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How To Value A Brewery

On this blog, brewerys we want to try to answer the biggest questions brewery owners face, because when we started our work, we found it hard to find answers to these questions. One of the biggest questions was how to value a brewery. We had absolutely no idea. 

Since equity crowdfunding doesn’t exist in Australia, one can’t get valuations of other breweries, only rumors and sales of publicly traded companies, which are not particularly relevant to new breweries. This is something that none of us founders had done in the past,

 and we really didn’t know where to start.
Nowadays, the valuation of breweries has become a contentious issue, and there are a lot of ways you can value a brewery, so that makes it tricky.


I should say that from the beginning, this brewerys article is my personal opinion and not financial advice. It’s probably not a bad idea to get advice from multiple places on a topic that’s as important as finding a valuation.


We’ve raised 10 investments for Black Hops since our first round of funding in 2015, so we’ve certainly learned some things that will be useful to others. 

So instead of giving you some brewerys formulas for valuing breweries, this post will share some of the lessons we’ve learned, and you can use brewerys that information to come up with a formula on your own.

How-To-Value-A-Brewerys

What is fairness? What is brewerys valuation useful for?

First, in case this isn’t clear, I think I’d better clarify what equity is and what valuation is. Personally, I believe that founders should know brewerys what their business is worth at any given time, regardless of whether an investment raise or sale is imminent. However, 

if you do plan to get some money brewerys to help you build your business, it is very important that you have a valuation in mind.

Breweries cost a lot of money to build. Our first one cost about $400,000. Our brewerys second one cost over $3 million, and once we have an expansion, it will cost more than twice as much. Funding usually comes from one of four places.

The founders put the money on themselves. In our case, we put about half of the money into the first brewery, but after that, we couldn’t put any more money in.
It would be cool if you could get some kind of government grant. We haven’t been lucky enough to get those, but I know some other breweries have.

It would also be helpful if you could get a debt loan through a bank or secondary financial institution, but in reality, it’s extremely difficult for newer businesses. It took me 13 years in business to get a bank to agree to this. When we opened BHII to help purchase equipment, Black Hops was lucky enough to get some debt financing.

You can raise money in exchange for equity (ownership) in the business. This is usually done privately, or through an equity crowdfunding campaign. Large public companies do this through shares that are publicly traded on the stock exchange. 

We have conducted private financing and equity crowdfunding financing. Giving up equity is essentially selling part of your business, so at this point you really need to take care of the valuation.
With that in mind, here are some general things to consider.

Some people get what they pay for

When I was young and talking about real estate, my dad always said, “Something is worth what someone else paid for. This is often thought of as the way residential real estate is valued.

If a house sells for $1 million, and nine people check the house and think it’s overpriced, and then one person checks the house and thinks they’re willing to pay $1 million, then the house is worth $1 million, even though 90 percent of the people brewerys disagree with the valuation.

Valuation is not about agreeing on a number, it’s about the founder setting a number and then finding people who are willing to invest in that number.
Don’t be too busy trying to make sure everyone agrees with your valuation. When you present your business, focus on finding people who have confidence in the future.

Protect your interests

It’s easy to complain about overvaluation, but at the end of the day, when you sell your business to some big company, they’ll brewerys probably complain too. You can’t have it both ways, expecting the founders not to sell their shares but also expecting them to donate as much equity as possible for the least amount of money.

The higher the valuation, the less of the business you have to give up, and founders brewerys should make every effort to keep as much of their business as possible, for a number of reasons.

First, if you give up too much equity in a business, you will lose control of that business and find yourself in a position where you have no choice but to sell. You won’t want to.

Second, if you give up too much of the business, you’ll have a hard time raising capital later because you don’t want to set aside the small percentage of equity you have left. If you have a growing brewery, you can count on making multiple investment fundraisings, so don’t think of the first fundraising as the only one.

At the end of brewerys the day, the founders worked hard to reach their brewery’s goals and that opportunity may never come again, so you want to capture as much of that business as possible. Ideally, you will never give up any equity, but for the reasons mentioned above, it is essentially impossible to raise capital in any other way.

So, as a general rule, be very careful how much equity you give up and, if in doubt, try to get a higher valuation that will allow you to give up less equity. 

The risk is not as much as many people invest, but it may be a risk worth taking. The alternative is to price it too low and give up a lot of the business for a small amount 

of capital when you could have waited until the brewerys business was more mature and worth more, thus giving up less equity.
Doing a round of investing is selling your business, but not all of it. Make sure you get paid.

Brand is King

It’s important to remember brewerys that building a brand is extremely difficult in our industry. With over 700 breweries in Australia, it’s almost impossible to stand out from the crowd. When you find investors to invest in your company

How-To-Value-A-Brewerys

Beware of benchmarking

I think it’s a common practice to include valuations of other companies in crowdfunding investment rounds. I think people do a little too much of this. 

These companies are guessing at any given time what their company is worth and almost always move down that track, with results showing they are either too high or too low.


Plus, you can’t compare brands. Many of these things are intangible. If a company is valued much higher than you are, and you value it as your own investment, it shows that your vision is weak.


I wouldn’t mind looking at a few other rounds and looking at crowdfunding sites, exits or the stock market to determine the value of the company. 

But instead of finding a number for your own business, just go get a feel for where the market is. Just like you do when you buy a house, no brewerys two houses are the same, but they’re both for sale on one market, so it can’t hurt to go to a few auctions to get a feel for the market.


Some of these comparisons are directly misleading. In my opinion, comparing revenue multiples to a company that is just starting to generate revenue and valuing itself based on a superb brand is not making an apples-to-apples comparison, it’s misleading.

The founder’s job is to come up with a vision

When you sell an equity stake in a company, your job is to present a vision for the future that is compelling and achievable in the context of your industry, your brewerys brand, your team and your attractiveness (if any). If your vision is to be one of the most popular craft beer brands in Australia,

 then this should have a very decent valuation because if you are right then your company will be worth a lot of money.
If your vision is to build a small profitable local brewpub and share the spoils with the people who support you, then the valuation should reflect that.
The higher the valuation the better it will be in many ways for the right investor, because it shows that the founders believe in their vision.

Investors want to back teams that are ambitious about the future, and if you enter the market with a small valuation, it shows that you don’t have confidence in the company for years to come.
I don’t think founders should hide their valuation, 

especially if they are legitimately backing brewerys themselves and their team to create an incredible future for their company. It shows that you believe in the value of what you have, and that’s what investors want to see.

Conclusion

I know there’s a risk that you read this article hoping to find a formula to value your brewery, and maybe you feel like you’re not getting it. But I hope you have some different ideas about what the founders think about how to value your business, 

because ultimately it’s up to the founders to value the business, not anyone else. If you have any questions, please feel free to ask in the comments brewerys below or in our Facebook Ambassador group.
If you’re interested in investing, we have an email group just for you, hop on over to Triad. Universal Domain Format. AU/Invest to join.