20+ years in tech and finance and I still can’t believe liquidation preferences are legal.
Even among shareholders, a group of insiders in a conference room can self-deal to keep all the money for themselves and screw common stockholders who had no representation in that room.
Without liquidation preferences BrewDog wouldn't have been able to get the investment. They may have been able to get a loan instead, but the interest would've driven them under that much faster and then the creditor, just like the preferred investor, would have priority over other shareholders.
Which isn't to say preference stacks (like debt stacks) can't get absurd when a failing company is doing anything it can to stay alive, but standard investor terms (1x liquidation preference) simply mean you're first in line to get your money back if the company is liquidated for less than the price you paid.
The self-dealing bit is generally already illegal and orthogonal to liquidation preferences.
Liquidation preferences that merely guarantee you get back the cash you put in before anyone else gets anything are a perfectly reasonable protection for investors.
Otherwise, the risk is investors put in $1m for 10% of the company, only for the founder-CEO to decide a month later - perhaps totally genuinely and honestly after initial R&D - that the entire business plan wasn't viable after all and the best thing for stockholders is to liquidate the company... and then walk away, personally, with $900k while returning only $100k to the investors. And obviously because this scenario is possible, there would be great temptation among dishonest founders to "realise" their companies "aren't viable" in order to walk away with all the cash. Something has to protect investors from this outcome, and remove the perverse incentive on founders to promptly liquidate after getting investment. A liquidation preference where the investor gets repaid before any distributions go to other stockholders is one way of achieving that protection; what alternative would you prefer?
As for liquidation preferences with a multiplier (i.e. we get paid back X times our investment before anyone else gets anything), eh, I wouldn't outright make them illegal, but it's less clear to me they are always serving a legitimate purpose, and they may grossly mislead the public about the actual valuation of the company implied by a given funding round AND mislead naive common stockholders and options holders about how much of the company they really own and what they can really expect to make in an exit.
By the time most of us are dead, I think we’ll have enough evidence that human systems mostly don’t work (this is a personal realization, just for ourselves, no one will be able to strip you have the realization). If it worked for you, congrats, you were lucky.
You've got that backwards. Liquidation preferences typically go to early stage investors who receive special share classes. Those arrangements are fully disclosed to later stage investors. They knew what they were getting into and it's their own fault for making a sucker bet.
From the guardian: “But about 220,000 investors, who contributed £75m in crowdfunding across seven “equity for punks” rounds, could walk away with nothing.”
I used to love the idea of crowdfunding but then I watched a bunch of people buy worthless common stock and get hosed over and over.
Part of the issue is that somehow you can buy just the "assets" half of a company and ignore the "liabilities" portion. And the assets include all the branding and brand name. So an essentially new copy of the previous company is made while fleecing all on the liabilities side.
For the bars that are being closed, they are less closed and more like abandoned remnants of the now-dead previous company. Perhaps the shareholders should just reclaim the abandoned items of value physically.
I looked at one crowdfunding offering, under the SEC "Regulation Crowdfunding" and it was totally obvious that the business in question was pursuing that path because sensible investors wouldn't be interested in investing.
I don't see how there's many real investment opportunities where crowdfunding wouldn't result in largely unfavorable terms for the crowd.
The "we invented this really cool product, but minimum production batch is 5000 unities and we need money for the tooling investment" is the right way to use crowdfunding. People get the product, or the company missed something and goes bankrupt.
The "I have a software proof of concept, but I need money to make it usable" is also a good way, with a lot more certainty of outcome, but it's one that doesn't strictly require crowdfunding. And the author better publish what he has at the end of the funding.
All those variations of you getting equity or repayment are just bad.
Well, the "investment" came with perks like free beer occasionally, 15% off your tab, invite to private events, etc. Stuff you don't get when you buy a share of MSFT. In my mind if an investment comes with perks like that it's more of a donation than an investment
An illustrative lesson to anyone who joins a startup with the promise of a ton of stock: the company can make it worthless whenever they feel like it. Always remember that.
As for Brewdog itself, there’s a lesson in VC mindset there as well I think. Everything doesn’t have to grow to be massive. You can stay a sustainable size if you want to. But alas the temptation to keep expanding is always too strong, and often leads to flameouts like this.
I've been hearing buzz that the whole alcohol industry is in trouble, from a perfect storm of cultural changes that culminate in young people drinking less, and particularly drinking less in bars.
With that context, it seems notable that the booze company in question here was purchased by a "beverage and medical cannabis" corp.
I seem to remember more interesting and very good beers available.
Like, where did all the fabulous Gose varieties go?
It seems like everything available today is a hazy IPA or a basic lager. There used to be such a breadth of flavors.
The other child comments about GLP-1 is also correct. That also seems to be a source of the protein craze going on right now.
