Do you have investors in your distillery? How did you raise $1 million

[TetonDistillery]

How many of you have outside investors involved in your distillery ownership?

There are many categories of investors. Friends, family, locals in your area, etc. That type of investor will likely be less demanding in terms of exit strategy.

Do you have venture capital or Angel investors? That type of investor is going to want a potential exit strategy via a liquidity event. They will want the potential of a buyout by a larger company or an IPO so they can sell their shares gradually on the stock market. Most of those investors want to see such an event within a 5 to 10 year time frame.

Our own situation is that we raised money by selling shares to friends, family and local residents who expressed interested after reading about our building plans.

But we have now grown to a level where for future expansions we will likely need a bigger chunk of money.

Our next round will likely be seeking $1 million or more. That goes a bit beyond the potential of friends and family.

So we will likely start seeking angel investors or venture capital.

In a former life I worked for an investment bank, so I am familiar with this process.

I am wondering if other distilleries out there have faced this situation for raising $1 million to expand and how you did it.

If you feel this is too private to post publicly, please send me a PM.

[tl5612]

You know much about BrewDog? If not, check them out.

Like friends and family, lots of small investors will be less demanding about exit strategy. So long as they can buy your booze for a discount

[TetonDistillery]

You know much about BrewDog? If not, check them out.

Very interesting, 14,208 shareholders so far for BrewDog. I like the strategy and it worked in the UK.

However in the USA we are limited to 500 shareholders, then you need to start filing a lot of SEC paperwork. It so costly enough to the point that you might as well do an IPO.

[Archangel]

Hey Teton,

Check out Bogus Brewing in Boise. http://www.bogusbrewing.com/ownership/

The owner (Collin) is very nice to chat with and would probably give you all the pro's and con's of his IPO. He gained a ton of support and is almost out of shares.

Tell him Matt Bryant sent you.

Thanks,

Matt

Archangel Spirits

Boise County, ID

[Shindig]

I think this is great topic! I am sure there are a ton of us looking for ways to finance our start-up distilleries.

I spoke to a guy a year or so ago that said he sold 40 shares for $25,000 each ( 1 million dollars). He said he and his 3 partners only put in $10,000 each. He said that the investors had to each start an LLC to purchase the share under. Some groups of friends got together and bought 1 share (5 friends each put in $5k). He said they set it up so each share sold payed NO DIVIDEND for the first 3 or 5 yrs (can't remember) then the LLC could sell the share at the companies current valuation. The business got first right to the share. He said he had done this type of finance before on another brewery. He said they send VIP cards to each "owner" twice a year that allows them to come in to the brewery/distillery and spend the card (Called them the "Swinging Dick Club"). Each of them got to bring their friends and family in and act like a big shot for a few hrs. He said they were very strict with the "owners" coming in al the time. They would only sell shares to investors that had a certain net worth This seemed like a great way to raise money without a monthly payment.

Any finance guys know if this works? How is it set up?

[TetonDistillery]

Most Angel investors or Venture Capital funds will want you to form a C Corp to issue shares.

When we first formed Grand Teton Distillery, we were an S Corp so that all startup losses could pass through and the investors could receive a K-1 to deduct the startup losses on their personal tax returns.

But now we are switching to a C Corp since we are profitable and approaching Angels and VC funds.

Shindig and Archangel, both of those ideas sound original and might work for a local brewery or local restaurant themed business.

But more serious investors would likely avoid those types of funding strategies.

Angel investors and VCs want to see the same corporate structures they are accustomed to (C Corp) and a term sheet that fits with their experience in growth startups.

The positive is that those smaller community themed fundraising ideas will likely receive a higher valuation (less dilution for founders) with local investors. The person investing in his local brewery for $1,000 is likely not negotiating on price or pre-money valuation. They are investing $1,000 for bragging rights, "Hey, I own part of a brewery !!! Yeah Dude !!!"

Angels and VCs are looking at the cold hard numbers. They are not investing $500,000 to $1 million unless it makes sense.

[tl5612]

It's a tricky one. Shame you can't go down the route of BrewDog in the US.

They have very little pressure on exit strategy. Mass support - mini brand ambassador owners. And the founders probably still feel like they own and run the company.

