Times may be uncertain, but that doesn’t stop entrepreneurs from hustling. Despite the ongoing impact of Covid-19, up and coming spirits brands that position themselves the right way can still secure venture capital funding, according to the experts.
When deciding who to partner with, First Beverage Ventures looks beyond the brand to the founder and their team, says Kristin Bareuther, managing director of the New York-based private equity firm that specializes in alcoholic and non-alcoholic beverages.“Since we’ll be a minority partner, we want to make sure we’re aligned with them,” she said. “People are critical—we want a high level of integrity and commitment.”
Aside from capital, what do spirits brands want when they connect with VC firms? It varies, said Jeff Hopmayer, managing partner of Nashville-based wine and spirits investment consultancy Brindiamo Group. Some just want the financial backing, and someone to sit on their board and help guide them, while others want to leverage resources the VC might have to offer. That could be something as broad as marketing help or as specific as one of Brindiamo’s offerings, bulk bourbon and whiskey sourcing.
“The more professional new young brands are asking for guidance and more than a financial investment,” says Hopmayer. “Unfortunately, a lot of folks get sideways in their deals—they take the investment but don’t [closely read] the documents they signed or [understand] the controls put in place for the money. They start running sideways to the investor and that becomes a problem.”
“As partners, we are a sounding board,” added Bareuther. “We sit on their boards and align closely with the founder and what he or she is trying to accomplish, to help support them. When they need to hire, there might be people we can bring to the party, to allow the entrepreneur to have more voices in the mix.”
Several spirits categories are attractive to investors. Bareuther cited American whiskey—rye in particular—as rapidly growing products, as is mezcal because of the increasing interest in agave and plant-based products. Irish whiskey is still going gangbusters, added Hopmayer, and tequila, bourbon and run are also considered good bets.
First Beverage’s current portfolio includes alcoholic and non-alcoholic beverages such as Laws Whiskey House, Essentia Water, Q Mixers, CBD drink Mad Tasty and Gem + Bolt mezcal. Bardstown Bourbon, Angel’s Envy Rye and Popcorn Sutton whiskey are among the brands Brindiamo has advised.
Hopmayer and Bareuther shared seven tips for spirits entrepreneurs that want to entice investors.
1- Start networking early. Bareuther noted that many of the brands and entrepreneurs they invest in are people they’ve been engaging with for six months to a year before the deal is made. Folks looking for investors should take the opportunity to network with potential partners at industry events and conferences, to showcase themselves and begin forging relationships. These conversations can also be great opportunities for entrepreneurs to pick experienced investors’ brains. “You can get a lot of information on how to approach things like distribution strategy, where to source glass or what states to move into, just by asking questions,” she said. “And, this is a way to vet an investor and see if they will be aligned with where you want to go.”
2- Keep it up. Don’t stop networking once you’ve raised your initial capital, said Bareuther. Once you’re up and running, circle back with the key people you met along the way and share your successes. These can serve as valuable proof points and could be a meaningful tipping point for a potential investor to get involved in your next round of fundraising.
3- Understand what you’re getting into. Every brand and every investment is different, says Hopmayer. Retain good legal counsel to read everything and understand all the rules and regulations that will be placed on your company in exchange for taking an investment.
4- See the big picture. Don’t have tunnel vision about your brand proposition. Sure, everyone in your circle loves your beverage—but is it really unique? “You need to be aware of the broader competitive landscape outside of your core audience, said Bareuther. First Beverage looks at whether a potential investment has a significant addressable market and stands out as unique, both in the current landscape and down the road. “People might have an interesting brand concept in an area ready to explode,” she said, citing probiotics as an example. “When we [initially] invested there, it wasn’t really a clear market there but the potential was visible to us.”
5- Be a people person. Make sure that you have a great relationship with the people behind money. “Don’t invest in the deal, invest in the people. That’s key,” says Hopmayer. Many small brands get into trouble when they need to raise money fast. They take money from people they normally wouldn’t work with, if they had the time to really think it through. “If you’re hanging by a thread and someone offers you a million dollars, you take it and deal with the consequences later. That’s not the way to do business.
6- Understand the three-tier system. For entrepreneurs new to the space, the process of navigating the system of importers/producers, distributors and retailers can be a bit of a mystery. “People might think ‘oh, I can align with this retailer or that restaurant across the country in a month or quarter, but you have to look at how you support distribution,” noted Bareuther. “It’s easy to think that everybody outside your local area understands your brand proposition, but that’s not always true. You need to think about all those pieces of the puzzle.”
7- Be careful about raising money in a crisis. A month away from running out our money is not the time to start looking for new investors. Think ahead and look down the road to the future: If you’re in panic mode, you’re not in a good position to leverage your capital raising potential. Be transparent, know what you’ll be using the funds for and how long that capital will get you, says Hopmayer. “It is always better to raise capital only once, because each time you go back it gets worse and worse.”