UNIQUE WAYS TO RAISE CAPITAL FOR YOUR DISTILLERY
WRITTEN BY RICH MANNING
ALTERNATIVE FINANCING STRATEGIES I
t takes money to make distilled spirits. Equipment must be purchased. Grains must be secured. Buildings must be either acquired or built and then maintained. If you’re foregoing the production of unaged spirits and headed straight into whiskey, it will take years for these elements to be available to bring to market. This last step can make securing the cash needed a challenge. The nature of distilling — particularly the “hurry up and wait” nature of distilling aged spirits — can make obtaining a traditional bank loan difficult. This hurdle can compel distillers needing help to start or even grow their business to turn to alternative funding strategies.
A UNIQUE ISSUE A fresh-faced distillery may technically be a small business, but it’s hard to convince a bank to finance whiskey through small business loans. The hurdle is the whiskey, but not because financial institutions are temples of temperance. If you have dreams of producing bourbon, rye, or single-malt barrels, you’re asking banks to put their weight behind a product that will become tangible in the future. This can cause confusion among banks, which prefer more immediate results. “We have a business case that’s not easily understood,” explained Natasha DeHart, co-founder of Bendt Distillery in Lewisville, Texas. “Imagine that you’re going to start a T-shirt business. You go to the bank and tell them you need a loan to start your business so you can rent space, buy equipment, and purchase materials. Then, you let them know that the first T-shirt will be available to the public four years from now. That’s what you’re telling banks when whiskey’s involved.” This confusion can make plenty of banks reluctant to provide financing for distillers lacking capital or collateral. Alternative financing strategies can circumvent this issue, and there are several methods to choose from. Picking the right one requires careful consideration and an evaluation of current and future needs.
EARLY STAGE FINANCING Distillery financing is split into two distinct categories: Dreams and reality. “The first round of financing is based on pure ideation,” said Colin Spoelman, co-founder and distiller for Kings County Distilling in Brooklyn, NY. “The second round will offer proof of concept.” 62
This division makes seeking out alternative financing strategies advantageous for a distillery. The traditional small business loan may not be open to fund distilleries at the ideation phase, because banks tend to struggle understanding whiskey as a future asset. Alternate methods can be utilized at various stages of a distillery’s life cycle, although some may be better suited at specific times than others. That said, this doesn’t mean banks are completely off-limits at the ideation stage. In recent years, banks like the Wilmington, North Carolina-based Live Oak Bank have rolled out barrel financing services that recognize aging whiskeys as current collateral instead of a future commodity. The valuation-driven program allows distillers to borrow against the barrels as the juice matures, which can provide distillers the cash infusion they need to keep operations steady. Bendt and Kings County have used Live Oak’s services as part of their strategy; according to Bendt’s other co-founder, and Natasha’s husband, Ryan DeHart, the service indicates a potential growth in understanding how whiskey works. “I’m not sure [Live Oak] would have done a service like this in 2015,” Ryan said. “Now, there’s a lot more data out there, so Live Oak can invest in people that understand whiskey valuation.” Of course, turning to friends and family is an old-school method of funding ideation. It will never be an obsolete option, and it can be powerful and effective. At the same time, this grassroots search for investment dollars contains potential pitfalls. “The main challenge is to find people that are truly serious about providing money,” Spoelman said. “For us, the ratio was finding one serious person for every twenty non-serious persons, and we felt lucky to have that ratio.”
ESTABLISHED STAGE FINANCING Reaching out to the masses can also be beneficial for an established distillery via resourced crowdfunding. The concept is not designed to be a design-based platform like GoFundMe. Rather, it’s a highly regulated and audited system that allows anyone to invest in an organization by funding, albeit with some limitations. Its design yields palpable financial benefits — distilleries can utilize the concept to raise capital without taking on debt. Moreover, it gives distillery fans the opportunity to invest in the distillery’s growth. In other words, it can allow existing customers to be directly involved in helping a brand they love grow. This involvement can also yield other dividends, such as a likely increase in sales among investors. “A resourced crowdfunder isn’t going to be a capital investor looking for a quick return on investment,” explained Jason Parker, president and co-Founder of Copperworks Distilling in Seattle, Washington. “They’re going to be a passionate fan that’s willing to support the brand through events. They’ll ask about the benefits of investing in the brand like rewards or special discounts and not about dividends. These people will end up becoming brand ambassadors for life.” Copperworks Distilling has initiated three separate regulated crowdfunding sessions since 2020. This volume may suggest an easy efficiency W W W . ARTISANSPIRITMAG . C O M