BrewDog, Preference Shares and the Illusion of Employee Equity
18 Jul 2025
3 min read
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This story makes for sobering reading. Basically, when it comes to employee equity, don't let the preference shareholders drink everyone else under the table.
In 2017, BrewDog made headlines with a $1 billion unicorn valuation. But behind the celebratory press releases was a complex financial structure that would quietly reshape the company’s future and leave thousands of employees and retail investors holding the short end of the stick.
The Deal Behind the Hype
The real story wasn’t the valuation. It was the structure.
Private equity firm TSG invested £213 million into BrewDog, split as follows:
- £110 million to buy preferred shares from the founders
- £102 million of new capital into BrewDog via more preference shares and warrants
This gave TSG a 22.3% stake in the company, valuing BrewDog at £895 million (about $1 billion). But the shares TSG acquired weren’t ordinary equity, they came with an 18% compounding return, one of the most aggressive quasi-equity terms ever seen.
This wasn’t equity in the traditional sense. It was equity engineered to behave like debt, with a ticking time bomb embedded in the cap table.
The Waterfall Effect
Fast-forward to 2025.
TSG’s original £213 million has now compounded to over £800 million, giving it first priority in any sale, IPO, or distribution. That’s materially more than the likely enterprise value of the company today, circa £500 million.
So what’s left for others?
- 130,000 “Equity for Punks” retail investors: Practically nothing
- Founders’ remaining ordinary shares: Deeply underwater
- Employees with gifted stock from James Watt’s £100m equity pledge: Bye bye value
The compounding preference didn’t just dilute, it dominated.
The Structural Mistake in Employee Equity
This is a cautionary tale for any founder-led or VC/PE-backed business designing employee equity plans. It shows how preference shares can silently erase ordinary equity value, especially for employees who enter the cap table with no seniority and no visibility.
| Mistake | Consequence |
|---|---|
| Granting ordinary shares beneath high compounding prefs | Shares are economically worthless |
| No cap table transparency or waterfall modelling for staff | Employees believe they hold meaningful equity |
| Valuations used to set expectations, not to allocate economics | Promises become undeliverable at exit |
Designing Better Employee Equity
BrewDog’s structure didn’t fail because of the preference shares alone. It failed because the employee equity was layered blindly beneath them.
Here’s how to do better:
1. Model the Waterfall and Show Staff the Truth
If there’s a preference stack, illustrate it. Use real exit scenarios. Show where employee shares sit in the distribution.
2. Use Instruments That Adjust for Performance
JSOPs, growth shares, and hurdle-based equity can work, if they’re structured to deliver value after prefs.
3. Cap the Preference or Embed Sunset Clauses
An 18% compounding return with no cap or conversion point practically guarantees economic displacement.
4. Align Vesting with Net Equity Value Creation
Not just EBITDA or revenue. Align with actual net value after the preference equity is accounted for.
Final Thought: Don’t Confuse Ownership With Economics
BrewDog’s preference stack didn’t just deliver returns to TSG, it absorbed the value that was supposed to incentivise thousands of investors, staff, and loyal customers.
If you want equity to mean something for employees, it must be designed with transparency and with aligned economics. Otherwise, it’s not alignment, it’s theatre.
Need help holding your drink? The Burges Salmon Incentives team can walk you through preference stacks, equity waterfalls and how not to spill your employee share plan on the way out to the exit. We'll drink to that. Cheers.