Craft beer fans with $200 or more to spare can own a piece of San Diego's Mission Brewery thanks to an unusual investment opportunity.
Monday evening, the 10-year-old brewery, whose home-base is a 26,000 square-foot facility near Petco Park, will begin soliciting $1 million in funds from the general public through the crowdfunding site Wefunder. Each contributor will receive an equity stake in the company.
"We're expecting hundreds of investors in San Diego," said Dan Selis, founder and CEO of Mission Brewery. "In bringing in this group, we will have a whole new group of investors who can help support the brand and be a part of it."
Someone who doesn't make a ton of money can put $200 in, get a stock certificate in the mail and become a co-owner of the brewery, Selis added.
Would-be investors can contribute as little as $200 to the campaign, but those putting in $500 or more will receive perks, including an engraved founders plank that will be displayed in the brewery. A $1,000 investment comes with a round of beers for up to 10 guests.
With shares valued at $4.32 a piece, Mission Brewery is raising funds at a $17 million, pre-money valuation. The valuation is roughly based on $1,000 for every barrel the brewery expects to produce this year, or 18,000. That's about half the per-barrel value craft breweries have received when being acquired, Selis said, citing MillerCoors' 2015 deal to buy Saint Archer and Anheuser-Busch's 2015 purchase of Golden Road.
The $1 million cash infusion will be used to open as many as six additional taprooms, with Mission Brewery determining locations based on where its investors live, Selis said.
The investment opportunity, different from crowdfunding campaigns offered by Kickstarter or Indiegogo, is what's considered an "equity crowdfunding" campaign, or a relatively new type of fundraising mechanism made possible by Title III of the Jumpstart Our Business Startups Act (JOBS Act). The regulation allows small businesses to raise money from everyday citizens.
Prior to May 16, 2016, when Title III went into effect, private companies could only take money from accredited investors, or wealthy people with a minimum net worth of $1 million or income of more than $200,000 per year.
The equity crowdfunding free-for-all is meant to democratize investment in startups, which is typically limited to insiders or the ultra rich. The previous accreditation requirement, however, was designed to protect the average person unfamiliar with the risks associated with startup investments.
"Not many people in the general public are aware of equity crowdfunding," said Mujtaba Ahsan, a management professor at SDSU.
"A lot of people don't ... understand the risks. They don't understand what the competition looks like, what the growth rates are. And they don't understand the financials of the company," he said. "It's very challenging for laymen to make such a decision."
Mission Brewery is required by law to disclose certain figures to help people evaluate the private-market share offering.
During its most recent fiscal year, which ended Oct. 31, 2016, Mission Brewery lost $2.2 million on $4.5 million in revenue. That compares to the previous year's loss of $685,000 on revenue of $4.6 million. The company also disclosed that its operating expenses grew to $2.5 million in 2016, up from $1.45 million in the year prior.
"The first thing that stands out to me is that their long-term debt has increased significantly from 2015 to 2016, while their revenues appear to be stagnant," Ashan said after reviewing Mission Brewery's numbers.
"Their cost of goods sold also rose slightly. It appears that they made some investments to increase bottling capacity and are also looking to expand facilities. This might pay off in the future but nothing is a guarantee in the business world. The company has not made any profit in either 2015 or 2016, and it is unclear how they plan to pay off their long-term debt when it becomes due."
Beyond that, Ashan said he would have preferred the brewery to release more than two years of revenue and loss data, as well as provide guidance on fiscal 2017.
"It's kind of a vulnerable thing to do," Selis said of disclosing his brewery's financial performance through the equity crowdfunding campaign. "We're opening ourselves up to the public."
He cautioned interested persons to read "every inch" of the available information. He also defended Mission Brewery's financial well-being, noting that the company has been investing heavily in equipment and expects to return to cash-flow positive status by May 2018. Revenue grew for the four years prior to fiscal 2016, with last year's revenue impacted by a slow down in sales of hard root beer.
As it stands, Mission Brewery has an average burn rate of more than $147,000 per month, based on the last three months. The company's cash on hand was nearly $113,000, as of September.
Of course, Mission's biggest fans may overlook red flags - and that's not necessarily a bad thing.
"If an investor has an affinity for and love of the business - or in this case the beer - and would be satisfied with the potential of nothing more than a complimentary round of beers, then expectations would have been met regardless of what the larger outcome for the business might be," said Gary Benitt, a general partner with Social Leverage, an early-stage investment fund.
In other words, for some super fans, free beers and direct access to management is all the return they'll need to make the investment a valuable one.