tours) in exchange for the donation — but not stock or something that would constitute the investment contract discussed above. Kickstarter’s rules prohibit offering alcohol as a crowdfunding perk — but Indiegogo lets participants go a step farther and offer contributors vouchers that can be redeemed for spirits. So, in essence, an Indiegogo campaign can be used to pre-sell spirits not yet in the bottle. Of course, a company might want to be able to solicit and receive equity investment from a large group of far-flung investors — even individuals who may not qualify as accredited investors — each contributing a small amount of the capital needed by the business. If that is your idea of a perfect situation, then you’re in luck. With the passage of the Jumpstart Our Business Startups (JOBS) Act of 2012, Congress attempted to put this in motion. The JOBS Act contemplates that businesses will be able to solicit investment in just this fashion. At the same time, however, JOBS Act equity crowdfunding will require a company soliciting and receiving investment to jump through some significant administrative hoops, so this isn’t to be undertaken without study. While a full discussion of the nature and extent of the administrative requirements would require several pages, hooch companies considering this path should, as an initial matter, be aware that an equity crowdfunding offering may only be conducted with the assistance of either a registered broker-dealer or through a registered funding portal. In addition, completion of an equity crowdfunding offering will subject the business to periodic financial reporting obligations with the Securities and Exchange Commission on a go-forward basis. Ultimately, only time will tell if equity crowdfunding will become a viable option for entrepreneurs seeking capital for their ventures. For smaller offerings, the requirements may simply be too onerous to justify the use of this mechanism. But with the change in the law many industry participants are bullish that this is the wave of the future. In fact, as of the time of this writing, Indiegogo is launching its own equity crowdfunding platform. If it succeeds in making equity crowdfunding as accessible as Kickstarter and Indiegogo have with respect to reward-based crowdfunding (i.e., non-equity crowdfunding), this may soon become part of the standard playbook for entrepreneurs seeking capital.
MEET A FEW BANKERS.
Startup ventures are typically Asset-based lending frustrated when they try to obtain will not be available bank financing, but slightly more to every distillery established ventures frequently stocking away whiskey benefit from strong relationships for the future. with bankers. In the context of spirits — where stock often needs to be stored and aged for several years prior to sale — this benefit can be particularly strong when the business is able to collateralize the barrels as they age. Of course, asset-based lending of this type will not be available to every distillery stocking away whiskey for the future. Most (but not all) banks will want to see that the spirits being aged will have a ready market once bottled. So the best terms will be available to those producers with recognizable brands and a track record of sales. Of course if a producer has a recognizable brand and a track record of sales, you might argue that it has no real need of the banker’s services. There is some truth to that, but being able to use the aging spirit to secure good terms for working capital or a revolving line of credit can be a tremendous benefit. This is obviously not an exhaustive list of the means of funding your shiny new hooch business, but these approaches give you a fighting chance of meeting your business’s needs for capital. With some luck, appropriate funding, and by avoiding as much as possible the mistakes commonly made by entrepreneurs (discussed in my last article in the Fall issue), you stand a decent chance of building value in your business and in your brand. With that value comes opportunity not only to become the next king or queen of the spirits world, but also the chance to expand, acquire other spirits brands, or harvest the value by selling your business to an acquirer. Brian B. DeFoe is a business lawyer at Lane Powell, where he focuses his practice on helping companies in the customer-facing industries of hospitality and retail. Brian can be reached at email@example.com, via phone at (206) 223-7948, or on Twitter @BrianBDeFoe. Visit www.hoochlaw.com for more thoughts on spirits and the laws that govern them. This is intended to be a source of general information, not an opinion or legal advice on any specific situation, and does not create an attorney-client relationship with our readers.
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