The average person is pretty clueless about diet and their doctor told them to get XX grams of protein per meal, and fast food cafes and establishments adapted to those dietary instructions.
Also, the brewpub culture is becoming TGI Fridays-ified.
TGI Friday’s was a trendy singles bar for boomers at the time, now it’s a watered down boring family restaurant, just like many craft breweries which are stroller-fests.
I don’t even know what Gen Alpha/younger Gen Z is up to. Staying inside online? Maybe going more out to party oriented clubs rather than mellow brewpubs?
Finally, anyone into indie beers knows that brewdog has been corporate suckage for years.
In 2017 a US equity firm TSG Consumer Partners acquired a 22% stake in Brewdog. But unlike the Equity for Punks' "ordinary" shareholders, TSG was given "preference shares". That meant that if Brewdog was sold, TSG was first in the queue to get back its investment plus any return owed, possibly leaving little or nothing for small investors.
It seems the preference shares weren't just 1x liquidation preferences. The 'plus any return owed' was 18% per year if, as I imagine, those shares are the 'C Preferred Shares' described in Brewdog's Companies House filing on 7 Jun 2017. ("Statement of capital following an allotment of shares on 6 April 2017"):
5 Statement of capital (prescribed particulars of rights attached to shares)
Class of share
Preferred C Shares
Prescribed particulars
Amount") shall be applied as follows:
1. an amount shall be distributed among the holders of the Preferred 'C' Ordinary Shares which shall be the greater of:
a) the Deemed Acquired Price of all Preferred 'C' Ordinary Shares together with, in respect of each Preferred 'C' Ordinary Share an amount equal to 18 per cent of the Deemed Acquired Price per year (based on a 365 day year) accruing daily and compounding annually from the date of issue up to and including the date of the return of capital; and
b) such amount of the Distribution Amount as would be applied to the holders of the Preferred 'C' Ordinary Shares if they ranked pari passu with 'A' Ordinary Shares and 'B' Ordinary Shares; and
2. any balance of the Distribution Amount following the application of the amount referred to in (1) above shall be applied to the holders of the 'A' Ordinary Shares and the 'B' Ordinary Shares (in accordance with the terms of the Articles of Association), provided that in the instance that Article 6.2.1(a) applies, the Warrant Shares shall have nil value for the purposes of Article 6.2.2.
Any return on Preferred 'C' Shares shall be made amongst their holders pro rata as nearly as possible to their respective holdings of Shares of that class.
This may seem like a lot, but it's a common structure for private equity deals, and we have no way of knowing whether that's the best deal that Brewdog's management could have struck at the time.
I think you are mistaken. The pages are split -- see that closed quote and parenthesis. That quote is a continuation from pdf page 3, which has the opening parenthesis. Each of the cells for classes A, B, C overflow onto one page (each) that follows.
So the C holders are entitled to a distribution on sale or repurchase, but not an annual distribution.
> The Preferred 'C' Shares are entitled to receive dividends (and shall rank equally with the 'A' Ordinary Shares and 'B' Ordinary Shares). On a return of the entire capital of the Company or a winding up (other than a redemption of Shares or the purchase by the Company of its own Shares), the surplus assets of the Company available for distribution among the members (the "Distribution
... which leads into your quote above.
Frustratingly, it seems to be impossible to link these pdfs directly.
> About 200,000 people put money into the scheme, which offered a stake in the company, [...] But unlike the Equity for Punks' "ordinary" shareholders, TSG was given "preference shares".
Is the UK about to see public demand for investment reform?
We could use reform in the US lately. I'm not seeing many experienced people who believe in startup equity anymore, nor who are aligned with the success of the company. (Except for founders and VCs.)
Being made "redundant" isn't just an synonym for being fired. It has a specific legal meaning in the UK [1]. When employees are made redundant they are entitled to certain rights including statutory redundancy pay [2]. So it's not just a euphemism in UK contexts. And yes this is normal phrasing in the UK.
Redundancy is closer to "layoff" than "fired". One is for a clear cause, the other is just "we don't feel like paying you money because a second employee can do that job in addition to his own".
It's quasi-legal. You can be "fired" for all sorts of reasons, but in making a post redundant the employer can't then rehire for that position, if large numbers of posts are being made redundant then there needs to be consultations etc.
Brewdog had a loss of 37m GBP last October, and went into something similar to Chapter11(?), american company bought the remains and saved what had any value left.
So not really "evil company buys good company and fires everyone" IMHO.
Evil company took money from customers with promises of a different kind of company, too their own fortune in hiding and let the company explose the face of the customers is the news.
You might say "but that's nothign new" but that is what makes it news because Brewdogs campaigns where exactly focues on selling cutomers the idea that they where inf fact something new.
The fouders are rich any any customers who invested is left with nothing. That's the news.
