How to Finance a Lamborghini Delivery Car for Your Brewery Through Kickstarter: A Look at Swag-Based Crowd Funding
Financing a brewery, either in part or whole, through crowd funding campaigns like Kickstarter is a fascinating phenomenon. Old-fashioned lengthy business plans with amortization charts, projections and risk assessments are buried at the bottom of the recycling bin, or better yet, under a box of hipster-cut, 100-percent organic cotton T-shirts that have been ordered for the top 25 investors. Swag has so much more appeal than Excel spreadsheets.
There are more layers to this either ingenious or disastrous new financing theory than layers of spilled beer on a brewery floor.
Just recently in the Dallas-area, several new breweries have launched successful Kickstarter campaigns. The Bishop Cidery Co. asked for $10,000 and got $20,000. Rabbit Hole Brewing out of Justin raised more than $13,000 in April. Social Brewing in Fort Worth had 117 backers pledge $15,000 in March. Dead Cowboy out of Royce City just launched a campaign today for $38,000.
According to Kickstarter, 44 percent of all projects on their site have reached their funding goals.
But, recently there was one brilliant campaign idea that got shot down by Kickstarter, which wouldn't even post the project. Freetail Brewing in San Antonio had a plan to purchase a Lamborghini for a delivery vehicle. A white convertible, of course. With the brewery's logo on the side.
Their case was that they needed a Lamborghini Gallardo LP 570-4 Spyder Performante to make deliveries at upwards of 200 mph, which "ensures more than DOUBLE THE FRESHNESS over leading competitors." Further, "caring about beer means caring about Freshness, and caring about Freshness means delivering beer in a Lambo."
Scott Metzger is the founder of Freetail and also moonlights as an economics professor at UT-San Antonio. And, yes, he was making a mockery of Kickstarter. And, no, Kickstarter doesn't like it when they are the butt of a joke, so they denied his request to raise $267,840 for what would have been the most amazing delivery car ever.
"Things like Kickstarter do help to solve a problem in some cases," Metzger says. "They help overcome the initial hump for those without a lot of resources and it gives people who don't have a lot of capital a chance."
But there's an aspect to these campaigns that is a little unsettling, he says. "It takes away from one very important part of entrepreneurship, which is risk. Risk filters out a lot of ideas. Without risk we could have a flood of bad ideas. Business owners virtually have no skin in the game."
Working through a stack of bank documents for a loan certainly isn't glamorous, but as Metzger points out, there is due diligence in that exercise. Freetail is currently dealing with a bank in a bid for expansion. "The process helps me understand our business better and anticipate issues down the road," Metzger says.
Instead, Kickstarter backers are often lured in with swag, or if you have deep pockets, free beer for life.
Another fault Metzger points to is the lack of ownership for the backers. According to the rules laid out on Kickstarter, "creators keep 100 percent ownership of their work." Metzger points to the "old-fashioned" plans where investors actually got something in return, besides swag.
"But, the market will solve this itself," Metzger says. "The more we see of these big Kickstarter campaigns, the more regulation we'll see."
Or perhaps we'll see changes in the form of litigation. In January a Kickstarter backer sued a project creator. Seth Quest raised $35,000 for an iPad mount, but production was, according to Venture Beat, "a disaster," and Quest was unable to fill orders that were promised to the backers. The lawsuit financially ruined the company. Quest was so stressed out he had to take yoga to deal with it (serious) and that all stemmed from one $70 investment. There's an interesting interview here with the guy who filed the suit:
"I think from beginning to end, it was something that he [the creator] did not think through. He just didn't think it through. He didn't plan anything, he didn't plan what he was going to do with the money, where he should keep the money, how he was going to handle the budget, whether he needed a business plan. ... None of the very elementary, fundamental steps were followed by him from A to Z."
Kickstarter isn't all bad though.
"It touches on the issue of tragedy of the commons," Metzger explains. "There are some great projects out there where there's a social incentive to fund a project. It fills a void and solves an economic problem for these groups. Kickstarter allows people to chip in whatever value they feel they can afford."
One good example could be the Deep Ellum Urban Gardens, which is a community-based garden that is a source of enjoyment, nutrition and education for many in that area.
At the end of the day, none of it matters because people can do whatever they want with their money, whether they should or not.
Others see through it like a light amber lager. When Dead Cowboy Brewing Co. posted their Kickstarter campaign for $38,000 to their Facebook page this morning, the first comment was, "Try a bank." Unfortunately, banks aren't very motivated by swag.