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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.

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.

Not true (newer investors generally get seniority), but more importantly this is about common shareholders (generally employees and even founders) who never have the opportunity to get liq pref.

More importantly, employees with options are generally not sophisticated enough to realise liquidation preferences may exist and may dramatically devalue the common stock options they have, and even if they are sophisticated enough, they will often have no means to find out what liquidation preferences exist. (They theoretically have information rights that probably entitle them to that info, but companies simply find spurious excuses to refuse books and records requests, knowing no options holder is going to drop six figures on a lawsuit to exercise those information rights.)

New funding round investors generally get seniority over old

But new money may allow buyouts of existing at that time so early team or investors can cash out a bit early

And common doesn't cash out till IPO or private market equivalent, or yes, gets screwed

> About 200,000 people put money into the scheme, which offered a stake in the company, discounts and perks.

Hopefully they took advantage of the discounted beer.

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.

I've been screwed out of company stock at liquidation multiple times. Who decide to pay never to favor the workers.

How were you screwed? Did they lie to you about liquidation preferences during compensation negotiations? Everyone knows that the most likely value of employee equity compensation in privately held companies is zero.

> Everyone knows that the most likely value of employee equity compensation in privately held companies is zero.

Most people (on the employee side) realize this is true if the company does not make a successful exit but only learn that the company can both exit AND their equity can be erased via dilution and preferences the first time they are screwed thusly.

Well, thats what "free markets" (tm) allow you to do (-:

For the downvoters, I do not know why:

This is actually percisely one of the main ingredients of a "(whatever) free market" - to put in a contract what you want as long as it is not against the law.

?

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.

What sort of evidence are you looking for? The current general system of free-market capitalism and multiparty democracy has created an unprecedented era of prosperity for those of us lucky enough to live in (relatively) civilized countries. There are lots of problems that we need to fix but on average by almost any objective metric the situation is better than ever.

The thing about people in comfort is that they literally do not understand the concept of one too many on a fundamental level. One dollar is not enough. Similar, one person that goes without, that’s not enough either. You need millions to go without before the wrinkles even show up on some people’s faces.

“One too many” ills shatters the benchmark of “life is good”. Not good enough (that much … you may actually understand).

We have been deficient, through and through.

> free-market capitalism and multiparty democracy has created an unprecedented era of prosperity

can you prove that it's free-market capitalism and multiparty democracy? because i see this opinion espoused a lot online.

Can you prove it's not? At this point if anyone wants to propose an alternative then the burden of proof is on them. So far everything else that we've tried has failed disastrously.

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.

> Part of the issue is that somehow you can buy just the "assets" half of a company and ignore the "liabilities" portion.

You really can't and they didn't.

If Brewdog has creditors who lent it money or suppliers who are waiting on payment, then they will be getting paid as part of the deal or they will have agreed to a restructuring, up as far as being offered first refusal on the company's assets.

Brewdog's existing management could have made the exact same closures without selling the company.

If retail investors lost out here, it's because they were overly optimistic in the first place, or just unlucky, not because they're getting cheated in this deal. You can tell this because the institutional investors are also getting nothing out of it.

Please note its not just them, this article says no equity holders will get anything

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.

I always wanted “The Pilot Bay” where you could download a pilot episode or concept trailer for a movie and crowdfund it for public release

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

Family used to own stock in a local ski resort (publicly traded), all shareholders were entitled to half price on lift tickets and some other perks. It was a great way to save a bit of money, get a dividend, and have a voice on any future expansion plans at the annual meeting.

Edit to add: Seems even Disney did offer perks as well to shareholders, https://www.disboards.com/threads/do-you-own-disney-stock-wh...

Is it still in business? My very limited experience makes it seem like the places that mix share ownership with discounts don't survive.

They had ups and downs of course. The tourism industry can turn sour during a downturn as you might understand. But they weathered for 40 or so years until a bear killed a handler in the summer of 2017 at their wildlife park. This effectively killed the entire park business and forced a major reconstruction. A former major bank CEO offered to buy it wholesale and took it fully private via majority buy-out.

Plenty of companies offer shareholder benefits without ripping off your rights as a shareholder.

The big cruise line companies will give shareholders on-board credit, Berkshire Hathaway has sales from their subsidiaries at the yearly meeting, Intercontinental Hotels has discounts, etc.

One of the customer service backdoors for some companies is to buy a share and contact investor relations if you are having a problem.

I was inches away from investing..

As George Carlin said, “it’s a big club, and you’re not in it.” Capitalism is not for the little guy, or at least not the version we’ve built.

It's a good quote, but it is misapplied here.

Nothing is stopping you from investing in a company, or putting your money into a stock or other investment. If anything, over the years the club has become a lot less exclusive. When did Carlin say that? Think about how much more access any given person, at least in the United States, has to financial products.

Right, just like all of those people who put their money into Brewdog and then got nothing for it, while the larger investors potentially got made whole. It's almost like there's two classes of investors or something - common people, and then another smaller set - a club, say - that the common people are not part of.

