Distill Ventures Delivers Innovation to Diageo

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Does the world need a non-alcoholic spirit? Shilen Patel thinks so.

As the CEO of Distill Ventures, the venture capital arm of British spirits conglomerate Diageo, Patel is always on the lookout for emerging and innovative brands that are ripe for investment.

And with Seedlip, a distilled beverage made with fruits and botanicals that markets itself as the world’s first non-alcoholic spirit brand, he may have found one. As the company’s first investment into the non-alcoholic category, Seedlip, which launched in the U.S. in January, not only represents Distill Ventures’ hunger to discover and develop disruptive beverage products, but also its belief in empowering entrepreneurs to lead those efforts.

Prior to the launch of Distill, Patel had accumulated years of experience helping large corporations, including food and beverage brands, work with start-up companies and emerging entrepreneurs as part of the creative agency Independents United. In an interview with BevNET, Patel said he and his partners approached Diageo, with whom he had been helping foster various partnerships with different entities for the past decade, after recognizing the potential for utilizing the spirits giant’s operational and marketing muscle to support compelling entrepreneurs with innovative ideas.

“People call it craft, we tend to call them founder-led brands,” Patel said. “There’s an emergence of consumer interest in brands that have genuine founders at the hearts of them who are on a mission and have a purpose and are trying to solve a real problem in the world.”

As part of the agreement with Diageo, all deals include the spirits company as a minority investor and contain a provision for it to “continue to meet future funding requirements” to a point where Diageo can exercise an option to acquire the business outright. Of the 10-plus companies which Distill has invested in, Patel said that none have reached that stage as of yet.

“What we were looking at in the world is a group of people who are brilliant at what I call [zero]-to-100,000, whatever the product is, which is the entrepreneurs and founder-led brands,” said Patel. “Then there’s a company that’s really good at turning 100,000 into 10 million. We were essentially bringing those two parties together. We went to Diageo and said we should not be working in opposition to these people, we should be working with them and we should be helping them where they want help.”

Distill Venture’s investments thus far have ranged from around 175,000 to 10 million pounds, or roughly $215,000 to over $12 million. Patel said the firm has funded brands in different stages of their lifecycle, from pre-production to businesses that are already established and looking to pivot. Companies receive investments in one of two different payment structures: an agreed-upon amount that is issued in tranches as needed or an initial investment potentially followed by additional performance-based cash infusions.

Patel noted that Distill tailors its investment structure based on the brand it is working with, and more specifically, its faith in the individual entrepreneur.

“Our starting point is always, ‘What’s the entrepreneur trying to do and where do they need the help?’” he said. “When we are assessing opportunities, more than anything else, the primary consideration is ‘How good is this entrepreneur? Do they have what it takes to convince not just 10 people but ideally millions of people that the mission they are on is a really good mission and that they have the ability to convert that potential into a successful business in the future?’”

Part of Distill’s strategy to help driven entrepreneurs realize their potential is to stay out of their way by taking a minority stake in the brand and following direction from the founders as to where the firm’s resources should be directed.

“What we are saying is we are investing in entrepreneurs,” he said.

Ben Branson, the founder of Seedlip is one such entrepreneur. Distill invested in the brand in its early stages before its launch last year. Along with his energy and willingness to learn, Patel said he was convinced to invest in Seedlip because of Branson’s ability to identify and target a specific need in the market.

“He came with a clear perspective on a big and fast-growing need for people to understand what should I be drinking when I’m in a normal drinking occasion and I don’t want to drink what’s traditionally been a very sugar-heavy soft drink,” he said. “He was basically saying to me that, because he doesn’t drink himself, ‘I want to drink something that’s sophisticated in palette and I want to drink something that has all of the craft and integrity and authenticity that the spirits brands that I see, I want to be able to experience drinks that are drunk like spirits brands, but I don’t see anything in the world that operates in the way, so that’s the problem I’m going to fix.’”

Seedlip launched in the U.K. last year and was introduced to the U.S. market in January, using mixologists at upscale bars in select markets to help build interest and integrate the product into on-premise drink programs. While Patel said the full commercial potential for non-alcoholic spirits was “huge” but as-yet unproven, establishing partnerships with innovative early-stage brands such as Seedlip allows Diageo to examine “what this market might look like in ten years and do that by allowing entrepreneurs to explore it.”

“This is definitely an industry that I think is in a period of significant change, and that’s always a great period to be kind of involved,” he said when asked if investment activity has increased over the last several years. “There’s a lot of innovation, a lot of excitement, a lot of consumer interest. I would say our interest levels are high.”