The perils of crowdfunding a beer

October 24, 2014, 11:00 AM UTC
Courtesy of Stone Brewing

Thanks to crowdfunding, California’s Stone Brewing Co. raised $2.5 million in just six weeks this summer to sell some so-called “beer futures,” but the initial mixed reaction to the campaign caught co-founder Greg Koch off guard.

The campaign, which Koch has described as a “limited beer pre-sales event,” ran into some crowdfunding fatigue when the U.S.’s tenth largest craft brewer offered to sell advance orders for beers that will be brewed at the company’s new facility in Germany.

Though Stone Brewing’s campaign is the second-most successful effort on Indiegogo’s website, the company’s chief executive admits there were some challenges. Stone initially sold the campaign as an opportunity to buy special edition beers, while also sharing details about using the proceeds to speed up the timeline for Stone’s expansion plans in Germany and at a new location in Virginia.

“Some people were infuriated by that,” Koch told Fortune. “We found we hit quite a sensitive nerve. People were like, ‘You are coming to us for a handout, you are a profitable, successful company.'”

Koch was surprised by that reaction, as he thought transparency would be appreciated by Stone’s fans. But Stone Brewing reacted quickly, altering its message and sticking to a promise of selling quality beer. The negative online chattered faded away immediately.

The campaign’s story is the latest example that shows craft brewers haven’t perfected the crowdfunding formula, even as many turn to strangers on the Internet to raise funds for a new project.

There are 23 breweries actively raising money on Kickstarter today. The website claims the geographic range and diversity of those efforts indicate the crowdfunding site is filling a much-needed gap by providing a form of investment via its backers when banks and traditional investors are unwilling to step up to the plate. Over the course of its history, more than 800 beer-related projects have been launched on Kickstarter, with the success rate of those projects (which includes other campaigns like say, a beer-focused documentary), slightly exceeding the success rate of the overall site.

While some of those campaigns have been successful, backers aren’t always seeing beers hit bar taps and retail shelves. Kansas City-based Wilderness Brewing Co., for example, raised $41,000 from 372 backers in 2011, with plans to use the proceeds to buy equipment and obtain proper licensing to brew its beer. Fast forward more than three years and backers are still waiting to taste their first Wilderness Brewing beer. In a blog post published in August, the founders said they still haven’t nailed down a location to build a brewery—an update that infuriated backers.

Texas-based Brewery Incubator also ran into trouble. It raised more than $36,000 last year, hoping to create a brewery that would feature a facility that could be used for aspiring brewers. Though the incubator opened in late 2013, it was shuttered this summer after the new business faced eviction from its landlord. The landlord claimed rent had been paid late, though Brewery Incubator says the issue was displeasure about a “naked game night” hosted at the site.

The founders of Wilderness Brewing and Brewery Incubator didn’t respond to requests for comment.

Mike Brenner, the founder of Wisconsin-based Brenner Brewing Company, turned to Kickstarter for marketing purposes and to presell merchandise. Brenner, a passionate home brewer, had earned an MBA and went to brewing school in Chicago and Munich to put himself in the best position to start his business. He also raised $2.2 million in equity investments and bank loans.

But Brenner, who raised nearly $26,000 more than two years ago, is still hearing from people who backed the project and want to cash in. Brenner said he tried to stay communicative with his backers, but he’s still getting requests for t-shirts, pint glasses, at-home brewing sessions, and other promises.

“I’ve been dealing with people for all eternity,” Brenner said. “As far as the whole process goes, was it worth the money I got? Probably not.”

Still, Brenner concedes there were some advantages.

“At [the time of the campaign], I had the highest number of individual contributors for a brewery project, so I could go to investors and say ‘Look, no one has ever had as many committed people as I have,’ which obviously impressed investors,” Brenner said.

On a positive note, crowdfunding websites can give aspiring brewers an opportunity to think about the challenge of raising capital and if successful, can inspire the entrepreneurs to make their dream a reality, according to Indiegogo Chief Executive Slava Rubin.

“Communication and transparency is very important,” Rubin said. He advises regular updates, and also says entrepreneurs should keep in touch with backers after the campaign has ended because the relationship companies like Stone Brewing can build with a crowdfunding audience can pay future dividends.

“What people forget is when you are an entrepreneur, your job isn’t done, you still have a business to run,” Rubin said. “The Indiegogo campaign helps push it forward.”

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