For those seeking distillery financing, let’s start with some good news first. Entrepreneurs with the ability to develop novel flavours and exceptional experiences have many funding avenues to explore.
The myriad funding options cater to diverse circumstances and aspirations, both for founders and investors.
The bad news? It’s not as easy as committing to an option and unlocking the funds… it takes time, the right approach, the right understanding and accepting that all involve a trade-off. There’s no such thing as a free lunch, and it turns out, there’s no such thing as a no strings attached drink either.
Here, we delve deeper into the primary paths to securing financial support for your start-up spirits brand, distillery financing. The aim is simple – to empower you to forge the right partnerships and stride towards your vision with confidence and knowledge.
Before we talk options, to avoid “analysis paralysis” or wasting time going down the wrong routes, here’s some initial thoughts you should begin with…
Delineate Your Business Vision
Start by crystallising your business vision, mapping out the scale of operation, growth pace, and the market positioning you envisage for your distillery. Do both a Business Plan and a Marketing Plan.
Only once you’ve done this can you answer the following questions with any authenticity or insight.
1. Ask yourself about control and ownership
- How much control am I willing to relinquish?
- Am I comfortable sharing decision-making authority with external stakeholders?
Exploring these questions will help gauge your comfort level with equity funding options such as venture capital, angel investors, or opting for a more autonomous route like bootstrapping.
2. What is the maturity of my business and what’s the track record so far (both personally and of the business)
- What stage is my business currently at?
- Do I have a proven track record or a compelling prototype to showcase?
Your business’s current standing significantly influences the funding avenues open to you. Newer businesses might find allies in crowdfunding and friends and family, while those with a proven track record may attract venture capitalists or more formal distillery financing options.
3. What’s the financial commitment needed and what is your risk appetite
- What level of financial risk am I comfortable undertaking?
- How much debt am I willing to shoulder?
Understanding your risk appetite will guide your debt strategy, helping to decide between bank loans and seeking investments from family and friends.
4. Think about Networking and Mentorship
- Am I looking for more than just financial assistance?
- Would my business benefit from industry mentorship and networking opportunities?
If networking and mentorship are high on your priority list, aligning with angel investors or enrolling in accelerator programs might be the pathway to pursue.
5. Time Investment
- How much time can I dedicate to the funding process?
- Am I prepared for the rigorous demands of certain funding avenues?
All forms of distillery financing take time – you are asking for money, and you can’t just click your fingers and expect results! Certain funding paths, like crowdfunding or securing venture capital, demand more substantial time investments, however. Courting investors and fulfilling due diligence processes can be strenuous.
Visualise the operational dynamics post successful distillery financing
Envisaging operational dynamics post-funding can be a clear indicator of what will be the right choice. Answer the above questions to give yourself a steer on the kind of route best suited to your needs and desires. Then think through the day to day practicalities based on the assumption you get the funding you need. As the old adage goes – be careful for what you wish for as you might get just that…
We’ll just to repeat this one last time as we’ve seen great brands torn from the inside due to this.
Each funding avenue comes with its set of expectations, reporting structures, and involvement level. Each will comes with new stakeholders. They have a right to be demanding and to want to be in the loop – as THEY ARE NOW PART OF IT. Think about what will be a fit with your operational style.
Ready to crack on and inject some cash?
Bootstrap Funding (Self-funding)
The only way for some, the ideal way for others – many new distillery ventures start with self-generated funds, typically from savings or operational revenues.
Pros:
- Maintains full ownership and control over business directions.
- Sidesteps the often rigorous and time-consuming process of investor courting.
- With no external investors to answer to, you have the flexibility to pivot your business strategies as needed without external pressures.
Cons:
- Unless you have significant personal wealth, it can limit the capital and therefore the scale of ambition, operation and pace of growth.
- You might be on a slow growth trajectory for a long time, because you are restricted to what the business profits can facilitate. If making spirits that involve maturation, it can take years to see the volume equation to change in your favour.
- Limited resources for emergencies are an issue. With no substantial backup, facing an unforeseen crisis can be financially draining and potentially devastating. Stock damage, late supplier payments and liabilities can all create huge stress points to those without the capital to continue operations while solving the issue.
Friends and Family (Personal Networks)
It’s wise to tread carefully while considering investments from your personal circle, balancing relational dynamics with business exigencies. While simpler, it often bears additional weight of expectations and risk appetite.
Pros:
- Friends and family may offer more lenient repayment terms, providing a business with the time it needs to grow organically. Put simply, they’re more likely to have the patience and understanding if things are a little different than expected.
- As most borrowing of this kind is less formal, there’s potential access to low to no interest funding.
- Generally, this route offers a more relaxed approach towards business formalities, and many become key advocates in early stages.
Cons:
- Investments from friends and family may come without business insights and guidance, which can be a downside if the business encounters complex, industry-specific challenges. That potential lack of business acumen can also backfire when dealing with initial contracts – many don’t get legal advice and when things go wrong, that becomes an issue for all.
- Risk of straining personal relationships for a myriad of reasons.