You do not have access to the investments or financial instruments that the ultrawealthy do. Your investments are not like their investments, your returns are not their returns, the rules and regulations you face are not the ones they face. They are playing a different game than you, even when they're doing it with your money.

> Right, just like all of those people who put their money into Brewdog and then got nothing for it

Just like anyone who puts their money into an investment that fails... Stocks go up, stocks go down. I don't recall the exact details of the Brewdog investment scheme but some people losing their hat here is just a normal thing that happens in capital markets, otherwise investing wouldn't work. There's a reason that the predominant advice is to just set it and forget it with S&P 500 funds or total market (US or global) funds. It's up to you as an independent person to identify good opportunities for yourself or to consume and understand advice.

> You do not have access to the investments or financial instruments that the ultrawealthy do. Your investments are not like their investments, your returns are not their returns, the rules and regulations you face are not the ones they face. They are playing a different game than you, even when they're doing it with your money.

This is directionally true and angsty but it's beside the point. What's the alternative? Nobody gets to invest in anything?

While "the wealthy" have access to other opportunities that you don't have access to, you still have access to enough opportunities to make money.

Neither George Carlin nor I am saying that the average person cannot invest in companies, nor that they should not be able to (well, I'm not, at least).

We are both saying that the rules and conditions under which you and I invest in companies and the market are substantially different than those in which the ultrawealthy invest in the market, and ours carry both higher risks and more onerous terms. You can argue whatever you want about why that is or whether it should be, but we're not all on a level playing field, and that's relevant especially in an era when all of the answers to "how do I make myself secure against the vicissitudes of fate" involve "investing" in the market.

No equity holders got anything out of the liquidation - whether big or small [1]. Preference shares are just as worthless as common stock if there isn’t enough money to cover debt, tax bills, employee statuary entitlements/outstanding pay, bank loans, etc.

[1] https://littlelaw.co.uk/p/the-1-billion-brewdog-deal-that-le...

> No equity holders got anything out of the liquidation - whether big or small

This statement is not supported by the link you posted, nor any other reporting I've seen on the matter. What I have seen is that TSG is senior to all of the other equity holders, so if there's money to be had, they're getting it before the small holders.

Also from your link:

> TSG was promised an 18% compound return on its investment (which means the amount they’re owed grows by 18% each year, with each year building on the last).

> TSG’s preference shares entitle it to an 18% compound return on its £213 million investment. That return has snowballed over time. By 2024, it had grown to around £801 million.

I can't say for sure, but I don't believe those terms were available to the average investor.

... it's from 2005, at the height of such access, so much so that a glut of "toxic assets" led to a worldwide recession.

This is factually incorrect. 2005 was not the height of access to financial markets. You have much more access to financial markets and investment vehicles today than you ever have had and that continues to expand.

… they’ve built.

Are you living in a separate system that’s not associated with capitalism?

If so I’d love to know what that is so I can go there.

No equity holders get anything here, regardless if they had common stock or not

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.

Brewdog also sold useless stock to customers

> 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.

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.

Tariffs, and retaliatory tariffs, have really messed up the US export market for alcohol too.

It also seems like GLP-1 drugs may reduce drinking too.

Started ozempic over a year ago. I can do like one beer per social outing these days.

Is that because ozempic has reduced your tolerance, or because your tolerance has reduced due to less consumption in general?

They just stated slowly appparently: https://www.ft.com/content/1ae55e45-64a6-463a-b04b-198ee3241...

Maybe so. But it's not just the price of booze which is the problem; other problems include online dating (meeting people is now less of a reason to go to bars), cultural apprehensions about hooking up while drunk, and cannabis providing a superior experience (at least in the US, maybe less of a factor in the UK?)

Cannabis in the UK is still illegal, so unless you're picking up weed from your local dealer, it's not a big thing outside the home.

But price of booze is killing pubs here. Getting close to £8 a pint now in London. £10 for a pint of Guinness in many bars.

A few years ago there was a group formed in the UK to designate cask ale/pub culture to be recognized as intangible cultural heritage through UNESCO-- following Belgium's successful foray into its brewing/beer culture being designated this way. There are a few documentaries on youtube

There is CAMRA, but tbh it seems to mostly be retired people with enormous beer bellies in their 60's who are happy enough to drink bishops finger or doom bar.

> doom bar

Maybe not for much longer: https://www.bbc.com/news/articles/cjendwk7979o

It's still illegal in the US too.

Federally but the feds don't enforce it. And it being legal in so many states has made it broadly available to anybody that wants it, one road trip to another state is very easy and almost seems normal compared to needing to know a "dealer."

The craft brewing industry became over-saturated.

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.

I'm convinced the "craft beer" industry settled on IPAs not due to genuine consumer demand, but rather manufacturer demand for IPAs because IPAs are more tolerant of faults in the brewing process and therefore have lower production costs (less wastage.) This is because when an IPA turns out particularly poorly, it can be bottled anyway and if anybody points out that it tastes like silty skunk ass (all my homebrews, BTW) some nearby IPA enthusiast will be sure to scoff that the complainant just can't handle the hops.

drinking out sucks now. it's too expensive. landlords are killing drinking out.