Angels and VCs... much more pressure. Pushing for 5 year exit. There is an annoying irony, where one can end up quitting a City job in something like IB to 'be your own boss', and then end up seeking investment from (and answering to) the same guys that you wanted to shake off in the first place.

How do you know now if you want to sell in 5 years?

Of course, it the 'big piece of a small pie, versus small piece of a big pie'. A very tricky one.

[TetonDistillery]

Doing an IPO is much easier in the USA than it used to be. It used to be in the 1990s that many companies in the $10 million to $20 million sales revenue range could go public with an IPO.

However something changed between 2000-2010 where the costs of being a public company because much higher. It cost so much for SEC compliance that unless you were doing $50 million in sales revenue, you likely could not afford the annual compliance costs.

In 2012 we now have The Jobs Act, passed by Congress and signed by Obama. Those provided new rules for fundraising and going public. The end result is that small companies are starting to do IPOs again because the SEC reporting and disclosure is dramatically reduced for smaller companies. We are starting to see those companies with sales revenue of $10 million to $30 million consider IPOs again.

Here is a good summary

http://blog.willis.com/2012/05/jobs-act-analysis-reduced-disclosure-requirements-for-ipos/

[TetonDistillery]

Very interesting, 14,208 shareholders so far for BrewDog. I like the strategy and it worked in the UK.

However in the USA we are limited to 500 shareholders, then you need to start filing a lot of SEC paperwork. It so costly enough to the point that you might as well do an IPO.

Correction, I just read that under the Jobs Act of 2012 the shareholder number limit is now 2,000.

[Falling Rock]

Having turned the corner to profitability so fast, are you sure you can't go back to your original investors?

If I were an original investor, I would want the new opportunity and be offended if not asked.

[TetonDistillery]

Having turned the corner to profitability so fast, are you sure you can't go back to your original investors?

If I were an original investor, I would want the new opportunity and be offended if not asked.

We did. Many have invested again. That enabled us to double our distillery size.

[Falling Rock]

Very good...I would suspect those people would be your best advert for new investors, or references at the bank.

[Shindig]

Teton. Amazing. Nice job.

[TetonDistillery]

Nobody has really answered the original question. Do you have outside investors in your distillery? How have you done it? Friends and family? or more professional investors such as angels or venture capital?

Thanks

[tipk99]

Friends and family for us.... we arent up and running yet, but we did get some money.

[tipk99]

I just re-read your op and realized we didnt raise as much as youd asked about... so not sure i can actually help.

[Falling Rock]

We're very lucky in that we are self financed.

We do however have related joint ventures ready, where the extension of that new venture will be co-owned. A joint venture with existing busnisess that have more experience in their area.

I have been partners in other ventures and would offer this...the partnership or investment can be written, so that I/you always have the ability to buy them out if necessary or financially appropriate.

[Salishseaorganicliqueurs]

I was lucky enough to have a partner which had owned a real estate development business for the last 30 years so he already had a base of qualified investors which we could access to raise most of our required capital. The remaining bits we have been pulling in from family and friends.

[JoshGreenDoor]

Teton, Congrats on your success.

We started with all friends and family, and are working closely with our local credit unions now.

For our expansion planned in year 3, so far the credit unions/banks will loan the necessary money as long as our books are kept and we're showing growth and profit..

Obviously we're not there yet, but I'd encourage you to look into Credit Unions. They seem to be willing to help small businesses and take larger risks.

[mrjeffthurmon]

Just don't go the route the Chip Tate did down at Balcones. It ended up costing him his company. Read up on it on the internet...

[david@nederlandergroup.com]

Congrats Grand Teton - We are in the process of building out so I can't offer you seasoned advice on raising capital after opening. We did raise outside funds for our initial operation. We have a combination of family/friends and outside investors. Where we found the most traction was igniting an ambassador who was passionate about our idea and was willing to run point. They opened an LLC and courted others to go in that way. This group is made up of all local business owners who wanted to participate in something that was going to further our city as a whole.

[arcoffeen]

I would be interested to hear what a CPA has to say about this topic any body know any good ones who have done this before?