Investing into a Brewery

[Sunset]

There are some sweet, (relatively) cheap ciders sold in both the UK and Ireland that have a bad reputation for such problems.

https://www.bbc.com/news/business-42080891

Rats... Guess when we go to the UK, I'm going to look like a cheap-a__ tourist as I HATE beer but can stomach cider.

May have to stay out of the pubs... which makes for a visit missing the history/character of places..

 

[dak2018]

A question for the general beer drinking audience, how many of you who can drink regular beer have a hankering to try or switch to gluten free beer?

I would not run towards it, but neither would I run away. Unless there is an overt health reason, I don't see any special appeal. If the product is simply "me too - gluten" then I don't see any reason to go to a specialty brewery to consume the product.

 

[edsahara]

There's probably a very good reason why there are only 18 other GF breweries in the country.

Also, once they have your money, they have no requirement to consult you on anything or give you a nickel off on your beer.

 

[Out of Steam]

Rats... Guess when we go to the UK, I'm going to look like a cheap-a__ tourist as I HATE beer but can stomach cider.

There are mainstream ciders without such a reputation, such as Magners and Strongbow.

 

[ERD50]

A question for the general beer drinking audience, how many of you who can drink regular beer have a hankering to try or switch to gluten free beer?

Years ago, when gluten free beers were a new thing, I tried a few. Mostly out of curiosity. I mentioned before, at the time some were pretty poor, one was OK (different, but not in a bad way).

If I were unable to drink other beers, the OK one would be... OK. Maybe much better ones have been produced since then, but based on that article I found, it sounds like the best are "just as good" at a higher price.

So no, I won't seek them out.

-ERD50

 

[Magus]

A question for the general beer drinking audience, how many of you who can drink regular beer have a hankering to try or switch to gluten free beer?

No, and not many will, and beer connoisseurs rotate beers so even if they liked it doesn’t mean they will switch or be regular drinkers. Beer drinkers excluding cheap kinds are the least brand loyal of about any industry. But the main issue is that many breweries make GF beer and GF folks will have to convince their friends to come to this Gf brewery with no other options rather than the other brewery with 15 options and 1-2 GFs that satisfy the larger group.

 

[HarryHawk]

I just did a quick google search, and sources quote about 1 out of 133/1%/2 million folks in the U.S. have celiac disease. If that's the target market, that is a pretty narrow niche.

 

[Youngblood]

I met with the owner, and she was able to answer my questions. I can't share too many specifics because of the NDA I signed.

There was talk about how much of this investment is my net worth. It's less than 5%. Essentially, If I lose the investment, then I would need to work about 1.5 years to recoup it (counting the interest loss with not doing anything).

As for how I would be compensated. I would own shares of the company and would receive 5% of the net income. Owners would only receive compensation once the SB loans are paid off (goal is 2-3 years). Once the loans are paid off, the goal is to be producing to their phase II plan. Phase II production would bring greater returns, thus a return on my investment (NDA prevents me from sharing numbers).

As for the business side, I feel comfortable with risk. I understand I could lose it all. I also understand I could recoup my investment in ~3 years if the business operates to plan. If it does run to plan, I could see good yearly returns beyond that. I haven't given them the answer yet, but I'm leaning towards yes.

My goal is to retire in about 5 years (I'll be 51). If this venture doesn't work, it pushes that out maybe a little over 6 years. In the grand scheme of things, I feel this might be worth the risk (and a little fun!). The fact that I have already had cancer allows me to understand that things don't always go as planned. I have been a great saver over the past two decades and I feel it's time to take a little risk and live a little. As the saying goes, nothing ventured, nothing gained.

 

[RunningBum]

Good luck, and enjoy visiting YOUR brewery!

 

[HarryHawk]

Best of luck if you decide to give it a go. I'm planning to move to Holland in the next couple of years, I'll be sure to stop by for a cold one.

 

[Sunset]

....
As for how I would be compensated. I would own shares of the company and would receive 5% of the net income. Owners would only receive compensation once the SB loans are paid off (goal is 2-3 years). Once the loans are paid off, the goal is to be producing to their phase II plan. Phase II production would bring greater returns, thus a return on my investment (NDA prevents me from sharing numbers).

....

I wish you the best if you do it, I will add my thoughts, but understand you may not know or be allowed to say.

The bold part strikes me as weird.
It sounds like: "produce low amounts until the loans are paid off, then magically ramp up to make profits"

Why not Phase II now and pay off loans faster.

I can also read it as: "will take couple of years to pay off the loans", then we will go to Phase II and (forgot to mention this will require share dilution to ramp up production).

 

[Magus]

I wish you the best if you do it, I will add my thoughts, but understand you may not know or be allowed to say.

The bold part strikes me as weird.
It sounds like: "produce low amounts until the loans are paid off, then magically ramp up to make profits"

Why not Phase II now and pay off loans faster.

I can also read it as: "will take couple of years to pay off the loans", then we will go to Phase II and (forgot to mention this will require share dilution to ramp up production).

Yup - another round of new, likely larger debt (at hopefully better rates and better terms) and new equity dilution to pay off the old debt and invest in new production and possibly return some equity to the founder (assuming you do well enough to attract new funding) is the typical play for any kind of capital intensive business just getting going.

