Dainton Beer crowdfund commences
Dainton Beer closed its crowdfund on the Birchal platform on on Aug 25, 2022 and raised $963,630.80 from 858 investors.
Dainton Beer launched its second equity crowdfund campaign this week and has already achieved its $350,000 minimum subscription.
The brewery is looking for a maximum of $1.8 million from retail investors on the Birchal platform, a subscription that values the company at $31.5 million – more than double the amount it was worth at its 2019 equity crowdfunding raise.
William Smith, Dainton Beer CEO, said that it was the ideal time for Dainton to raise further funds.
“We are now at a stage where we require more capital than is available to us through our positive earnings and cash flow to fund the strategic initiatives that will fuel the next stage of our growth,” he explained in an email response to questions from Brews News.
“When we examined the options available to us to fund the next stage of our growth, equity crowdfunding was the most appealing.
Dainton will invest in a second Victoria taphouse using the funds, fulfilling a promise it made in its 2019 crowdfund but did not fulfil.
The Melbourne brewery will also invest in personnel and resources for its sales and marketing teams, and make further upgrades to its manufacturing facility to support its projected growth.
Learning from experience
Having already undertaken a crowdfund previously, lessons were learned from this experience, Smith said.
“The main thing we learned from last time is to be prepared for the amount of time and work that go into a successful campaign.
“From the outside, it may appear to be an easy way for a business to raise capital but there are literally thousands of hours that go into the campaign, from preparation of the Offer Document and other legal documents to the creation of marketing content and the execution of the marketing campaign.
“There have been three of us working nearly full time on this campaign for the last six weeks and we still have another two weeks to go!
“Even after the campaign finishes, there is still more work to be done to ensure that all new shareholders receive their rewards and that we are communicating with our shareholders on a regular basis.”
Dainton faced issues following the previous crowdfund not meeting reporting requirements required for companies that have crowdfunded.
Legal requirements as part of a crowdfund stipulate that financial accounts must be lodged with the Australian Securities and Investments Commission (ASIC).
However, Dainton had not filed its ASIC accounts for the years following its initial funding round.
“Prior to engaging this new accounting and advisory firm, we were reliant on advice from our previous accountants about compliance with the CSF legislation. Our previous accountants are a small firm who mainly advise small private companies,” Smith told Brews News.
“Unfortunately, because this firm did not have the expertise required in this nascent and obscure area of legislation, they did not give our business the correct advice related to the CSF reporting requirements.”
It has now lodged all of the required financial statements with ASIC and is up-to-date with all other ASIC requirements related to the CSF legislation, Smith said.
“We recommend that any business who plans to raise money through equity crowdfunding engage a firm who specialises in CSF compliance to ensure that they understand the reporting and compliance requirements from the start.”
According to the recently-released ASIC documents, Dainton Beer reported full-year revenues of $6.4 million for 2021, up from $3.5 million the year before.
The original crowdfunding campaign valued Dainton at $12 million, and the latest, at its maximum subscription values it at $31.5 million.
A pre-money valuation of the business for the capital raise suggested it was worth $29.7 million, still more than double what it was worth in 2019.
“We believe the increase in our current valuation is fair and justifiable based on the growth in our revenue (3.5x) and EBITDA over the last three years, as well as the expected growth of our business in future years,” explained Smith.
“Moreover, the increase in our distribution footprint and overall brand awareness has significantly increased the value of our intangible assets and our investments in our production facilities have increased the value of our non-current assets [now valued at $1.37 million compared to $360,000 in 2018].”
There have also been some major changes at management level, with Dan Dainton stepping back from the operation of the business, and now no longer involved in the day-to-day management.
“[But], he continues to add value in his role as a director, as well as in the areas of brand management, brand partnerships and strategic planning.”
Dainton’s previous 2019 crowdfund promised to launch a new taproom with the funds raised, however this never eventuated, highlighting a key issue with equity crowdfunding.
There are no checks or recourse for investors if crowdfunding businesses do not fulfil their offer promises – something investors through the ASX might address by launching a challenge to director’s reappointments and/or remuneration at annual AGMs or even emergency meetings.
ASX investors can also sell and trade their shares, something which retail investors cannot currently do on equity crowdfunding platforms, although there are suggestions that a share marketplace could be the next step for equity crowdfunding.
With equity crowdfund investors only owning a small percentage of the business their ability to make their opinions known through votes is limited.
William Smith said that despite completing the campaign and launching the search for a new site in 2019, the team was held back from these goals.
“We actively considered a number of properties but each time we were knocked back due to Green Wedge restrictions,” he said.
“When the global pandemic started to unfold in February of 2020, we put our plans for a second taphouse on hold for obvious reasons.”
Instead, it made a move to a direct sales model, Smith explained.
“This strategic decision led to a significant increase in our wholesale sales. When this dramatic increase in sales occurred, our facility quickly hit capacity and we shifted the focus of our resources to upgrading our production facility to keep up with the surging demand.”
Over the past two years, Dainton has invested $1 million in its production facility, upgrading the brewhouse from a 3-vessel, 30hL system to a 4 vessel, 41hL system, as well as installing the Fermecraft automation system. This has allowed production to increase to 1.35 million litres annually.