Experts: Access to Financing Easier "than Ever Before"

FILED FEBRUARY 23, 2016

As a general rule, the better a category does, the more money outside investors will be looking to pour into it. Certainly we've seen first hand that as the number of craft products have increased on shelves in the US, the number of investors looking to jump on the bandwagon has gone through the roof.

With that in mind, we're featuring a conversation today from the recent US Bev X conference on financing and how to use the new fundraising/lending environment to grow a small business - whether it be a distillery, brewery or winery. The panel included Jim Dowd, ceo North Capital; Ben Lee, director of business development CircleUp; and Keith Merklin, gm Live Oak Bank craft beverage division.

FUNDING OPTIONS GALORE. To better understand financing, it helps to look at how the federal laws behind securities and soliciting investors has changed in recent years. Jim outlined the key points for the Jumpstart Our Business Startups Act, (aka the JOBS Act) signed into law in 2012. He says titles two, three and four "changed the law that affected the issuance of securities."

TITLE II allows general solicitation for private offers. Traditionally, "it was a very by-appointment kind of market, where there's really no formal process for raising money. You go to your own network and try to get people and then get connections to their network," says Jim. Being able to solicit people you have no preexisting relationship with has created an "explosion of a new kind of promotion on investment opportunities," he says, noting the influx in tv and radio advertisements for investments.

TITLE III is the one that a lot of people have been looking forward to, says Jim. In fact, the SEC "continuously stalled" in finalizing the rules on this one for about three and a half years, per Forbes. It basically allows a simplified, small public offering of up to $1 million, and is "perfectly designed for start up people who are trying to get some working capital."

TITLE IV changed the rules related to a mini public offering. It allows a business to do its very own public offering, allowing it to issue up to $50 million in securities "which is a huge number when you think about it in the context of traditional securities laws," says Jim.

All three changes are "all good news" for anyone who is interested in potentially raising money in a new venture or interested in investing in small businesses, he adds.

TECHNOLOGY OPENS UP FUNDRAISING PROCESS. Ben represents CircleUp, an online platform to make fundraising easier and allow private investors (aka angel investors) to invest in companies. Most industries don't have concentrated areas of interest like the tech industry does with Silicon Valley, New York City and Boston. But now online platforms are making it easier for companies to find investors and vice versa. Ben says there is more access to investment funds now "than ever before."

The crowdfunding industry is actually expected to account for more funding than venture capital which invests an average of $30 billion each year, according to a crowdsourcing report from Massolution.

Jim says the Tuthilltown Spirits website is a good example of how technology can make investing easier. Going through the Tuthilltown website, there's a tab for nearly everything from their story and contact information to a store to purchase their merchandise. "Imagine if you could basically go to their website and invest in their company…that's kind of the future of what financing is looking like post-2008 when we talk about equity financing."

A LENDER'S PERSPECTIVE. Keith represents the lending side of financing with Live Oak Bank, a bank that is unique in that it "only lend[s] to a handful of industries" with the goal to become "experts in the industries that we're lending to," he says. Keith emphasizes how different Live Oak Bank is from other banks because they tailor each lending program to the specific industry, adding that "we really have to think about and understand these businesses."

For example, equipment can be the most expensive part of growing a distillery or brewery and most banks offer financing for three to five years on it. Live Oak Bank recognizes that that equipment will most likely last for the next 20 years and are willing to come up with something along the lines of a 15-year term. Because they're more aware of how these businesses operate, they can put together more tailored lending programs. "I look at breweries, wineries and distilleries every day and…it's all about repetition and practice. I can get a good feel for it because I've seen it over and over again," he says.

ANGEL'S ENVY INVESTOR LAUNCHES ESPIRITUS GROUP

Remember we just mentioned it was easier to find money for a beverage alcohol project than ever before? You don't have to take our word for it. The proof is in the pudding.

Angel's Envy investor and former Cruzan rum chief Jay Maltby and former Brown-Former exec Chuck Chand, have put together a new sales and marketing platform for artisan spirits called Espiritus Group. Espiritus has a team of more than 20 industry experts and is launching in partnership with a $30 million spirits venture fund. The venture fund will invest anywhere from $3-$10 million in "high-potential spirits brands."

At launch, the Espiritus portfolio includes Blue Nectar Tequila, Corner Creek Reserve Bourbon Whiskey, The Lost Distillery Scottish Whisky Company, Purus organic wheat Italian vodka, and Virginia Distillery Company's Highland Malt Whisky. Espiritus has national distribution rights for all of them with varying levels of equity participation in each.

"We've assembled a spirits portfolio all of which are in high-growth categories and share common attributes: artisanship, family ownership, financial stability, high quality and authenticity of story," says Jay. "We work in partnership with the brand owners of each product to increase sales and distribution as well as build positive awareness through local marketing."

The company will focus on local brand activation and long term brand building, per a release.

WSD BRIEFS:

2015 SEES LARGEST SPIKE IN PROVENCE ROSES SINCE 2001. For the 12th consecutive year, exports of rose wines from Provence, were up double digits in 2015, per the CIVP/Vins de Provence trade group. Provence roses -- which represent about half of all French rose purchases in the US -- grew volumes by 58% and sales by 74%. For comparison, roses over $12 grew volumes by 56% and sales by 60%, as a category, according to Nielsen data. Estimates now put Provence roses at about 30% of all imported rose sold at US retail.

NORTH SHORE DISTILLERY EXPANDING IN CHICAGO. North Shore Distillery is moving to a larger location in April. The new location is less than a mile away, but 75% larger than the company's current space, per the Chicago Tribune. The new distillery will allow them to increase production and offer a larger tasting room with "some snacks." In conjunction with the move, the distillery will be releasing some on-site aged whiskey and rum in 2016. One interesting nugget of insight from Illinois is that the state doesn't have a form North Shore can fill out to signal it's moving its distillery, they are filling out paperwork like they'll be starting a new one.

MIJA SANGRIA GETS NATIONAL ROLLOUT. Latitude Beverage Company, owner of 90+ Cellars, has begun a nationwide rollout of its Mija Sangria product. At 9.5% abv, Mija is made from premium dry red wine and unfiltered raw fruit juice from pomegranates, acai berries and blood oranges without additives or sweeteners. It retails for approximately $11 a 750 ml and is expected to sell 50,000 cases of the sangria this summer, per a release from the company.

Until tomorrow,
Emily

"If you don't learn to laugh at trouble, you won't have anything to laugh at when you're old." -- Edgar Watson Howe

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