Financing Discussion

[AKBIGK]

Hello there all current and future distillers,

As many know, the process of startup for distilleries is lengthy and costly. Lawyer fees, graphic design artist fees, office supplies, and gas for transportation has all been part of the deal so far. But as my partners and I are starting to realize, we are needing to really look at leasing space, put a down payment on equipment, pay for liscensing fees, talk to marketing experts, etc. These are out of our budget personally, and we seem to have a lot of interested "investors". Getting letters of intent is difficult for spirits, and proving to investors that our product will sell seems to be a challenge. Does anyone have any ideas on gathering information for investors, and startup ideas for investment in Phase 1? Friends and family seems to be the method of preference to those whom don't have equity, but I wanted to see what others think. We are in Alaska, and don't have much of any track record for distilleries, distribution to the "lower 48" states, or volume of local products. Thank you all for any information you might have!

Kyle Ryan

Bare Distillery

Anchorage, Alaska

[Scott @ Twenty2Vodka]

Hello there all current and future distillers,

As many know, the process of startup for distilleries is lengthy and costly. Lawyer fees, graphic design artist fees, office supplies, and gas for transportation has all been part of the deal so far. But as my partners and I are starting to realize, we are needing to really look at leasing space, put a down payment on equipment, pay for liscensing fees, talk to marketing experts, etc. These are out of our budget personally, and we seem to have a lot of interested "investors". Getting letters of intent is difficult for spirits, and proving to investors that our product will sell seems to be a challenge. Does anyone have any ideas on gathering information for investors, and startup ideas for investment in Phase 1? Friends and family seems to be the method of preference to those whom don't have equity, but I wanted to see what others think. We are in Alaska, and don't have much of any track record for distilleries, distribution to the "lower 48" states, or volume of local products. Thank you all for any information you might have!

Kyle Ryan

Bare Distillery

Anchorage, Alaska

These are out of our budget personally, and we seem to have a lot of interested "investors".

Congrats! This is the first step. We tapped family and friends first. Also, we looked into development agencies that Maine has setup to help start businesses and create jobs. Specifically the Northern Maine Development Commission and the Southern Aroostook Development Commission helped connect us with local investors. Many of the pool of investors they suggested were local businessmen and women who have expressed an interest in investing start ups. Not sure of AK has anything similar, but they helped us greatly in also reviewing our business plan and financial projections.

Getting letters of intent is difficult for spirits

We actually didn't get a single letter of intent to collect our investor funds. Perhaps unique, however we did it.

and proving to investors that our product will sell seems to be a challenge

See Discus.org. They have a great section on the economy with lots of stats on industry volume and revenue. Beyond the raw data, if you can't sell your investors on the plausible success of your product, it is a lost cause to try and sell them on the success of their investment through your business.

Does anyone have any ideas on gathering information for investors

You need a document that explains what you are going to do, what you need to do what you are going to do, and what you expect to pay back in return. You need actual numbers to present and backup your claims, but there is an understanding (and with appropriate disclosure) that these numbers are all projections and could change for any reason at any time blah blah blah... We had ours printed with a few color photos at Kinkos on nice, but not the nicest paper and bound with a nice spiral. They came in at $10 each, and we printed easily over 100 of them. For that effort, we landed 17 investors. It would be nice if digital copies were all it took, but a nice looking and well written business plan that cuts the BS and gets to the point with numbers that are impressive is the only tool you need to get an investor's attention. Then you need to close them.

and start up ideas for investment in Phase 1?

Different for everyone. For us we raised $4 for every $1 we borrowed. This too will be different for everyone, however it was a no brainer for the our lender when we arrived to the table with our $ contribution. For us, phase 1 was raise the $. Phase 2 is spending $. Phase 3 is making $.

Friends and family seems to be the method of preference to those whom don't have equity,

Be careful asking for money from family or friends. We went that route, but i was determined to make sure that i was presenting a plan to family instead of just saying "i'm your nephew". Create a corporation or LLC. Put together a professional plan and present it as an opportunity for them. It worked for us. On that note, have you considered the effect of "accredited" and "non-accredited" investors on your fund raising strategy? As our lawyers put it bluntly, "as soon as one [non-accredited investor] pollutes the pool", the regulations governing what you can and must do to raise money change. There are 4 or 5 conditions that qualify an investor as accredited, and essentially boils down to an individual with a net worth greater than $1 million. Initially we thought it would be wonderful to create penny stocks in our company and sell them to as many people as possible. However, that type of strategy is just not allowed without dumping lots of money into lawyers. Each state restricts (or permits depending on your view) the quantity of shareholders you may enlist under an official registration exemption. You may exceed the quantity of investors, however you must then register your shares with your state SEC which has fees and pages of required disclosures you must present to make your investors "sophisticated" (just a fancy word for informed). To work in the realm of a registration exemption, and if you figure you need $1 million to get started, and you are limited to 10 investors for Alaska, then you do the math. Of course, with that scenario, if you are enlisting $100,000 investors, they are likely accredited and there wouldn't be a restriction of 10 . Each state has a different limit on investors, and some states factor in the total number of shareholders across all states (like Connecticut ). New Jersey's exemption limit is 10. Maine's limit is also 10 unless I fill out a "notice of exemption", which then bumps it up to 25. Unfortunately, you just can't do this stuff without a lawyer. Your time is much to valuable to learn the regulations and then implement when there are more pressing things to work on. Plan on spending at least $8K to draft the necessary disclosures, write the subscription agreement, and then manage the proper creation of shares for your company.

If you are looking to enlist investors, i would suggest forming an S-Corp over an LLC. There are pros and cons with both, of course, just a suggestion.

We are in Alaska, and don't have much of any track record for distilleries, distribution to the "lower 48" states, or volume of local products

Seems like an opportunity for innovation?

Good luck dude,

-Scott

[delaware_phoenix]

I was able to get loans from local economic development agencies. But I needed a very good business plan.

Also, why plan at all for distribution to the lower 48? Why not scale things to a size that's manageable within the money that you have and for the state you live in?

[AKBIGK]

I sure appreciate the guidelines. Simplicity is key when undertaking such a big project. Cost cutting is very crucial, and advice can trim away needless waste. Thank you all for your input.