In recent years, Kent success story, Chapel Down, have run two highly successful crowdfunding campaigns. But, alongside the financial investment raised, they have gained what could be argued as a more valuable asset—the marketing benefits of having several thousand new advocates. Pilgrims, as they like to call them, who are championing the Chapel Down brand and products across the country, and the globe, in a way many businesses can only dream of.
We caught up with CEO, Frazer Thompson, to find out how they approached this alternative investment route, how they have gained so much more than just the financial benefit from their campaigns and how other business considering crowdfunding can make their campaigns an equal success.
KVL: Frazer, you’ve run two high-profile crowdfunding campaigns. Both smashed their original targets, one of which was a record for the largest amount raised in that year. At the time it was not a traditional approach for businesses that were in Chapel Down’s position; an established business that was already publicly listed. What drove your decision to try the crowdfunding route?
Frazer: We were tipped in the Mail on Sunday as a share buy. The tip said, ‘You can’t lose with Chapel Down. It’s a great company, but more importantly, if you like their wines you get a fantastic discount,’ which was true. You got a third off of our wines, which you don’t get anywhere else.
The share price started to creep up, as hundreds of people began to buy our shares. We thought – This is incredibly interesting. Indeed, its almost revolutionary, where individuals who love your product wanted more than just the product and a discount card. They wanted to own part of the company.
At that time, crowdfunding was still quite embryonic. The equity-based campaigns that had been run were typically for mom-and-pop stores or the current hot trends such as cupcake businesses, and it was a bit of a lottery. But, we thought, the problem with this was that – with one or two notable exceptions – there weren’t any serious people doing it, and there wasn’t anybody doing it where you could buy and sell the shares.
So we realised that if we could encourage people to become shareholders in the company, we would end up with an army of supporters – people we now call Pilgrims; who could be as evangelical as I was every Saturday night about Chapel Down. We’d end up with apostles and advocates right the way across the country.
And we also knew that contrary to most other offers, if for any reason they needed their money back, which is a problem with crowdfunding, they could sell the shares because we were listed on a recognized exchange.
It felt like an interesting approach because instead of going to three or four fund managers in the City and taking large chunks from them—which can be quick and relatively easy—we could actually do something much more challenging. Raise the money and get several thousand new advocates for the brand; investors who would be working for the good of the company. So that’s what we did, primarily just to see if it would work. And also because everyone told us we couldn’t do it!
KVL: Do you think your approach to your products—quality first rather than gimmicks—was the greatest draw for your investors?
Frazer: No, I’m not sure that the most important factor. I think it was down to the offer we were making; it was unlike most crowdfunding campaigns. Yes, wine enthusiasts, could invest and say, ‘I’ve got my own winery down in Tenterden, I’m a shareholder,’ so there was an appeal to the lifestyle shareholder who has a few hundred pounds to invest. But, for the investor who was also looking for something a little bit more unusual, who believed in backing Britain and small enterprises, then this was an opportunity to look at crowdfunding for the first time.
We weren’t another untested, unproven risk. Here was a company that had audited and listed accounts. It was run by seasoned professionals with serious experience, running an established company. It was a brand which potential investors had heard a bit about. And crucially, I can choose when I get my money back, and track its value every day.
KVL: So the campaign must have changed your investor profile quite significantly then?
Frazer: Yes. We went from having around 70 or 80 people, mainly city-based and each with a large stake in the company, to having 5,000 shareholders, all of whom are active and interested and engaged, and are looking at more than just the results.
KVL: Do you have some examples, of how that brand advocacy has manifested itself?
Frazer: There are new examples every day. From an army of social media well-wishers and promoters to investors who write to us and say, ‘I had a word with the barman or the sommelier at X and asked why they haven’t got Chapel Down’. When we have followed these leads up we have had a great response from the sommeliers because they don’t often hear people saying, ‘Have you got this particular brand of wine?’ They just don’t.
But, it’s not just about advocates winning us trade accounts, they also go into retailers, and they will rearrange the bottles on the shelves for us. They will bore their host to tears on a Saturday night about how great this wine is because they will have the information tech sheet which they’ve downloaded from the website.
It’s made an incredible difference, from being a relatively small band of 50 passionate missionaries, we’ve ended up with 5,000 pilgrims who are as passionate and motivated as I am.
KVL: And it would have been tough to generate that level of advocacy through other forms of marketing, let alone raise £4 million at the same time.
Frazer: Yes, it’s the ultimate reflection of the consumers’ love for a brand. There is a great book called ‘Love Brand’. The concept is that you have to get consumers to fall in love with the brand. Not just be aware of and like or prefer a brand. So not just to be supportive and loyal. But in love.
