Crowdfunding Coup: MobCraft Beer plans to expand in Madison
Perhaps it’s fitting that the first company to use the state’s new crowdfunding law is called MobCraft Beer, but the self-described crowdsource brewery isn’t just catering to its “mob” of devoted beer lovers, it’s putting down roots.
MobCraft’s founders plan to use the proceeds from their fundraising to build a new 10,000-square-foot brewery, with room to expand, in Madison. MobCraft co-founder and CEO Henry Schwartz said at a Sept. 24 press conference that several local sites are under consideration, but he added that he can’t comment on how much the brewery intends to raise.
Defined as a way for a business to raise capital by accepting small-dollar investments from a large number of people, usually through the Internet, crowdfunding will enable small Wisconsin businesses to raise up to $1 million from state investors through online portals.
The Web portal that MobCraft has chosen is CraftFund LLC, a platform open to food and beverage businesses and what CraftFund founder David Dupee calls “placemakers,” or entities involved in commercial real estate and urban redevelopment.
The availability of both crowdfunding and the enabling Web portals came as a revelation to Schwartz, who at this time last year was looking outside of Wisconsin for a way to take MobCraft to the next level. “We were looking to use Kickstarter or Indiegogo to help finance the brewery,” he said, “but when we learned we could actually do equity crowdfunding, we felt we’d have a really great attachment with our consumers.”
Wider investment pool
Crowdfunding has been referred to as the “democratization” of capital because it reverses Depression-era laws, passed in the wake of the 1929 stock market crash, that banned private companies from even seeking investment dollars from the general public. For more than 80 years, only accredited investors have been able to buy shares of companies not listed on the stock exchanges.
Wisconsin’s new crowdfunding law makes it possible for private businesses to raise equity funding from a wide pool of potential investors, both accredited and non-accredited. With crowdfunding, small businesses sell pieces of their company online through Internet crowdfunding sites in return for capital that previously has been unavailable to them. A single investor, or purchaser, is allowed to invest a maximum of $10,000 in a single crowdfunding offering, unless he or she is an accredited investor or a certified investor.
The amount businesses can raise scales up to $2 million if the issuer, or the company seeking investment, has had an audit in its most recent fiscal year and has made the audit available to prospective investors and to the Wisconsin Department of Financial Institutions.
Money raised can be used for anything from working capital to equipment purchases to real estate purchases. Real estate appears to be MobCraft’s focus as it continues its evolution as a business. The small-batch craft brewery was started in 2012 in a business incubator in Whitewater by college students who began home-brewing in their free time. After purchasing a small fermentation tank, they began brewing out of Madison’s House of Brews.
MobCraft’s business model is unique in that it provides a different way to gain consumer validation for its products. In addition to flagship coffee beer and ale, MobCraft ships beer directly to consumers who order from its online liquor store. Those consumers are allowed to take the driver’s seat and not only come up with the recipes for prospective new beers but also vote for the beers it wants the company to brew and distribute.
“The winning beer is brewed and packaged in a four-pack of 22-ounce bottles, and they are shipped through an online retailer [Archer Liquors],” Schwartz explained. “If people have voted from afar, the online retailer can ship beer to 30 states.”
Its flagship products are sold in about 70 retail stores throughout the state, but primarily in the Madison, Milwaukee, Green Bay, and Eau Claire areas. “We’ve pretty much bumped up our batch sizes,” Schwartz said. “We can provide retailers some of the crowdsourced beers, but the customers get in on the front end. They are getting it at a discount for voting on the beer and supporting it ahead of time.”
Movement on crowdfunding, which became legal on June 1, was delayed by a lack of willingness among Wisconsin banks to serve as escrow agents for companies seeking capital, but that changed when Monona State Bank stepped up and began discussions with MobCraft. Noting the crowdsourcing process was new to banks, Schwartz not only praised Monona State Bank but also credited the Wisconsin Bankers Association for creating draft documents that helped banks “cover all the bases” on serving as an escrow agent, which led to an escrow agreement between Monona State Bank and MobCraft.
Actually, crowdfunding is new to everyone. Bankers, regulators, investors, and businesses all have a steep learning curve as MobCraft moves on to fundraising and marketing. “It will be treated kind of like any other offering,” Schwartz noted. “We still need to get ahold of investors. We have a list of people who are interested. We’ll still have those talks, and we’ll still give our company pitch, but then the actual [fundraising] platform is through CraftFund.”
Paul Hoffmann, president of Monona State Bank, believes that startup businesses that validate themselves via crowdfunding will be more successful in securing other types of bank financing. “They get a natural customer base [through crowdfunding],” he noted. “It’s a good way to get their brand out and their marketing message out, so that helps out right away. A lot of times with startups, it’s hard to say who’s going to believe in them right away. This way, they’ve got a natural base to work from.”
Also attending the press conference were CraftFund’s David Dupee and State Rep. David Craig, R-Big Bend, a sponsor of the bill that became the crowdfunding law.
Despite crowdfunding’s slow start, Dupee expects Wednesday’s announcement to give this new tool some much-needed traction. “As far as a pipeline of deals, we definitely are seeing that, especially in the real estate sector,” he said. “This is a proven industry within the crowdfunding space, but Wisconsin is one of the first states to change these 80-year-old [investor] laws, and so it’s going to be somewhat slow going as people become aware of this new investment model.”
Craig called Monona State Bank, MobCraft Beer, and CraftFund pioneers in a new venture that unshackles the free market. “This is a very momentous day, largely because of this agreement that they have come to,” he stated. “This is the first step in a huge groundswell of momentum for all small businesses in Wisconsin.”
• 5 Tips for Crowdfunding in Wisconsin
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