- A limited pool of funds coupled with inexperienced investor expectations can be a nightmare. Shark Tank, Dragon’s Den and other investment programmes can give the inexperienced unrealistic expectations for their returns.
Crowdfunding (Community Funding)
Crowdfunding platforms allow you to offer incentives to potential investors, fostering a community of brand ambassadors. It’s a common method of distillery financing, although it’s worth noting that not all platforms will allow drinks investments.
Pros:
- Two pronged approach where getting investment is also good marketing as it helps build a community while accruing funds.
- Permits funding from a wide spectrum of investor capacities. Typically the way that campaigns need to be structured to be successful involves answering a lot of questions, setting out very clear T&C’s and creating clear expectations – all of which sets up the potential for a straight forward, honest relationship thereafter.
- Crowdfunding allows you to receive feedback and engage with a community of potential consumers, helping you refine your product before the official launch. The feedback and engagement it generates can be invaluable.
Cons:
- The crowdfunding space is extremely competitive, with many businesses vying for attention and funds from a limited pool of investors. The high competition nature means good projects don’t always get the air time they deserve.
- Crowd funding relies on momentum and awareness. Two things most drinks do not have to begin with. That can be an especially daunting task without a robust portfolio or track record.
- There’s always a risk of falling short of the capital goal irrespective of the chosen path. That said, this is a very public place to set up, pitch and fail – all of which will hinder your chances should you pursue other routes thereafter.
Venture Capital
Venture capital often propels swift growth, but it is essential to prepare for deep involvement from the investors. This type of distillery financing is typically better suited to those looking to expand their operation rather than start up.
Pros:
- Venture capitalists often provide access to a wide network of industry contacts and expertise, which can be invaluable for a growing business. For many, it’s the network that comes alongside (as much as it is the funds) that drive growth.
- Many have ways of adding operational reinforcement to accompany funds. Structure and more rigorous reporting can be an extra hassle for some, but it’s vital once you reach a certain size. Some VC funds have centralised ways of building operational planing, forecasting, resilience and reporting.
- Facilitates explosive growth in receptive markets. Big pots of cash, great products and ambitious plans that involve high cash burn to get to the big return – if you are looking to roll the dice and the strategy aligns with their vision for you, VC funds have the depth to their pockets that could get you there.
Cons:
- High Pressure for ROI. Venture capitalist funds tend to expect high returns on their investments, often putting pressure on the business to deliver results in shorter timelines. That might force your hand in ways you don’t want to and make products you wouldn’t otherwise make.
- Invites long-term investor engagement, steering business strategies. This can be a positive influence if you are aligned. But, as we’ve seen time and again, when that’s not the case, it can force you into cost savings that compromise product quality and launch products that confuse brand position.
- Hands over a substantial say in the business direction to the investors. Again, this can be a positive aspect/. That said, when sign off is required, there’s often compromises that need to be made.
Angel Investors (Collaborative Patrons)
Through transparent discourse on expectations, it is possible to pave the way for symbiotic relationships through funding. Many distilleries have affluent individuals backing them, offering not just funds but invaluable industry insights and mentorship.
Pros:
- Given their experience, angel investors can offer tailored advice and mentorship, providing a sounding board for your ideas and strategies. It’s a very individualised way of delivering distillery financing.
- Quick decisions owing to individual fund management.
- Nurtures a personal rapport between investor(s) and the founder team.
Cons:
- Compared to venture capitalists, angel investors might have funds that are more sensitive depending on where they are kept and what they are exposed to. They are also more limited in nature, so might not be sufficient to propel your business to the desired heights.
- Involves relinquishing some control and stake in the business.
- The success of this partnership is largely reliant on the individual investor’s acumen and to an individual relationship. If that’s maintained and positive, it’s amazing, but if it turns sour – it can be hard to separate the person sentiment and the business sense.
Accelerators
Joining a business accelerator that combines tailored mentorship, strategic insights, and a guided pathway to more substantial funding, while working in a nurturing environment that understands and supports your distillery dreams. Sounds like the dream, it can be, but it has potential downsides too.
Pros:
- Being part of an accelerator program often means being in a community of like-minded entrepreneurs, fostering a collaborative environment where you can learn from each other.
- Through the way they are designed, they offer bespoke support for founders.
- An encouraging space for concept maturation and fine-tuning business strategies. There’s a difference between incubators and accelerators, but they share many similar traits in that they both aim to help develop the brand, not just look to increase sales.
Cons:
- Unless it’s a drinks specific one, Accelerators often offer a standardised approach to all businesses in their cohort, which might not suit distilleries with unique needs and visions. The drinks business is quite unique.
- Involves trading off equity stakes (and an understanding of that works).
- Demands significant prolonged engagement from the founding team. This is to be expected of all options, but accelerators tend to be one of the most demanding.
Navigating Towards successful distillery financing: A few final thoughts
Remember that securing funding isn’t the end but a promising beginning.
The right funding path, aligned with your goals and business ethos, is your ally in this exciting journey toward success in the craft distilling industry. Each involves trade offs, each involves both upsides and pitfalls. It’s not something to fear but as success is subjective, the right option for you is also subjective. Pick wisely!
