For example, when James Cain of Pennsylvania’s Vault Brewing Co. tried to determine why Vault’s Kickstarter campaign was not successfully funded, potential supporters shared that they didn’t understand why the brewery needed their money as it seemed like it was set to open with or without additional funds.

But the most important step is building a successful campaign upfront. As Eric Feldman, co-founder of Brooklyn’s Braven Brewing Company explains, “we spent three months mapping out our entire campaign strategy, allowing us to just focus on execution once the campaign was launched.” This means researching successful and unsuccessful campaigns to determine the differences between the two, reaching out to others in the craft beer industry for advice, noting the types of rewards offered to get ideas and to avoid being too similar, and determining the reward breakdown as well as a reasonable financial goal.

Another key issue breweries struggle with is determining the cost of the campaign. Producing and shipping reward merchandise can be a significant expense, and crowdfunding websites charge hosting fees. Cognizant of the shipping costs, Gretchen Schmidhausler of New Jersey’s Little Dog Brewing Co. specifically told backers that anyone who wanted glassware would need to pick it up at the brewery. Similarly, Wyndee and Dave Forrest of CraftHaus Brewery in Nevada kept costs down by offering backers non-tangible rewards such as the chance to brew their own beer at the brewery. By focusing on costs, both companies were able to put more funding directly into their brewery. They could also be confident that people who supported the brewery online would visit the physical location.

For aspiring brewers working other jobs, living and breathing a fundraising campaign for weeks on end is another challenge. As John Rockwell of Los Angeles Ale Works describes it, the campaign was an “insane whirlwind focused on keeping the momentum going through daily social media posts, regular updates to our crowd source home page, local media outreach, and hosting local events such as pint nights to raise awareness and create interest.” Rockwell learned that running a successful campaign requires lots of time and attention. Simply posting a video and waiting for the funds to come in will not get it done.

And while it may be tempting to relax and breathe a sigh of relief once the campaign closes, brewers should remember that the goal of any campaign is to maintain the goodwill it generated. For this reason, David Carn of Alabama’s Back Forty Beer Co. started boxing up rewards the day after his ended. He also took pains to keep those who supported the campaign informed of the process their money helped to make possible. Finally, there’s the matter of the IRS. They treat any money raised through crowdfunding as income that must be reported and taxed.

In the end, when used correctly, internet fundraising provides upstart breweries and their supporters the chance to be a part of the movement toward localized, high quality craft beer.