TetonDistillery

I will in 18-24 months. I am actively writing the business plan this weekend. Then I will float it around some money people I know to see if there is any interest.

It seems impossible to get new barrels in sufficient quantities these days. It has gotten to the point where I am giving serious thought to raising money from investors to start buying wood and then setup a cooperage. 18 months till new barrels. It seems some of the smaller scale cooperages only make about 5,000 barrels per year, which is about 14 barrels per day. Is that crazy? The demand seems to be there. It would seem to me that once your distillery is doing several barrels per day of bourbon production, it would make sense to invest in the facilities to make your own barrels. Some of the larger craft distilleries are already doing that scale of production. What do you think? Feel free to criticize me if this is stupid. I can take it.

The percentage of alcohol in the bottle is how the taxes are calculated. So I suspect the TTB would reject anything related to variable proof labels. Just my opinion. I have nothing to back that up with. Most of the labels that I have seen with handwritten items are things like "Batch #34", "Distilled by (insert signature)", "bottled on September 30th, 2014". Those are items that are not really of concern to the TTB, so nobody really makes a big deal out of it. But the percentage of alcohol is an entirely different matter.

PeteB, I would be extremely hesitant to do any deal with large venture money. That is what Distill Ventures seems to be. It looks like a Venture Capital group with heavy experience from Diageo, probably with Diageo money backing them. Anyone who thinks they are going to go into negotiations with VCs and come out on top on the other end, well.... you are not. They have far more experience in negotiating and writing terms of any deal. They will ask for preferred stock with special shareholder rights. They will offer convertible debt that converts into shares at a crazy low price per share (massive dilution to your ownership percentage). They will show you a plan where they expect you to grow at a crazy fast rate or implode trying. They will be regularly involving themselves in your business. If you take their money, you will have to play by their rules. They will want a significant ownership stake. 30% to 51% is common. Are you ready to lose control like Chip did? They are fine with you failing. It is just another portfolio company to them. In fact, their model is for 80% of their companies to fail. Then they hit home runs with 10% to 20% of their companies. Frankly, there are plenty of smaller investors willing to invest without wanting to takeover your business. It takes longer to raise money that way, but in the end it keeps all of the other investors in the single digit percentage ownership range. I would rather have 15 small investors each owning 2% rather than one large potentially hostile block of 30%.

It really depends on your state laws and local ordinances.

It is also quite common to abuse the legal system in the manner that Chip Tate has described. If Chip lacks the resources to respond in court, then Greg Allen's version of events would be accepted and enforced by court order. Hopefully Chip has the resources to defend himself in this situation. I found Chip's response very credible. If the current employees, that were there that day, back up Chip's version of events, then I suspect Chip will ultimately win. What I really find confusing is the ultimate strategy of Greg Allen and his investors. By adopting this scorched earth strategy, they are destroying the brand they invested in.

Actually the reason they want to know where the source of funds are, and for 6 months of history, is related to shady hidden owners. Think about the history of liquor. This industry attracted organized crime and plenty of shady operators. The TTB wants to know about every owner and see 6 months of history that you have had the funds to do this. They don't want to see a large deposit in your account made 10 days before you submit to TTB. That would indicate that you have a hidden / silent partner and that you are just a front person for the REAL owners. The real owner could hypothetically be someone with a criminal background that cannot pass muster with the TTB. By requiring 6 months of statements, proving you have had the source of funds for a significant period of time, that dramatically reduces the possibility that you are just a front for the mafia owners. At least that is my theory on why they want 6 months of statements on source of funds.

What is the height of your ceilings? Because I doubt you will be able to stack them high enough to reach any legal limit.

This lawsuit is silly. While I agree that Tito is likely pushing it by calling his vodka "handmade", I don't think he deserves to get sued over the issue. It is probably just a lawyer looking to settle for $100,000 in legal fees.

To do a bottle in China? It is not worth it unless you do a full 40 ft container. A full 40 ft container can hold 27,000 bottles (750 ml)

Rockwood Glass in China.

