It’s only logical that MobCraft Beer, a Madison craft brewery that makes its ales based on a majority vote by customers, would be the first company to sign up to use Wisconsin’s new crowdfunding law.
It’s the company that’s concocted such brews as Rabbit’s Bounty carrot cake ale; Blood Orange Tea Weizen; and Chocolate Banana Stout.
“The whole premise behind our company being a crowdsourced brewery is that we are very focused on interacting with our customers. How much more can we be connected with our customers than by having them be part-owners in our company?” MobCraft co-founder and president Henry Schwartz said.
The state’s crowdfunding rules took effect June 1, and as of last Friday, MobCraft is the only company, so far, to take advantage of the financing tool.
What the funding mechanism does for companies is to let them raise up to $1 million — or $2 million, if they submit an audit — through a Wisconsin-based crowdfunding portal.
That’s a lot more money than the typical project seeks using informal crowdfunding websites such as Kickstarter or Indiegogo. It’s also substantially less than a company might raise in a very structured and formalized initial public stock offering through the U.S. Securities and Exchange Commission.
For an investor, Wisconsin’s crowdfunding law is a chance for someone who is not super-rich to own a piece of a company with the possibility of getting back more than just, say, a T-shirt, if it succeeds — but, officials hope, without the risk of going broke if the business fails.
“We’re hopeful that Wisconsin entrepreneurs could find new opportunities to raise money and start new businesses,” creating jobs and boosting the economy, said Patricia Struck, administrator of the Department of Financial Institutions’ securities division.
“I think it’s going to be a game changer,” said Zach Brandon, Greater Madison Chamber of Commerce president. “It brings a whole new class of investors” and it also brings funding to businesses that “largely are not going to be technology-based.”
But it’s not for everyone, either as a company or as an investor.
Building a brewery
According to the company’s 13-page disclosure statement, Mobcraft wants to raise $250,000 to $500,000 and will issue up to 142,857 shares of its Series B common stock at $3.50 a share. The minimum purchase is 150 shares at $525. If investors don’t commit to at least $250,000, the stock sale won’t happen.
The money is to go toward running MobCraft and paying Schwartz and co-founder/brewmaster Andrew Gierczak a salary of $1,000 a month for the next six months and $1,500 a month after that. Giotto Troia is the other co-founder but is not currently on the payroll.
The company, founded in 2012, brews its beers at the House of Brews, 4539 Helgesen Drive. Through the $308,000 already raised — mostly from a bank loan — MobCraft has purchased “the guts of a brewery” and a bottling machine, Schwartz said.
In 2015, the company plans to raise $1 million in an equity financing to build its own brewery.
MobCraft had hoped to begin raising money last week, 10 days after submitting its offering on June 8, but the bank lined up to hold the investments suddenly bowed out, days after the filing, over concerns about potential staff costs for returning the stock purchases, if the fundraising effort failed, Schwartz said. He said he is talking with several other banks.
“It’s just a delay,” he said. “Everything else is lined up and ready to go.”
Schwartz, 25, is not shy about taking on the business world. He started his first business at age 15 — a retail skateboard and snowboard shop, called Board to Death, in Menomonie, near Eau Claire, in western Wisconsin. The shop won Schwartz an award as Young Entrepreneur of the Year in 2007 from the National Federation of Independent Business/Visa USA. The $10,000 scholarship prize helped Schwartz pay for college at UW-Whitewater where he started a socially conscious bottled water company.
So trying a new business venture is old hat to Schwartz. “It’s right up my alley,” he said.
MobCraft’s offering is being handled by CraftFund, the first fundraising platform — or, registered Internet site operator, as state regulators call it — to offer the service, so far.
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“Wisconsin is one of the first to pursue this innovative financing model. It’s exciting to be out in front, and we have high hopes for it,” said attorney David Dupee, founder and chief executive of Milwaukee-based CraftFund.
CraftFund is a business enterprise, too. For now, it is a place for artisan food and beverage companies to advertise — for free. It also serves as a portal for Wisconsin businesses to raise money.
Several dozen companies listed on its website range from Maui Brewing Co. in Hawaii to Babahatchie Brewing Co., Harriman, Tennessee.
CraftFund will be paid a flat fee for handling crowdfunding investments — basically, for accessing the company’s software. So far, that’s only MobCraft but Dupee thinks there will be more.
“Our target demographic is millennials; they’re going to be the future investors. We think they’re more interested in the ‘buy local’ mentality. The next phase of that is to invest local,” Dupee said. “We’ve seen several states pass this law; there’s also a federal provision that is looming. We hope to enter other markets down the road.”
Congress passed the JOBS (Jumpstart Our Business Startups) Act in 2012 and the Securities & Exchange Commission released proposed rules in October 2013, but they have not been adopted yet at the federal level.
Not for all start-ups
Not every company wants to take advantage of the new crowdfunding option.
Another fledgling brewery, Stubborn Brothers Brewery, is running a Kickstarter campaign.
Aaron and Erik Gilling — who grew up on a dairy farm in Marion, in central Wisconsin — plan to open their microbrewery in Milwaukee in December, using hops they grow themselves, and donate 10 percent of their profits to community programs. They have a bit of family tradition in the business: the Gillings’ great-grandfather brewed beer and whiskey in New London during the Prohibition years, Aaron Gilling said.
They are trying to raise $20,000, though with Kickstarter taking part of the profits for hosting the platform and Amazon, for processing the transactions, as well as “rewards” they will give investors, such as T-shirts and coasters, they expect to net $10,000 — enough to renovate the space they hope to lease, Gilling said.
It’s a simple system, less cumbersome and cheaper than the state crowdfunding requirements, he said. “If we had to file paperwork and meet the requirements of the WDFI, we would not have launched this project,” said Gilling.
Instead of offering shares of the company, Stubborn Brothers offers perks such as “a handshake from one of us” and a personal thank you to anyone who pledges $2 or more; “a personal bar stool that will be forever reserved for you” for those pledging $125; and one-fourth of the voting rights on seasonal brews for the rest of the brewery’s life for anyone who ponies up $10,000.
At Sector67, 2100 Winnebago St., a lot of tinkerers, hobbyists, artists and others work on potential business projects and prototypes.
But there’s not a lot of discussion about the new state crowdfunding program and only a few have used crowdfunding websites like Kickstarter or Indiegogo, Sector67 founder Chris Meyer said.
“Crowdfunding is a strong system and certainly has shown a lot of promise but ... folks need to be more aware of what they are getting themselves into,” Meyer said.
Kickstarter, for example, used to be considered “cool” but has become so popular over the past couple of years that hundreds of thousands of ideas are floated on the website making it “substantially harder to get any eyeballs on your product,” Meyer said.
He said Sector67 members are more likely to follow traditional funding sources — friends and family, other entrepreneurs and “micro angels,” or individual investors.
Adam Braus, co-founder of Bankmybiz, a Madison company that matches small businesses with lenders, said banks should not be counted out, either. “I believe that traditional small business banking is an easier system and is underutilized,” Braus said. Nontraditional forms of lending, such as micro loans, can also be useful for small companies, he said.
Braus said entrepreneurs could use some help navigating some of the newer funding options. “Right now, entrepreneurs don’t have a step-by-step method for how to raise money, and so entrepreneurs are really just making this up as we go along,” Braus said.