There is an array of options available to breweries looking to raise finance but broadly, these fall under the umbrella of either “debt” or “equity” finance - debt in its simplest sense being a loan from a corporate entity (bank) or individual and equity being some form of monetary subscription for shares in the business.
In this piece, we look at three specific types of equity finance that have been widely utilised by craft breweries over the last 5 years as the industry has grown and their specific limits and qualifying conditions.
Seed Enterprise Investment Scheme (SEIS)
Both SEIS and EIS (discussed below) are government-introduced schemes seeking to encourage individuals to invest in less-established businesses by way of offering attractive tax breaks to investors.
SEIS is targeted at more fledgling businesses and accordingly, to qualify the business in question must have a workforce of fewer than 25 employees at the time of investment and no more than £200,000 in gross assets immediately prior to the investment.
Investors can each invest up to £100,000 in a tax year and will receive income tax relief equal to 50% of the monies they invest (i.e., they will benefit from £50,000 income tax relief if they invest their full annual allowance). Furthermore, an investor will be exempt from capital gains tax on any profits arising from a sale of their shares, provided the sale is 3 years or more following the investment date.
Enterprise Investment Scheme (EIS)
Based on similar principles to SEIS but facilitating investment on a larger scale, this scheme is targeted at more established medium-size ventures and allows investors to invest up to £1million per tax year whilst benefitting from a 30% income tax relief and the same capital gains tax relief on a disposal of the shares as SEIS, again provided the shares are sold no sooner than three years post-investment.
To qualify for EIS, the company must have fewer than 250 employees at the time of investment, must have been trading less than seven years and have no more than £15million of gross assets pre-investment and no more than £16million of gross-assets post-investment.
Both with SEIS and EIS, the funds raised must be used for a “qualifying business activity” which largely equates to being used as working capital in the business rather than say, to fund a distribution to the shareholders or to acquire other businesses.
A significant number of craft breweries have made use of SEIS, EIS or both in recent years (and the schemes can be used in conjuction) and have chosen to do so by means of a “crowdfunding” with well-known platforms such as Crowdcube or Seedrs.
Crowdfunding
Whilst there are various types of crowdfunding (donation-based, profit sharing, debt-securities etc) it is “equity crowdfunding” that has mostly been utilised by craft breweries and SevenBrothers, Northern Monk Brewing, Verdant, Innis & Gunn and Big Drop are just a few examples of breweries that have successfully raised EIS and/or SEIS monies in this way.
Crowdfunding offers the chance for the public (including loyal customers and fans of the brewery) to purchase shares online, normally in a few easy steps, and with relatively low minimum investment amounts and part of the appeal might be that crowdfunding is often seen as a more informal and less “corporate” means of raising funds as compared with taking on institutional investment.
The advertisement for the fundraise will normally detail the purpose i.e., to raise finance for building a new brewery site, refurbishing the current premises and installing a taproom or even simply to bolster a balance sheet that might have deteriorated with the recent impact of Covid-19 on the hospitality industry and the advising solicitors will usually assist with the negotiation of the key terms applying to the investment and the preparation of the documents.
If you are exploring the different possibilities of raising funds for your business or would like to discuss any of the above generally and would benefit from advice, please do not hesitate to contact Daniel Finn.
