Camden Town brewery has had a highly successful equity crowdfunding campaign. The company was originally looking to raise £1.5 million but has so far raised over £2.3 million from 2,127 investors for 4.54% equity.
However, Camden Town has announced that it is selling a 20% stake in the business to a Belgian manufacturing family for £10 million. The family’s investment in the brewer values Camden Town at £50 million, lower than the £75 million initial valuation of the company in its Crowdcube campaign.
The Crowdcube round is still open and the initial valuation has been revised down to £50million, so the crowd will get the same price as the £10m investor. However, the 33% drop in valuation has caused some slight controversy and mutterings from the ‘crowd’ who originally invested in the company. Prior to the announcement of the new valuation, over £1.5m of crowd money had invested at the higher valuation.
The fact that the brewery has accepted a much lower valuation from the new investors begs the question of how overvalued the company was in the first place. It could also be suggested that the company were taking advantage of the ‘crowd’ who are unsophisticated investors and do not have the tools or knowledge to delve into a company’s valuation.
However, Jasper Cuppaidge, Camden Town founder, put a positive spin on the move, pointing out that those who had already brought into the company via Crowdcube would now have a larger stake in the brewer.
Whilst the Belgium manufacturer is investing at the same price per share as the crowdfunding campaign investors, it is understood that the new investors have preferential terms. The new investor will become a board member of the brewery and is being issued with 225,000 perpetual convertible preferred shares 3% payment in kind (PIK), and 25,000 ordinary A shares. In effect they will hold about 20% of the shares in the brewery. The preference shares means that in the event that the company is liquidated or sold the new investor shall receive, in preference to the other holders of ordinary A shares, an amount equal to the price paid per preferred share, plus all declared but unpaid dividends on the shares. This means that the payout that investors from the crowdfunding campaign might get is limited, as the investors from Crowdcube were issued B shares unless they invested £25k or more.
Cuppaidge will remain the largest shareholder after the investment, with 40% of the business. Together with his wife, father-in-law and three partners who collectively own 75% of the business.
It is clear that as the crowdfunding industry develops more issues of this kind will arise. Perhaps more protection and education for the retail investors is needed in order to prevent problems arising. Mike Baliman, an AltFi columnist and risk guru, recently wrote a highly informative piece on the risks of crowdfunding, which highlighted the possibility of exactly this sort of situation occurring.