It's a staple of Dragon's Den that a wide-eyed and keen would-be entrepreneur brings himself in front of the business giants and asks for £250,000 for 10% of his company comprising himself and his prototype of three wooden spoons strapped together with elastic bands (or some other outlandish combination), only to be asked by the first Dragon to speak how they can justify a valuation of their company at £2.5million.
This is usually followed by a great deal of uhm-ing and aah-ing, or more entertainingly an explosion of accusations that the Dragons don't know what they're talking about, shortly succeeded by raised eyebrows and an early shower.
So it's with surprise that, following a link supplied by James Watt on Twitter, I read Brewdog's Equity for Punks prospectus to find that they're issuing 90,000 shares at £23.75 a share, representing a total 8% interest in the company. Some quick sums (23.75 x 90,000 / 0.08) reveal this to be a rough valuation of the company at £26.7million.
Bear in mind that the company's turnover for 2010 was £3.3m and there's an enormous gap between that and the supposed value represented in the share issue. The projected turnover for this year is better, at £6.5m, but that still leaves a gulf of £20m that remains to be filled.
What Say You?
Armed with this quick arithmetic, I returned to the Brewdog blog and posted a comment which can be seen in the image below:
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| A plea for justification |
Timely Endorsement
A while later, James tweets that the Times have recommended the investment. Great news, if in fact it is true.
That article (behind a paywall here) doesn't so much recommend the investment as point out that the "groundbreaking" nature of the share issue means it is unvetted by any financial authority and is high risk, further pointing out that the "prospectus" should more rightly be called a "financial promotion".
The actual "recommendation", if it could be called that, is found several pages earlier in the paper, and is a paragraph or so in Patrick Hosking's Business Commentary. Again, though, there is little found to "recommend" the investment. The furthest Patrick goes is to entitle the paragraph concerning Brewdog "Liquid Assets Worth a Flutter", which is hardly a ringing endorsement, especially given that in the text of his commentary he notes that there is in fact no liquid market for the shares (they can't yet be traded, and even when they can it will be only by matched bargain through the EquityPunks.com website).
Mr Hosking does say that investors might be persuaded by the phenomenal growth shown by the company and its distinctive marketing to have a punt of a hundred quid; this isn't so much a recommendation as an invitation to gamble if you have the spare cash.
Exit Strategy
"Investing" in Equity for Punks does bring with it some benefits -- 20% discount in their online shop* and 5% discount in their bars. If you can stomach the faux-punk nonsense then these meagre offerings might do something to offset the ~£18/share surcharge, which may in itself be considered an ideology tax by those who strongly believe in what Brewdog are trying to do, and want to see them go further.
Personally, I like some of their beers (the best pint I've had in recent memory was a pint of Punk IPA at the Steampacket Inn on the Isle of Whithorn) but their attitude doesn't sit well with me, so I'm afraid I'm out.
*Spending £500 in the shop would appear to be the quickest way to get a return on your investment.
