Bridge Road crowdfunds at $52m valuation

Bridge Road Brewers closed its crowdfund on 30th June 2022, raising $1,498,156 from 872 investors.

Bridge Road Brewers’ equity crowdfunding campaign was launched this week and has already surpassed its minimum raise.

The Beechworth brewery launched the campaign on crowdfunding platform Birchal in May as it attempts to grow capacity, and has sailed past the $750,000 it set as its minimum.

“[We’re doing] really well so far, we are at 24 hours in and we have shot past the minimum of $750,000,” co-founder Ben Kraus told Brews News.

“Hopefully we will hit our maximum target by the end of the weekend.”

Bridge Road was founded in 2005, making it a veteran of the Australian brewing industry, and it has just recreated its B2 Imperial Belgian Black Ale IPA base with the addition of some New World Cryo hops to celebrate this milestone.

During that time, it has evolved by reinvesting profits, so the equity crowdfund was a new strategy for the business.

“Every year over the past 17 years BRB has always reinvested into improvements and growth,” Kraus explained.

“Generally speaking, each step we take down this growth and improvement pathway requires a bigger capital investment.

“This year we have taken a big step with the construction of our brewery and dining hall in East Brunswick. In order to achieve our vision for this new venture, and continue our growth and improvement program for our HQ in Beechworth we needed to find another way to fund things.”

Equity crowdfunding will allow the business to continue on its growth trajectory, Kraus explained.

“We felt equity crowdfunding would allow people who are attached to our brand to be able to invest in, support and gain ownership of something they believe in. This model also allows us to continue to control our own strategy, direction and decision making as well as stick to our own values as we have done since 2005.”

Offer documents were released this week following the expression of interest phase showing that Starkbrau Pty Ltd, which trades as Bridge Road Brewers, is offering up to 2,500,000 shares at an issue price of $1 per share to raise between $750,000 and $2.5 million, with a minimum parcel size of $250.

The Victorian brewery said that the offer shares equate to 4.76 per cent of the business, giving the business a valuation of $52.5 million.

While it would not be looking to sell anytime soon, the brewery said that this valuation was in line with how other breweries which have recently been sold or undertaken equity crowdfunds have worked out their own valuations.

“Anecdotal info suggests 5x revenue if this is your preferred method of valuation,” Kraus said, referring to the reputed sale price for Stone & Wood’s parent company Fermentum.

“Sale isn’t on our agenda nor did we pitch it to be. That said if you looked at recent sales of other breweries it could be also considered reasonable. As a guide to assist in our valuation we looked at the value and performance of other similar businesses on the Birchal platform, that investors have considered to be fair, based on the fact the investment target was met,” Kraus explained.

“We could see that on top of our solid platform of 17 years of growth, ability to hit targets and stick to strategy to achieve outcomes and our numbers, and plenty of other factors our business stacked up extremely well.”

As part of its offer documents Bridge Road also included some insights into its financial accounts.

For the year to 30th June 2021, Bridge Road returned $10.3 million in revenues, but a large cost of goods bill meant it made a loss of $238,401.

However other income – including Jobkeeper, co-funded grants through successful grant program applications and hospitality support offered by the government – pushed it back into the black with a net profit of $755,663 before income tax.

Overall the picture from its available accounts, from 2018 onwards, paint is one of stable, if moderate, growth.

By comparison to Bridge Road’s crowdfunding valuation, ASX-listed Good Drinks Australia, which includes Gage Roads Brew currently traded on the ASX at a valuation of $87.27 million. In the first three quarters of this financial year it brewed 15.1 million litres, and generated $32 million in sales for the first half-year.

Kraus said he didn’t consider Gage Roads a good comparison for his valuation because they had not undertaken a crowdfund.

He advised that he had valued the business in a “like for like comparison” to other businesses that have crowdfunded.

Other breweries which have undertaken crowdfunds in recent years include Akasha Brewing, valued at just under $16 million, around four times its revenue. Black Hops raised $2.2 million in an offer which valued it at $65 million or 4.8 times its revenue, while Batch Brewing Co. raised $1.5 million, valuing the business at four times its revenue, or $13.2 million.

Plans for its investment

While wholesale was a major component of the brewery’s business strategy, the equity crowdfund will allow it to also focus on direct-to-consumer channels.

The brewery is already doubling its direct-to-consumer sales in 2023 with the opening of its East Brunswick venue, and if it reaches its maximum, $1.2 million will be spent on the completion of the Melbourne site.This may even open up opportunities for further venues down the line.

“I hope so [that Bridge Road would invest in more venues], but it isn’t a clear strategy at the moment, first we need to prove our model outside of Beechworth. We’d also be keen to consider elsewhere. We have a permanent sales team in all mainland capitals in the east and SA. We strive to have a nationally distributed brand.”

The raise is also intended to increase production capacity by up to 20 per cent, and allow Bridge Road to invest in sustainability projects, such as CO2 capture and solar technology.

The Victorian brewery will also use the funds to invest in a canning line and quality assurance equipment, as well as a pasteuriser and in-line carbonation system, specifically for its alcohol-free pale ale Free Time.

This new equipment will potentially enable Bridge Road to grow Free Time production by, the company says, 200 per cent.

The offer document doubles down on Bridge Road’s commitment to being independent, highlighting the issues with the continued M&A activity in the brewing industry.

But for investors, this might be a challenging approach, as investors may only receive a return on their investment in the event of a sale or an IPO.

“We are asking investors to put trust in our decision making, the offer is pretty clear and people that choose to invest understand this and are putting a lot of trust in [it] and myself personally. I don’t take this responsibility lightly. We will definitely be open to investor inputs, and hope to engage with our investors to find opportunities and solve potential issues.”

Investor communications are a key area of consideration for businesses undertaking equity crowdfunds, especially those which have not had multiple shareholders before.

“We will have an employee assigned to communications with investors, providing them with updates and insights, and taking on feedback as well. This is a clear priority that we have budgeted for in the raise,” Kraus explained.

As Akasha Brewing Co. found when undertaking its crowdfund campaign recently, there is hard work that goes into bringing an offer to market.

“There has been plenty of work behind the scenes for the team in getting this off the ground, Birchal have been there to guide us through and provide advice at arms length whenever they could.

“Obviously look at all funding options, and make sure you and your existing team agree this model can work for your business,” Kraus advised other breweries thinking of doing the same thing.

“Ask yourself all the questions you would ask of yourself if you were a prospective investor.”

Hear more about Bridge Road Brewers and its growth with Ben Kraus on the Beer is a Conversation podcast.

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