I know the times are changing and people now take it for granted that a cab driver might be selling heisenbergs securities while he drives around customers, for someone to pick up a bit of crypto gambling while they wait to reach their destination.
But it used to be that financial investment was somewhat protected exactly to avoid these types of companies defrauding non-investment savy customers, but brewdog did just that. They claimed that getting a couple of shares along with your beer was ok because it was a new type of company sticking it to the man, but at the end of the day they wheren't punks they where just capitalists putting on customes to scam as much money from their customers as possible.
Not a Brit - but I've been seeing "times get even worse for UK pubs, with yet more closing" stories for years now.
And the BBC seems torn between lambasting a corporation for screwing the little guys...and admitting that the whole works was a hopeless money-loser, with a mountain of debt.
Brewdog is pretty much a TGI Fridays that’s pretending to be edgy.
People very much don’t like their beers, the atmosphere feels fake, and there’s significantly better options in any major UK city.
It’s a shame they are closing and I feel for the employees, but nobody local really believes they are a respectable place, touristy really.
While UK nightlife/drinking/pubs like every other city in the world is slower since COVID, I still have many friends from around the world who come visit and can’t believe how busy our cities and nightlife are compared to their city back home (NYC, SF, LA, Berlin, Sydney to name a few).
Pubs have been in decline for years, because people don't go / drink as much, and because of our starting position: this is a country where there are pubs everywhere. But Brewdog is a chain of pubs and a brewery – this is much larger than the standard story of "village supporting three pubs can now only support two".
As for the "torn" reporting, there's no contradiction – companies can go bust ethically or unethically. You don't have to screw your retail investors / fans. You just can. And they have.
Seems like a collapse of the alcohol market would be a benefit on the order of removing leaded gas
But don’t let my biological logic stand in the way of cultural madness - if a coherent society in your view requires a poison in order to facilitate then that society is probably not worth keeping going
crmd|21 hours ago
Even among shareholders, a group of insiders in a conference room can self-deal to keep all the money for themselves and screw common stockholders who had no representation in that room.
FreakLegion|21 hours ago
Which isn't to say preference stacks (like debt stacks) can't get absurd when a failing company is doing anything it can to stay alive, but standard investor terms (1x liquidation preference) simply mean you're first in line to get your money back if the company is liquidated for less than the price you paid.
The self-dealing bit is generally already illegal and orthogonal to liquidation preferences.
XCabbage|21 hours ago
Otherwise, the risk is investors put in $1m for 10% of the company, only for the founder-CEO to decide a month later - perhaps totally genuinely and honestly after initial R&D - that the entire business plan wasn't viable after all and the best thing for stockholders is to liquidate the company... and then walk away, personally, with $900k while returning only $100k to the investors. And obviously because this scenario is possible, there would be great temptation among dishonest founders to "realise" their companies "aren't viable" in order to walk away with all the cash. Something has to protect investors from this outcome, and remove the perverse incentive on founders to promptly liquidate after getting investment. A liquidation preference where the investor gets repaid before any distributions go to other stockholders is one way of achieving that protection; what alternative would you prefer?
As for liquidation preferences with a multiplier (i.e. we get paid back X times our investment before anyone else gets anything), eh, I wouldn't outright make them illegal, but it's less clear to me they are always serving a legitimate purpose, and they may grossly mislead the public about the actual valuation of the company implied by a given funding round AND mislead naive common stockholders and options holders about how much of the company they really own and what they can really expect to make in an exit.
josefritzishere|21 hours ago
KellyCriterion|21 hours ago
general_reveal|21 hours ago
nradov|21 hours ago
bix6|22 hours ago
I used to love the idea of crowdfunding but then I watched a bunch of people buy worthless common stock and get hosed over and over.
TheJoeMan|21 hours ago
For the bars that are being closed, they are less closed and more like abandoned remnants of the now-dead previous company. Perhaps the shareholders should just reclaim the abandoned items of value physically.
toast0|21 hours ago
I don't see how there's many real investment opportunities where crowdfunding wouldn't result in largely unfavorable terms for the crowd.
daedrdev|22 hours ago
marcosdumay|21 hours ago
The "I have a software proof of concept, but I need money to make it usable" is also a good way, with a lot more certainty of outcome, but it's one that doesn't strictly require crowdfunding. And the author better publish what he has at the end of the funding.
All those variations of you getting equity or repayment are just bad.
