Still size / funding / bank versus venture capitalist types

[progmac]

I know that many of these topics have been covered in different iterations. I'm continuing to read through everything on this site - the information is priceless.

I have been working on the early Alpha version of my business plan for about five months. It isn't much, and I had a kid in the meantime, so, well, but anyhow I feel like I'm working through it.

I met with a local business incubator that I know has space for light manufacturing / food type uses. I also and more importantly, wanted to talk with them about mentoring and business coaching services they offer. I certainly had a wonderful discussion with the man in charge -- a man who has successfully coached many businesses.

I'm going to skip straight to the numbers.

I've figured about $350k to get started - $150k for equipment, $150k for buildout, and $50k for initial inventory and other (I have a more detailed cost break down). I have about $50k in equity in my house, maybe $20k in cash, and that much again in retirement funds.

My plan is to make Gin and Genever (from grain) on a 150 gallon system. I know that Gin is nowhere near the volume of Vodka and that Genever is basically unheard of...

I was a little dissappointed when he said their space wouldn't work. Ceiling requirement aside, he was pretty well convinced that a distillery was an incompatible use with what they have there. I think he thought it would be explosive or something. But anyhow, that isn't the end of the world.

What really took me back was when he said any kind of bank financing was pretty much out of the question. He said for the "second still," sure, but until I have a track record, no way. He suggested I start coming up with an exit strategy of how Angel investors could make a 5-to-1 return. Now, I understand venture capital and the risks, but coming up with 350k with no bank component blows my whole business plan out of the water.

I'm curious if others are having luck with banks at this scale or if using venture capital is pretty much a foregone conclusion.

If so, that's okay too, and I'll just have to start small. Like, WAY small. But I can live with that.

[jwymore]

A couple things:

Banks are only going to loan to a startup if you have enough personal assets to provide them with a personal guarantee.

I would not risk my retirement or my home on a startup business, way too risky. Especially if you have never done this type of business in the past.

If you feel you must use equity or retirement assets I would try to leverage loans against those things rather than pull out cash directly

You need to really look at your business plan month to month for the first 3 years and if you are honest in your sales projections you are likely looking at needing cash flow to cover net losses for the first couple years.

Perhaps the best way to proceed is find an investor that has a direct interest in distilling and is willing to work along side you in the business

[John D]

Hello

You are starting out with about 300.000 more than me for equipment. 60 gallon still, 150 gallon mash tun, 6- 80 gallon fermenters and a lot of work will get you two stripping runs a day for two days. A finish run the third day and you start another mash. Plus the move of wash, spent, new mash and thats once you get all the bugs out. Save the money start small work out the bugs get some cash flow then get bigger still and use the 60 gallon for your finish still. that will be my work week plus all other stuff that needs to be done.

It will be a job but a fun one and one way out of a thousand.

[progmac]

A couple things:

Banks are only going to loan to a startup if you have enough personal assets to provide them with a personal guarantee.

I would not risk my retirement or my home on a startup business, way too risky. Especially if you have never done this type of business in the past.

If you feel you must use equity or retirement assets I would try to leverage loans against those things rather than pull out cash directly

You need to really look at your business plan month to month for the first 3 years and if you are honest in your sales projections you are likely looking at needing cash flow to cover net losses for the first couple years.

Perhaps the best way to proceed is find an investor that has a direct interest in distilling and is willing to work along side you in the business

Thanks for the reality check. I misunderstood what I could expect lending-wise and that is totally fine. That makes sense about leveraging assets that I'd rather not touch. I'd rather not, but ultimately it is what I've got to work with and we are having honest talks about if we are willing to lose "everything." And more or less, we are. It sort of helps that we lived in a second/third world country for a number of years. Perspective, you know? I am not glib about it, I am will work tirelessly to make sure that we are building a business to stand the test of time.

At this point, I'm not showing any profit until year 5, assuming initial sales of 750/1300/2000/2500/3200 cases in the first 5 years. I haven't thought about what that will look like month-to-month. And at that time I would be holding down my 9-5 plus doing this in the evening, plus being a father and husband. Not an easy task.

[progmac]

Hello

You are starting out with about 300.000 more than me for equipment. 60 gallon still, 150 gallon mash tun, 6- 80 gallon fermenters and a lot of work will get you two stripping runs a day for two days. A finish run the third day and you start another mash. Plus the move of wash, spent, new mash and thats once you get all the bugs out. Save the money start small work out the bugs get some cash flow then get bigger still and use the 60 gallon for your finish still. that will be my work week plus all other stuff that needs to be done.

It will be a job but a fun one and one way out of a thousand.

thanks for the info on your equipment setup. i think realistically i'm looking at taking this thing down to a 50-60 gallon still, diversifying the product, and opening a tasting room.

on the product side, i'm struggling to come up with a vodka that i feel like is adding something of value to what is already out there. with gin i feel more confident in being able to produce a unique product. how many small batch organic vodkas can really take hold, you know?

what were your build costs like?

[TetonDistillery]

Progmac,

He was correct about banks not really giving you a loan without some real assets to secure the loan. Banks typically won't take that risk for a startup. They want to see a proven track record.

Many startup craft distilleries begin smaller and keep their current job while doing this as a side business. Produce a product in small volumes, get some local distribution, build a track record.

If you have a good product that is noteworthy, then it is easy to get investors.

[progmac]

Progmac,

He was correct about banks not really giving you a loan without some real assets to secure the loan. Banks typically won't take that risk for a startup. They want to see a proven track record.

Many startup craft distilleries begin smaller and keep their current job while doing this as a side business. Produce a product in small volumes, get some local distribution, build a track record.

If you have a good product that is noteworthy, then it is easy to get investors.

Thanks for the reply! I feel like I'm starting to get a picture of how this is going to work. If I were an investor, funding a small established product is exactly where I would want to spend my money.