This is a video I just received from the manufacturer of our new vodka bottle. We had a custom mold made. For some reason, I just think this looks so cool. Thought I would share it in case you have never seen what the process looks like.

It is California. This does not surprise me. Maybe they should have been called interns or something like that.

It looks like Chip Tate has responded. This article is new today. If this is accurate, this is exactly how the vultures operate. Once they had voting control, the new investors started trying to do financial engineering with $15 million in debt (likely convertible to shares) in very favorable terms. The new investors would likely have purchased the sweetheart debt deal themselves, thereby also becoming the creditor of the distillery. http://whisky-file.com/2014/09/16/chip-tate-says-balcones-board-tried-to-force-him-out-in-court-filing-denying-allegations-against-him/ The full court response by Chip Tate is VERY entertaining. It reads like a novel. Very easy to read even for non-lawyers. http://whiskycast.com/files/BalconesLawsuit_TateResponse.pdf Based on what has been written in the original filing by Greg Allen's group and the response by Chip Tate, I have difficulty seeing how both sides get back together and work successfully. Someone is going to likely have to buyout the other side. Maybe Chip can find a white knight investor that will offer to buyout the Greg Allen group. That seems like the best scenario. I don't think it makes sense for Greg Allen and his investors to buyout Chip Tate. This has already gone too public for them to pretend that this is a friendly parting. If Chip is kicked out, it will be a scorched earth separation and it will likely cause a lot of damage to the brand. Just my opinion.

The most likely outcome is that they resolve their differences and everyone tries to pretend this never happened. Even if the worst happens and Chip is kicked out, the company will likely try to buy his silence with a severance package that will include Chip not saying anything negative about the company. The only way we will hear Chip Tate's side is if he flips everyone the middle finger, leaves and starts a new distillery and then rakes his former company over the coals. Chip likely has enough connections where he could start over with a new distillery and negotiate better terms for himself with new investors. Based on his recent experience, Chip likely knows what not to do now.

Jedd Haas made an excellent point. The VCs are looking for home runs and more than 10X return on investment. They will want you to grow grow grow and fast fast fast. Even to the point of being high risk and unhealthy. For every 10 companies in their portfolio, the VC fully expects that 7-8 will implode and be liquidated. That is part of their business model and they are fine with that. But are you fine with your company imploding under that high risk strategy? You only have that one shot at a startup. For you to begin again from scratch is a major setback for you. For the VC it is just a line item on their list of companies that didn't make it. No big deal to them. It comes with the territory. When we were talking with the VC firm that wanted 51% of our distillery, they said their strategy was to grow as fast as possible to $20 million in annual sales, then sell it off to a Private Equity firm for a huge profit. Really.... that was their proposal to us and they thought we would be fine with it. They insisted on voting control to move forward with the deal. We told them no thanks. After spending 3 months talking with them, we realized it was just a distraction and a waste of time. We have decided to not even entertain proposals any longer from VCs. We just tell them no thanks right away. There are plenty of investors that are interested in only a small stake and remaining passive minority owners. We are more comfortable with that type of investor. It takes a bit longer to accumulate $500,000 in fresh capital doing it that way, but it is far safer in terms of the founders keeping control. I suspect Chip Tate wanted to grow faster and took the risk of one big investor that could quickly write a large check. That is a very seductive situation because it is quick and easy. But the risk is having one large and potentially hostile shareholder to deal with.

Here is a link to the other article that has the actual legal documents about this situation. http://whisky-file.com/2014/09/10/heres-the-balcones-lawsuit-court-documents/

