Craft Beer: The Funding Landscape

Transcription

1 Craft Beer: The Funding Landscape Adam Hardie Partner, Head of Food & Drink Johnston Carmichael 22 June 2017

2 Introduction to Johnston Carmichael Largest Scottish accountancy firm, with 57 Partners and 650 staff. We work with over 14,000 SME businesses, we specialise in food and drink, including many craft brewers. Immersed in craft beer, we understand the issues, have specialist expertise and can make a difference to your business growth. The Brewers Association of Scotland was also formed in our office.

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4 Some brewery clients & recent deals

5 Craft Beer Funding Landscape My Agenda Craft Beer in Scotland The Funding Landscape Grant, Debt or Equity? Crowdfunding Explosion What Investors are Looking For The Fundraising Process

6 Craft beer in Scotland

7 Business Growth Drives Funding Requirements

8 We understand business growth 50,000,000 JOHNSTON CARMICHAEL TURNOVER Growth 37,500,000 Millions 25,000,000 12,500,

9 Craft Beer: The Funding Landscape

10 Meantime Brewery sold for 120m, profits 5m

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12 BrewDog sold 22% for 213m valuing business at 1bn

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14 Craft beer funding landscape What are we seeing? Craft Beer 20%+ growth in UK/US o o o o o o o Supportive UK Government Good tax incentives for investing in businesses and by businesses i.e. SEIS, EIS and R&D Tax Credits. Relatively benign Capital Gains Tax environment for sale of business with Entrepreneurs Relief at 10% Supportive Scottish Government Scottish Enterprise Investor Ready assistance with business planning costs and other. Scotland Food & Drink (includes TBAS) 10m funding Grant Funding RSA, FPMC, Start up/other grants Scottish Co Investment Fund - 10k - 1.5m with private investors Scottish Loan Fund Need Turnover 1m, funding of 250K+ available likely unsecured (Mavern Capital)

15 Craft beer funding landscape What are we seeing? Scottish Edge - like food & drink innovation, 8m invested across 240 companies inc. Brewgooder Banks (and Finance Brokers) Like Breweries - Overdrafts, term loans, invoice financing, Asset Backed Lending, cashflow lending. Enterprise Finance Guarantee (EFG) scheme Business Angels - large numbers of individuals and networks, seeking Enterprise Investment Scheme investments (tax relief) up to 500k Alternative Funding Explosion - Crowdfunding and Peer-to-Peer Lending Brewery sales values up Scottish food and drink companies attracting overseas investment Wallace Equity

16 A Changing Society: 9 out of 10 millennials will change their brand of purchase if it has a social purpose.

17 Grant, Debt or Equity Funding? Take the Right Kind of Money at the Right Time

18 The funding options R&D Start-up Early growth Accelerated growth Sustaining growth Maturity growth Grants Public sector Sales R&D tax credits Equity Equity FFF Business Angels Business Angels Crowd funding BGF Venture Capital Venture Capital Debt Debt Other loans SLF Bank loans Bank loans Trade buyer / IPO

19 Crowdfunding Explosion

20 Online finance raised in UK

21 Not all crowdfunding is the same! DEBT EQUITY REWARD INVOICE FINANCE CONSUMER LENDING 909m BUSINESS LENDING 881m PROPERTY LENDING 609m 325m 332m 54m Source NESTA 2015

22 300% Increase in Online Borrowers

23 What Investors are Looking for

24 What investors are looking for 1. Produce high quality beer 2. People who are embed in brewing, know the industry 3. People who understand how to reach and sell to customers 4. People who have done it before 5. People with strong values 6. People who embrace diversity and are flexible to change 7. People who will build a business that can scale 8. Understand how much funding is required. 9. What the funding is for and what are the milestones? 10. Likely future funding requirement and how do they get their money back

25 How to meet investor expectations 1. Answer all points on previous slide! 2. Write a detailed business plan covering these issues 3. Have monthly financial model backed up by detailed assumptions 4. Illustrate the returns to investors 5. Consider the tax implications of investment i.e. EIS, loans versus equity, structure of vehicle i.e. partnership v limited company 6. Consider tax issues within the business i.e. efficient use of capital allowances, R&D tax credits, VAT/duty etc.

26 The Fundraising Process

27 The fundraising process Stage 1 Stage 3 Stage 4 Stage 2 Stage 5 Business plan & financial forecasts List of funders to approach Gather due diligence documents Initial approaches to parties Initial offers received Assessing then Negotiate Offers Agree Heads of Terms with funders Due diligence - commercial, financial, legal Investment agreement and other legal documents Negotiation on terms of investment including price Final drafts of legal documents agreed Completion of funding Typically, 3 to 6 months

28 What to avoid when raising finance 1. Don t leave the fundraising process until the last minute 2. Don t over-egg the financial projections 3. Don t say our market is worth 800m and we will capture 10% 4. Don t say I want 1m for 1% of my business 5. Don t overstate the your product don t lose sight of the customer

29 The downside of raising money Dilution of your equity Less or loss of control Commercial and Personal restrictions Investments is typically exit focused? (Double edged sword) Onerous terms Security personal and business Fees - direct and indirect

30 The fundraising process Summary of key points 1. Have a strong set of financial projections, a business plan that has been challenged 2. Understand where your funding gap is 3. Start your fund raising process early 4. Go to your own bank first, then other banks then equity funders 5. Have a clear proposition of what you are going to do and then how you reach and sell to your customers 6. Will you retain as much equity as possible in light of the valuation? 7. Consider what terms in the investor agreement are reasonable, standard and can be negotiated in your favour 8. Keep running the business fundraising is a full time role.

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