IncreasePosts|21 hours ago
roughly|22 hours ago
sMarsIntruder|21 hours ago
afavour|22 hours ago
As for Brewdog itself, there’s a lesson in VC mindset there as well I think. Everything doesn’t have to grow to be massive. You can stay a sustainable size if you want to. But alas the temptation to keep expanding is always too strong, and often leads to flameouts like this.
unknown|21 hours ago
[deleted]
nailer|22 hours ago
> And they said no equity holders - including those who invested in the brewer's Equity for Punks scheme - would get any return from the deal.
mikkupikku|22 hours ago
With that context, it seems notable that the booze company in question here was purchased by a "beverage and medical cannabis" corp.
jotux|21 hours ago
pixl97|22 hours ago
badgersnake|22 hours ago
dangus|21 hours ago
I also think product has suffered.
I seem to remember more interesting and very good beers available.
Like, where did all the fabulous Gose varieties go?
It seems like everything available today is a hazy IPA or a basic lager. There used to be such a breadth of flavors.
The other child comments about GLP-1 is also correct. That also seems to be a source of the protein craze going on right now.
The average person is pretty clueless about diet and their doctor told them to get XX grams of protein per meal, and fast food cafes and establishments adapted to those dietary instructions.
Also, the brewpub culture is becoming TGI Fridays-ified.
TGI Friday’s was a trendy singles bar for boomers at the time, now it’s a watered down boring family restaurant, just like many craft breweries which are stroller-fests.
I don’t even know what Gen Alpha/younger Gen Z is up to. Staying inside online? Maybe going more out to party oriented clubs rather than mellow brewpubs?
Finally, anyone into indie beers knows that brewdog has been corporate suckage for years.
rahimnathwani|21 hours ago
x0x0|12 hours ago
So the C holders are entitled to a distribution on sale or repurchase, but not an annual distribution.
> The Preferred 'C' Shares are entitled to receive dividends (and shall rank equally with the 'A' Ordinary Shares and 'B' Ordinary Shares). On a return of the entire capital of the Company or a winding up (other than a redemption of Shares or the purchase by the Company of its own Shares), the surplus assets of the Company available for distribution among the members (the "Distribution
... which leads into your quote above.
Frustratingly, it seems to be impossible to link these pdfs directly.
neilv|21 hours ago
Is the UK about to see public demand for investment reform?
We could use reform in the US lately. I'm not seeing many experienced people who believe in startup equity anymore, nor who are aligned with the success of the company. (Except for founders and VCs.)
roughly|22 hours ago
TimFogarty|22 hours ago
[1] https://www.gov.uk/redundancy-your-rights
[2] https://www.gov.uk/redundancy-your-rights/redundancy-pay
ipsento606|22 hours ago
https://en.wikipedia.org/wiki/Redundancy_in_United_Kingdom_l...
fhdkweig|22 hours ago
daveoc64|22 hours ago
https://www.gov.uk/redundancy-your-rights
4ndrewl|22 hours ago
pdpi|21 hours ago
pelagicAustral|22 hours ago
TheChaplain|22 hours ago
Brewdog had a loss of 37m GBP last October, and went into something similar to Chapter11(?), american company bought the remains and saved what had any value left.
So not really "evil company buys good company and fires everyone" IMHO.
edit: useless at spelling...
klustregrif|21 hours ago
You might say "but that's nothign new" but that is what makes it news because Brewdogs campaigns where exactly focues on selling cutomers the idea that they where inf fact something new.
The fouders are rich any any customers who invested is left with nothing. That's the news.
I know the times are changing and people now take it for granted that a cab driver might be selling heisenbergs securities while he drives around customers, for someone to pick up a bit of crypto gambling while they wait to reach their destination. But it used to be that financial investment was somewhat protected exactly to avoid these types of companies defrauding non-investment savy customers, but brewdog did just that. They claimed that getting a couple of shares along with your beer was ok because it was a new type of company sticking it to the man, but at the end of the day they wheren't punks they where just capitalists putting on customes to scam as much money from their customers as possible.
perrohunter|19 hours ago
tsak|22 hours ago
bonesss|22 hours ago
gib444|20 hours ago
bell-cot|22 hours ago
And the BBC seems torn between lambasting a corporation for screwing the little guys...and admitting that the whole works was a hopeless money-loser, with a mountain of debt.
testfrequency|22 hours ago
People very much don’t like their beers, the atmosphere feels fake, and there’s significantly better options in any major UK city.
It’s a shame they are closing and I feel for the employees, but nobody local really believes they are a respectable place, touristy really.
While UK nightlife/drinking/pubs like every other city in the world is slower since COVID, I still have many friends from around the world who come visit and can’t believe how busy our cities and nightlife are compared to their city back home (NYC, SF, LA, Berlin, Sydney to name a few).
tene80i|22 hours ago
As for the "torn" reporting, there's no contradiction – companies can go bust ethically or unethically. You don't have to screw your retail investors / fans. You just can. And they have.
AndrewKemendo|21 hours ago
But don’t let my biological logic stand in the way of cultural madness - if a coherent society in your view requires a poison in order to facilitate then that society is probably not worth keeping going