I came across an interesting post in the Blog of the Legal Times yesterday about two advertising executives who attempted to raise $300 million from online investorks in order to purchase Pabst Blue Ribbon. Rather than approaching large investors, they came up with a rather brilliant method for crowdsourcing the buyout. The two men, Michael Migliozzi II and Brian William Flatow, actually managed to raise $200 million before the SEC stepped in to block the purchase.
Since late 2009, the two friends operated buyabeercompany.com (now defunct) and created a facebook page and a twitter account that helped them coordinate investors. The idea was to attract investors who would pledge money, as little as $5 or as much as $250,000, and they would only be asked to pay this money if they reached the threshold $300 million. Like Kickstarter and PledgeMusic, there was no money out of pocket until the project’s target had been reached.
The SEC canned the planned takeover because the two organizers had failed to properly register what amounted to a security issuance. In effect, the website was a stock issuance that required registration and disclosures under Sec. 5(c) of the Securities and Exchange Act. Given that there were no sanctions accompanying the SEC’s “cease and desist” order, there is some chance that after properly registering and disclosing the required information, this might not be the end of this story.
Crowdfunding in its various manifestations has been spreading rapidly and there are plenty of interestingresources around the internet. But it’s curious that there haven’t been more efforts to use the internet to enable widely distributed groups of people to buy up more major companies. Beer companies and sports teams seem like obvious candidates. While SEC filings are a small hurdle, there’s no obvious reason that the broader investing public couldn’t do a targeted takeover of any number of corporations through these kind of threshold pledge plans.
Like the far more controversial Bitcoin peer-to-peer currency, crowdfunding promises to decentralize and generally transform corporate finance around the world. Perhaps as campaigns like “Buy A Beer Company” become more common, the SEC will develop new protocols for facilitating these kinds of online purchases while still ensuring that potential buyers and sellers are being dealt with honestly and transparently. In the meantime, there’s going to be a real need for lawfirms or other organizations willing to perform the SEC filings for the coming surge in crowdfinanced buyouts.