We wanted to bring you an original story about a start up company, using equity crowdfunding, that has genuinely grown as a result. From Crowdcube's portfolio.
As you can imagine that wasn’t easy. But we did find one and it offers many lessons to investors, platforms and companies alike, on how things should be done. This company has shown how ECF should be utilised for the benefit of all stakeholders. Its success is real; not imagined, as in so many of the stories you read in the ECF press.
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Hop Stuff is a London based craft brewery. It was founded in 2013. We are grateful to the founders for giving up their time to share their story with us.
Hop Stuff was a brainchild of ex City couple James and Emma Yeomans. Fed up with life the City offered post 2008, they took a massive leap in dark in 2013 and set up Hop Stuff, from scratch with only an idea, a location and some experience in home brewing.
The first step was to raise funding and Crowdcube then, offered the perfect location – it was on a ride in the news and had not yet been hampered by massive overheads and negative returns. However, what was crucial to the success of Hop Stuff’s first CC raise, was the sensible approach taken by the founders. By offering 35% for £58k on an SEIS scheme, they made the bet a win win. Rewards would cover most downsides along with SEIS and if by chance the business was a success, investors were surely going to be quids in at that valuation.
James also points out that unlike Crowdcube now, where valuations have got to silly levels for businesses not tried and tested, the £58k they raised was for trials and the pitch was put to investors in this way – there was no stretching of the truth to obtain funding – it was simple initial proof of concept, seed round. If the trial worked they would ask for more and if it didn’t, they would close or look at other avenues.
Again, as James commented in the pitch and also when he spoke to us – this wasn’t all fingers into the wind. They knew where their initial market was, Woolwich and they had done their local research. In his own words -
‘In 2013 it was a pipe dream, and we launched a crowdfunding offer to basically validate our dream – if other people invested, it wasn’t just a crazy pipe dream! Fortunately, 71 people joined us in backing Hop Stuff Brewery, and I guess the rest is history’.
That pipe dream has gone on to raise more funding via CC in 2017 - £745k from over 600 investors at a valuation of £5.5m. It certainly hasn’t been plain sailing but the resolve is evident from the very fact that until this second raise, Hop Stuff had survived hand to mouth on the initial capital injection. By proving the concept, stress testing the systems and building genuine demand – not fancy superstore trial orders as so many do – the second raise was a massive success.
Here is the Q&A we had with them – as you can see the main issues that we are concerned about with ECF – valuations, lack of help from platforms, access to help from investors, lack of model testing etc are all evident in their experience. It also shows the advantage of using a service like ours, where we can help you to avoid the more obvious pitfalls.
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Q From your first raise in 2013, do you think your ideas of running a start up have changed significantly and are the plans you have now roughly the vision you had then? Any advice to likeminded people who wish to go it alone?
Yes, things snowballed beyond our wildest imagination. In 2013 it was our intention to open a small, local micro-brewery. We were always set on brewing “craft beer” (i.e. hoppy fresh little numbers) but it was our intention to do it locally, but always with the same ethos which is ‘craft beer ought to be for everyone’. This idea has carried us through the last 3 years; trying to remove some of the unwelcoming stigma of craft beer. We’re grateful that this has resonated with people, as demand has kept growing and growing. In business, you’re constantly re-evaluating what you’re doing, and you can only work with what you have. Fortunately, we have a very successful and popular formula for what we think craft beer ought to be.
In terms of advice; research and ask questions. We were so naïve when we first started. That is, to a certain extent, unavoidable, but I wish I’d worked a little harder to ask for more information.
Q Can you give me some numbers? How you have progressed over the years since 2013, if that was all in line with the projections. Has there been a moment when you thought - no this isn’t going to work?
We’re averaging about 136% growth year on year since we launched. We actually doubled our financial projections in 2016 versus the original crowdfunding targets.
There have been plenty of times where we could have given up – the financial pressures on a small company growing as quickly as we have with such limited capital is incredibly difficult. I owe a lot to my wife (Emma) who kept me sane throughout, and we always found a way to make it work. I think that dogged determination is key – a single minded stubbornness to say, “this will work”.
Q Have you gained any help from your Crowdcube shareholders? Have you gained any help from Crowdcube apart from in the funding? Do you think you could have achieved this without Crowdcube if you had another source of funding?
