Ownership Structure

[B&Co]

They say every partnership ends, one way or another.

Our future operation will be financially backed by a few bar industry silent investors. I will provide no investment capital, but all the sweat, leadership, and creativity. 

For those who have successfully or unsuccessfully funded your distillery from silent partners, how did your attorneys suggest you divide the equity and voting shares to account for your contribution, and ensure you retain control of the brand ?

PM me if discretion is prudent , and have an amazing weekend!

Cheers!

[Falling Rock]

" bar industry silent investors " will this pass the "Closed House" laws?

The key to investors and partners is to establish YOUR ownership percentage/ownership rights and not let them dilute it with future investments. Don't allow the investors to gain enough control to vote you out!

[Glenlyon]

Businesses come in two classes - right some shades and cheap sunglasses. In other words, you have investment grade startups and you have founder's grade startups. Investment grade companies are usually funded by investors and are designed to enrich the aforementioned money men. Founder's based business are there to fund the lifestyle of the founders.

The first thing you need to do is decide which one you want to start. If you have a business or law degree and years of working with investors in a corporate situation and you are starting a larger operation in a bigger market then you are in good shape to handle the demands of your investors.

If one the other hand, you have no previous experience dealing with investors and you have only creativity, leadership and sweat to offer - then you have no skin in the game. So, the moment you fail to meet a construction goal or you go over budget on something or miss or a sales/production target you are always running the real risk of being watching your company disappear over the horizon without you.

You will always lose out to the investors in those situations.

So, the moral of the story? Write a comprehensive business plan. Figure out what you really need. You may find you actually have the money or you may find it much cheaper from the bank. Who, probably won't want to lend to you, but if they do - you'll be a lot happier in the long run.

 

 

[B&Co]

Sage advice, thank you!

[Thatch]

In any partnership if you plan for divorce before you get married, things go a lot smoother.  Think of this like a prenuptial agreement where you decide before entering into the partnership, how to exit.  So, what is your sweat equity worth?  If I'm your money man, I don't want the waters to be muddied by a minority partner.  Furthermore, a minority partner has very few rights.  What I would suggest is something where you x% of the gross for each months you were a employed and your get it for x period of time based on your tenure.  You might also want to have a formula for a payout in case the company is sold.  They'll likely want a cap on either number, which is reasonable to me.

The above plan covers firing, quitting or sale of the company.  If you are a minority shareholder it is very difficult to walk away with any cash.

Both the TTB and your State will have to sign off on your investors which may be your biggest challenge.  

[Foreshot]

There's way to much to put into a single post - or even a book. The best advice is to have a good lawyer to guide you through this. 

A couple common scenarios to think about. For each one you should think about how you want to reflect that in the agreement. 

1. Everything is cool, you keep close to your business plan, everyone does what they need to do. Eventually people will want to sell their shares, when to do distributions, bonuses, etc. 

2. A partner/owner go nuts/bad divorce, etc. This include purposefully trying to take more money out of the company if things go well. Bad divorces can really do a company in. They may be more concerned with vendeta and not money. 

3. Things go bad, equipment fails, low sales, bad reviews, etc. Investors are pissed. You need more money to go on or you need to file bankruptcy/liquidate. 

 You need to understand how you want to handle these situations and have a lawyer put them into legalese. 

As other people stated above the majority of the agreement will concern duties, milestones, and exits. Research "term sheets" on google. You'll see a variety of rights and riders. One I would have in there is a "Right of First Refusal". It allows investors to get the valuation for their shares (good for them) but you get the option to buy it to keep control (good for you). Watch the control of the board of directors if you have one. Ensure your lawyer keeps you in control. Maliciously savvy investors know how to manipulate them to remove your control. Anti-dilution controls are good for people in your situation that you are bringing the skill/labor and not the money. If things go well then the people with money can force the issuance of extra shares to gain more control of the company. 

[stillcreek]

Depends on what your doing.  Are you building a distillery or building a brand?   Big difference.  Distilleries are hard assets, brands have to be built up and can me moved around, outsourced  etc.  A brand doesn't have  a value until it has a share of the market.   As for as having bar owners/investors  as partners, Texas has a 3 tier system,  actually 4 for on premise.  This would be a violation or tied house.  As a manufacturer I'm not allowed to even own property that has a tenant with a liquor license.  Lots of abuse goes on within the State as in Distillery, Distributor and Retailer all being owned by the same people just not on paper.  Usually the license is held in a family member or fraternity brothers name.  Additionally In Texas, unless you have a ton of capital or lots of resources it's dang near a loss to go through the 3 tier system as a lot of people are going the tasting room route or sell in bulk as the margins are greater.  

If your not putting any skin in the game other than sweat equity I don't  know what that's worth, not much as a shareholder/partner.   The model i used might be a good fit as it was set up to protect a silent investor/partner that wanted to remain off the LLC for personal reasons and maintain protection of their investment.   I drew up a line of credit with a right to convert to equity.  Check with your attorney on that route.  Equity would be base on loan amount with a cap, venture capital approach.  Sweat, leadership, and creativity is fine but investors only care how your going to pay them back.  Also if your not producing the conversion option would give them a right to remove you. How are you going to get paid? Are you going to take a salary or percentage based on the gross?  What are  your forecast for sales?  If your planning on generating revenue from the retail end,  you'll need to be picked up by a distributor, the next challenge is getting it to the shelf. A lot of the mom and pops don't want to deal with unknown brands and the big chains are littered with Texas Brands and so called Texas brands.  The big chains will turn you on in  a store or two and then let you push the product and allow expansion from that point forward. Plan on spending about $150.00 per tasting.  If your doing on premise about $300.00 to $400.00 as your having to pay promotional people and buy your product back as house prices.

Another route is you could do an IPO to raise capital, there is a law firm/accounting firm/marketing firm in Houston that can take you public and probably raise 1 million plus of capital.  You'll need roughly 150K out of pocket in order to raise that 1 million plus.   They acquire and set up a dormant shell company, file on the OTC Pink Sheets and put the market makers in place, (think wolf of wallstreet) and run with it.  They handle all the filings and constant press releases. You  incorporate in Nevada and/or Panama as Panamanian corporations apparently don't have to disclose who the investors are, (that's a whole another can of worms).   The upside is that if your serious and want to raise capital it's a possibility,  the down side is last i checked the firm will charge you roughly 17K per month in their fees for the record keeping and SEC compliance audits/statements.