If they aren't targetting at least a 25% IRR for you, you are probably getting hosed. It's likely the current debt holder is getting a very good return (I'd guess 10%+) with less risk since they can seize the assets in BK and they get first cut of cash flow so equity return expectations should be materially higher.

I'd also really find out all the details of the current debt. Does it balloon and if so, when? If performance is a bit below expectations, how far off does it need to be to not be able to cover the balloon? If it's not much (say a 10% miss in sales expectations) I'd run for the hills. Worse - can they cover the balloon even if they hit expectations if they can't roll the debt into new debt? You never know when the debt markets will freeze up for businesses, especially small businesses which is why most corporates re-up at least 12 months out before they are due and many do 2-3 years out.

(I do corporate finance for my job post MBA - Finance from a T10 program 10 years ago, I've done equity raise and sells, unsecured and secured bonds, term loans, CMBS, revolvers, M&A, led many one year and multi-year plans for a few national companies, etc so this is right up my wheel-house, along with running "what if" scenarios)

 

[jazz4cash]

Best wishes if decide to go for it. Thanks for the update.

 

[Aerides]

I would own shares of the company and would receive 5% of the net income.

I assume that net is post all op-ex, all investment costs, all loans, all salaries to staff and founders. Net can do a heavy lift in finances.

 

[Magus]

I assume that net is post all op-ex, all investment costs, all loans, all salaries to staff and founders. Net can do a heavy lift in finances.

Hah, I missed that. Yup it's likely this company won't have gaap positive net income for a decade+. After opex, depreciation, interest expenses, most new companies have gaap net losses for a very long while even if running cash flow positive. And most likely that net income will have to be cumulative net income positive before distros are required for equity so it could be a very long time indeed. It's why most private equity firms look at EBITDA over net income for private and small businesses.

 

[Youngblood]

I assume that net is post all op-ex, all investment costs, all loans, all salaries to staff and founders. Net can do a heavy lift in finances.

Yes, that is correct

 

[Youngblood]

I wish you the best if you do it, I will add my thoughts, but understand you may not know or be allowed to say.

The bold part strikes me as weird.
It sounds like: "produce low amounts until the loans are paid off, then magically ramp up to make profits"

Why not Phase II now and pay off loans faster.

I can also read it as: "will take couple of years to pay off the loans", then we will go to Phase II and (forgot to mention this will require share dilution to ramp up production).

They will be ramping up to phase II levels as they work down the loans.

 

[Youngblood]

Best wishes if decide to go for it. Thanks for the update.

Thank you!

 

[Youngblood]

Quick update on the brewery. The taproom opened up in July and has had a steady increase in visitors each month. We have introduced the beer into 17 bars / restaurants in the West Michigan area, 5 venue locations (sporting, concerts, etc..), and 34 retailers across Michigan (started with 6 when I bought in). It's been pretty exciting to see the growth from when I first joined the team!

Next steps will be to get with a distributor and see if we can get into the Chicago market!

Cheers!

 

[street]

Quick update on the brewery. The taproom opened up in July and has had a steady increase in visitors each month. We have introduced the beer into 17 bars / restaurants in the West Michigan area, 5 venue locations (sporting, concerts, etc..), and 34 retailers across Michigan (started with 6 when I bought in). It's been pretty exciting to see the growth from when I first joined the team!

Next steps will be to get with a distributor and see if we can get into the Chicago market!

Cheers!

Great! Persistence, determination and working hard is a good recipe for success.

Thanks for the update.

 

[Youngblood]

It's been almost a year since my last update (thanks for the reminder jazz4cash). The past year has shown some really good growth for our brewery. We ended signing on with a local distributor that works with a major supercenter in my state of Michigan (Meijer). The supercenter likes our product and now has it in 100 stores statewide.

We are still working on getting our beer to outside of Michigan. We are in talks with some distributors that can help with this. Hopefully we can work that out early in 2024!

So, I'm very excited for our future!

 

[jazz4cash]

That’s great to hear. I visited Detroit in June and I was thinking about your venture.

 

[pletal]

The going joke in my MBA class 10 years ago was "The best way to become a millionaire with a Brewery or Winery is to start with at least $10 million!"

It's an extremely saturated market and they really would either need a successful restaurant and/or distribution/retail partners to do well - and a restaurant also increases the risk of failure. And even when they do well for a while, sometimes the shine fades quick. The weird thing about beer drinkers is that except for lower income drinks like Bud and Miller lite, they are constantly trying new types and therefore are not loyal at all. So they may do great one year and then sales fall heavily the next.

If its a very small part of your net worth and don't care if you never see it again or get a very small return over a long time, go ahead. Otherwise I'd pass.

I have been approached lately for same type of investment, but for 250k. No go for me. Invest in a food truck

 

[old medic]

We are still working on getting our beer to outside of Michigan.
So, I'm very excited for our future!

Can I arrange to get some sent to NC?
Congratulations.... Love a success story!

 

[dknighd]

If you can afford to loose that investment, why not give it a try. You might have a lifetime supply of GF beer. And perhaps be able to influence its flavor.


I would not invest in it to make money. You might get lucky. But the odds are against it. But you might make friends, and have a source of beer you like, and can consume.