Crowdfunding – is it a good investment?

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A really important part of the startup ecosystem revolves around angel investment. For most VC’s investing at the seed or early stage is very risky, and although they do get involved in these deals it is the exception rather than normal practise.

I have blogged a bit around crowdfunding which is increasingly popular but has yet to show a significant return for investors. The recent success for Brewdog in their equity for punks initiative has show that this can be a successful route for the company, but what about the investor?

Using Brewdog as an example, it has been very successful in raising capital for the company using ‘equity for punks’ scheme. But for the investors that not only love the brand, but want to help support it – they are looking for a return on the capital they invest.

Brewdog has over 6,000 shareholders and its latest offering raising just around £4m at over £100m valuation seems punchy to me, certainly based on £500k in operating profit in 2012 and a value of around 10x sales (forget calculating P/E ratio)

At some point their will be a requirement to create a market for liquidity for these 6,000 investors either through a public listing or a simpler and more likely internal equity market. At this point we will see the real value of the investment, up until then I am not sure I would be investing on these valuations – no matter how much I like the beer!

The negative around these punchy valuation numbers is that they may cause issues for future companies who want to use this mechanism to raise capital, but good luck to Brewdog in growing into this valuation, your 6000 or so investors have given you the tools and cash resources to do it!

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