We have a lot of incredibly talented individuals within our investor base, many of whom have offered their services at times in our journey. We’re incredibly grateful to our investors for all the support, not just financial, since we opened.
I think we would have done something similar without crowdfunding, but access to funding is incredibly tight at the moment, and there aren’t many people willing to take risks on small companies. Crowdfunding is an incredible tool if used correctly. I think there are too many companies out there abusing it at the moment, and it’s for the funding platforms to catch and monitor this to ensure the platforms stay available for many years to come.
Q A number of start up artisan breweries have used equity crowdfunding but to date we haven’t seen any real progress from them. What is it that makes Hop Stuff different in your opinion? What are your top 3 qualities that make Hop Stuff as a company stand out?
There have been a number of crowdfunding success stories, I guess the most notable is Brewdog. There have been other, smaller companies that have flown under the radar a little but are doing incredibly well. I think the approachability is the differentiating factor for Hop Stuff Brewery. We don’t go chasing the highest ABV, or sourest sour, we focus on making big flavoured beers for the new-to-craft drinker. That’s our market, and we focus very hard on making sure we’re that brewery.
3 things: Team, Brand, Ethos.
Team: High quality sales and production teams making and distributing our lovely beer.
Brand: Make craft beer accessible
Ethos: Craft beer ought to be for everyone.
Q What advice would you give start ups looking to raise funding using equity crowdfunding? Do you think that the way the UK operates equity Crowdfunding will work in the longer term?
I think the system will need to change and adapt over the coming years to ensure its successful future. As I said, there are some companies that are inappropriate for crowdfunding that are unfortunately successfully getting through. I think a glossy brochure and good rhetoric isn’t enough, you have to demonstrate sound financial knowledge and a viable business proposition. I think there are a few high profile funds that I believe have the potential to fail, which may in turn hurt the market.
I’d advise anyone looking at it to do as I just said, make sure your business stacks up on all fronts before launching, it’ll make the Q&A a lot easier.
Q What has been your biggest mistake and your greatest moment since 2013?
Biggest mistake: Capacity issues. Since we opened we’ve been chasing capacity in order to keep up. The new brewhouse is completely overspec’d, but it allows us the capacity to grow quickly.
Greatest moment: Successfully closing funding V2. Every time you fund you take a gamble: Is the valuation right? Will people back the idea? Are people interested? Do they get it? The funding of round 2 was done over, what I would argue to be, the toughest time of year (Christmas), and still only took 18 days to hit target 1, and a further 3 days to surpass our upper limit. Having another 600 people backing the idea is mind blowing, and incredibly complimentary.
Q Have you had or applied for any help from UK DTI for your efforts in exporting your beers? If not do you understand why not and if you have, was it helpful? Do you have any advice for similar SMEs trying to export?
Yes, we have a good relationship with our counterparts at UKDTI – they’re extremely helpful when exporting to a new country, and valuable partners to know.
Q What do you think would have happened to your company if you had not managed to raise the second time on Crowdcube?
We’d have continued in the same way as before, with the same ambitions. It would have likely just taken us quite a lot longer to get there.
Q What are the plans for the next 3 years?
Firstly, we need to make good on all the promises we made when crowdfunding. We need to make sure Hop Stuff brewery is a successful brand, business and investment in the next 3 years. How do we do that? More of the same I think. We’ll continue to spread our message, invite people on board and promote craft beer wherever we can.
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Sure things are not yet complete – in fact this expansion phase is as dangerous as most. But the determination of the founders gives us hope that they will see this through and that the initial investors at a valuation of around £160k will be rewarded – as they should be.
It is also the case that we here had been highly critical of the first round and consequent performance - 2015 accounts showed the company technically insolvent. We are happy to hold our hands up and say we got this wrong – we had never spoken to or met the founders and there lies the difference between giving up and forging on. They have been successful to date by focusing on – knowing their customers, serving their customers, running a very tight ship, proving their model, working their socks off and presenting investors with a genuine opportunity.
We wish them well for the future and will watch with anticipation as they grow.
Finally we cant help pointing out that they have never won any of Crowdcube’s self aggrandising, pointless awards.