I love drinking craft beer. but when a single craft beer reaches up to $15 a beer, there's only so much I will partake, especially if I can have a $1 coors at home (which imo is still an expertly made product).

similarly, canned vodka sodas or malt bevages (like whiteclaw) easily hit the $10-$15/can mark at establishments. it's no wonder people don't want to drink out.

The article says:

  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.

  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.

> 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.)

No conspiracy here.

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...

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.

Is “have been made redundant” normal phrasing in the UK, or did the BBC just decide to use that kind of bloodless phrasing for “fired?”

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.

[1] https://www.gov.uk/redundancy-your-rights

[2] https://www.gov.uk/redundancy-your-rights/redundancy-pay

Cool, thank you - it was an awkward enough phrase that it was either a legal term or a management euphemism, glad to hear it was the former and the BBC wasn't just parroting MBA-speak.

being fired and being made redundant are very different under UK law

https://en.wikipedia.org/wiki/Redundancy_in_United_Kingdom_l...

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".

That's a normal legal term in the UK:

https://www.gov.uk/redundancy-your-rights

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.

"redundant" effectively means "dismissed because your old job no longer exists" rather than "dismissed because you're no good at your old job".

Is the bloodless phrasing for "sacked"...

I mean is it in common enough use that it shouldn’t stick out to me that a newspaper decided to use it instead of “fired,” “sacked,” or “laid off?” It’s got a whiff of “was involved with a shooting.”

It has legal implications, as others have expressed.

It means your position was made redundant, and it allows you to be terminated with little legal complication, but on the understanding that the same position can't be re-hired for within a period, I think it's 6 months.

Of course in reality it's not that simple, you get "made redundant" then they rephrase the job title a bit and hire someone else.

Redundancy in the real, proper form is a consultation process where they will try, if possible to relocate people into other positions, government does it all the time when there's cuts, and they'll often offer voluntary redundancy where they pay you X amount to quit, it's usually a reasonable sum and should leave you with more than enough cash in "normal" circumstances to find another job comfortably, or see you through to retirement if you're pretty close.

Sometimes it's just a way to get rid of people who are shit or you don't like.

If you're gonna lose your job, being made "redundant" is the way you want to do it.

I’ve been involved in this once. There were two of us in the QA department that did subtly different jobs. They wanted rid of the other guy, but as we had very similar roles I had to be involved in the consultation process. What they did is very specifically outline the differences and that his were the ones that were redundant. My manager and friend pulled me into a room beforehand and told me ‘you’re gonna go through some shit but trust me you’re keeping your job’. It all left me with a fairly sour taste in my mouth and to this day I’m not entirely sure it was all above board. If a company wants you gone, they’ll figure a way to do it.

Yeah, I went through it 3 times in the first decade of my career, two of them were just like yours, I was told "look, this has to go like this, so you're gonna have to go through the stuff, but don't worry, we're promoting you so you won't be affected". After the second one, I left because it just becomes a shitty place to work. The good people who weren't given a hint they're safe end up leaving because of the risk and hit to morale, then the morale for the rest of you drops.

The third one was a little different, they just said this entire country is redundant were moving operations abroad. So everyone was gone.

It’s very common phrasing in the U.K.

That's not very punk, is it?

Stealing the money, faffing off, and not fully knowing how to play guitar? … it’s a kind of punk.

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).

Before Brewdog if you wanted IPAs in 2000s england you paid 8 quid for a single small bottle of imported Racer 5 from Utobeer in Borough Market. They weren’t the entire change but they were a big part of it.

Oh no doubt, credit where credit is due. They served a purpose, but like anything cool in life, expansion and profits ate their soul and there are obviously so many better places to enjoy a pint (or grapefruit) these days :)

I'm sure we're in agreement that, at least in UK, there's been better pubs for 200+ years. I don't know why to go to a chain-pub with some mega-factory beer when the old-local serves a fine bitter from the same county. Am I old?

Yes it's a bit of a generayional shift. In the 2000s when I moved the UK it was all real ale. If you wanted to drink a pinecone of an IPA the Utobeer option above seemed like the only option.

But I'm a millenial. Liking IPAs is a millennial trope and younger people like less intense flavours.

I'm not sure how old you are, but I understand that that UK beer culture is in a great place now compared to the 80s, partly due to CAMRA.

> People very much don’t like their beers, the atmosphere feels fake

Sorry, but you don't know 'people'. Not all. You could only speak for yourself here. If you read the article you may realize that some 'people' liked it. here and there. It was not government or military contract that brough in all that money but the 'few' pints added up to the sum. You don't have to look down people to feel good, just have some drinks perhaps....

It’s ok if you like brewdog.

If you’re from the UK, you’d also know brewdog is not nearly as busy as it once was. Of course people like it because it’s convenient, but so is going to a spoons and paying half as much for the same quality but less cool interior.

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