Well, we take that a stage further and say the best advocacy that they could have is to want to own it. Marry it in effect.
KVL: Your brand was already established before your crowdfunding campaigns. Are you saying you would have probably found it more difficult if you didn’t already have that traction in the market?
Frazer: Well, I think we wouldn’t be a listed company unless we were of a certain scale, that’s true. So I think the advantage we had was that we had some scale and we had some trading history when it came to crowdfunding, which is unusual. We also had an experienced board of directors who I think people felt they could trust. And thirdly it was going to hurt that board of directors as much as the investors if anything went wrong.
KVL: How does that differ to other crowdfunding campaigns?
Frazer: What you quite often see on crowdfunding campaigns are ludicrous and insultingly high valuations for the company. And then you ask, ‘Are the directors putting any money in at this price?’ and the answer is usually no; they’re not. That stinks a bit, doesn’t it? They’ve already put their money in, but they want you to pay ten times the amount they put in before they’ve actually delivered any real value.
So when we set up our campaign, our Directors all put their hands in their pockets at the same price. I think that’s real faith. I can look an investor in the eye and say testimony to say, ‘The Directors may have bought shares in the early days when they were cheaper, but they are not selling them again at this higher rate, in fact they have such faith that they are buying more at the same price as you are buying.’
We also deliberately made sure our offer was dead simple. My shares are the same as your shares. If you purchased them on the exchange tomorrow, they are the same as all the Director’s shares. There are no different classes. And I think that was a massive advantage.
KVL: Crowdfunding is not as simple as just posting some information on a website—Seedrs in your case—and sitting back and pressing the refresh button. Were there any particular tactics that you employed to drive the success of your campaign?
Frazer: The first thing we did is acknowledge it as a marketing campaign. Our target market was slightly different, and if we left it just to Seedrs to do the marketing for us—they have an audience of people who like small investments—that wasn’t the sort of investors wanted we to get. We wanted wine people. People who could fall in love with the brand.
The reason we went with Seedrs was the way they structure the ownership of shares, the way they look after their investors, but actually, we weren’t especially interested in the profile of their existing investor customers. 90% of the funds that came into our campaign didn’t come from existing Seedrs investors.
So we approached it as a marketing campaign. We ran tube cards on the London Underground and a promotional campaign in City A.M., while locally we ran a campaign with the Kent Messenger. It wasn’t an easy campaign because we were selling something that’s fraught with difficulty—a financial investment—but we drove a message around ‘sharing the passion’. It worked.
KVL: And comparing crowdfunding to other ways you have previously raised investment in the business, were there elements of it that were more challenging?
Frazer: The usual way to raise investment is to go and talk to an investor, whether that is a fund or an individual. You would prepare a presentation, and set a target level of investment to raise. After preparation, end-to-end it might take four or five days with support from a broker. Potential investors would be pre-introduced, you go in and make your pitch, answer any questions and then provide a range of information. You know pretty quickly if they are going to invest.
To do crowdfunding well you are trying to reach thousands of people, not five or six, and you have got a different way of communicating with them—you’re not seeing them each individually. You have to sell remotely, so you have got to make your pitch understandable. It has to be as simple and as straightforward and compelling as you can make it.
And you need to be able to engage with potential investors. In our case that meant going onto the crowdfunding platform’s forum and constantly replying to potential investors’ questions as the campaign progressed. Our first campaign lasted for 23 days, it was very fast. But, it was much slower than the traditional route. And on those 23 days, I think I probably got about four hours sleep a night, just from answering all the questions.
KVL: So it is a much more time-intensive approach?
Frazer: Yes, but it is hugely rewarding in that sense. You are getting genuine feedback about ordinary people’s worries and concerns which you don’t always get from a broker. You tend to get something positive back from investors who are crowdfunders.
KVL: So based on your experience, what are your essential tips for a business looking at crowdfunding as a source of equity investment?
Frazer: Firstly I would say think very carefully about the type of investors you want to attract. Ask yourself ‘What benefit do those investors offer?’ And are you ready for thousands of new investors?.
Tip number two is to communicate with them frequently, let them know what’s going on, and they will remain engaged and interested.
Thirdly you need to think about how the investors get their money back. Because people need liquidity, and it doesn’t make for a happy shareholder if there isn’t a means to sell the shares.
And my final point would be, make sure that your story stacks up, both regarding the value being offered and what you are doing as a company and group of Directors. It stinks to me if a company’s Directors are not putting money in at the same rate as the other investors. I want to know that, if the venture fails, it hurts the company and its Directors as much as it hurts investors. To me, that has to be the way it works.