The same thing happened to us almost. We were approached by a Venture Capital firm. A few of our larger investors were actually interested at first and entertained negotiations with them. However we had several minority investors dead set against the idea and raised all of the red flags. Luckily these minority investors within our company made a great case for not doing any deal with the Venture Capital firm. During the meetings, the people from the VC firm flat out said that minority investors typically get screwed eventually, either through dilution or convertible debt or a buyout at less than favorable terms for minority shareholders. The VC firm basically shot themselves in the foot by confirming exactly what our minority shareholders were warning about. Red Flags to be aware of: 1) If they offer to provide debt financing, be very nervous. Often this is a strategy to gain 100% control by having repayment terms that you are likely to fail to meet at some point in the future. Then they will leverage that into much worse. For example, they will later offer to convert their debt to shares at a VERY heavy dilution ratio (really low share price). 2) No matter what, be nervous if anyone outside wants to buy anywhere above 30% voting in your company. That is a dangerous amount to have from any outside potentially hostile group. We have informally set a maximum of 10% for any new shareholder to acquire within our company. 3) Avoid any sort of "drag along" provisions for the VC. If they insist on a "drag along" provision in the shareholder agreement, that means that when they sell their shares to another company (private equity, major spirits company, etc) then all of the minority shareholders also have to accept whatever the VC negotiates. 4) Quite often VC's will have provisions in their purchase agreement that force the sale of the company in a certain time frame. Many VC funds operate on a 5 year or 10 year time frame. Then they return capital to their fund shareholders. That forces them to liquidate all of their portfolio companies (including your distillery) regardless of whether it is really a good time to do so. 5) If the company is sold at a loss or less than a certain profit for the VC, often they have provisions in the agreement where the VC gets paid first. I have read stories where the VC is guaranteed a 100% return on their investment minimum and no other shareholders get anything unless the VC gets their money first. Moral of the story.... don't take VC money if there is any way you can avoid it. They are sharks and mostly interested in financial engineering. They are not necessarily interested in building a long term company and they certainly are not concerned about your future plans. From reading the article, it sounds like Chip Tate and his original investor group allowed a new investor, Greg Allen, to acquire majority voting control. So when they agreed to that deal, Chip Tate lost the right to keep calling the shots. He who has the gold makes the rules. If Chip Tate wanted to remain in control, he should have done one of the follow: 1) slow down expansion so that they don't need as much money 2) use debt from a bank instead of equity 3) convert the founder's shares to a different class of Super Voting stock with 10 votes for every 1 share. That way you can maintain voting control even if you have less than 50%. That must be done BEFORE you bring on the new investors. Example: Mark Zuckerberg controls over 50% of Facebook voting stock and only owns around 22% of the shares. He has a different class of shares.

Here is a 500 gallon pot still we have. Not Vendome. http://www.tetondistillery.com/distillery/distillery-equipment/hybrid-pot-still-with-short-copper-column Steam Jacket SUS 304 Stainless Steel and Copper Equipped with double jacketed steam heating pot still, manhole, rectification column, condenser, piping and fittings

What do you consider to be too much in the area of heads? Many of us do redistill the tails, so I don't think that is an issue.

That sounds like a big mess. Do you have any other options besides municipality #1 and #2?

With all of the liquid included, those could be very heavy. Count all of the fermentations tanks being full and the still being full. Plus a bunch of other product in process.

If you want barrels that are beyond repair, there are many in Kentucky available. They cut them in half, turn them into planters.

I would say no thanks. There is no need for you to provide a W-9 for such a small transaction. The IRS was going to require filings for transactions as small as $500. But because of the insane amount of paperwork that would have created, and there was massive resistance from businesses, they correctly cancelled that idea.

It really just depends on the jurisdiction and how eager the bureaucrats are to help new businesses get started. That leadership comes from the local city/county council and mayor. Do they want new businesses forming, or are they indifferent. That attitude trickles down to the staff. We are in the process of putting a tasting room in Jackson Wyoming to take advantage of the millions of tourists visiting Yellowstone during the summer and skiing in Jackson during the winter. Our distillery is just over the border in Idaho. The staff in Jackson has been great. They are recommending to the town council to change an ordinance to allow what we want to do. It should go right through within the next few months with no opposition. They have an ordinance for wineries and they are just going to amend that for us and allow distillery satellite tasting rooms also. We will have a manufacturer's license from the state and local authorities, but then we are placing it directly in the retail section of town. The city staff loves the idea and are helping 100%. It really helps to have them on your side looking for a way to make things happen as opposed to looking for ways to create roadblocks.