This sounds interesting. Have you been reading one of those ‘How to become a millionaire’ business books again?
No, just been listening to some very learned finance experts and drinks entrepreneurs at London Wine Fair that’s all. Those who came to the Innovation Zone session that looked at how drinks companies are now getting funding from a whole range of sources, some traditional, others more left-field, probably got more than they bargained for. In fact, if you had a business plan for a new product it was the ideal opportunity to get expert advice on how to get funding for it.
For those that weren’t there what happened?
Well, it was an opportunity to hear how to get funding from BBC’s Dragon Den for a start. Which is what Liam Danton, founder of Didsbury Gin, did when he went on the programme and succeeded in getting £75,000 in funding from 'Dragon' Jenny Campbell. But that's clearly the exception not the norm. What the session really exemplified was the wide number of options there now are for businesses, whether they are a start-up or an established company. Be it the traditional route through a high street bank, crowdfunding through a platform like Seedrs, independent support from an investor, or increasingly the number of new accelerator growth businesses, like Diageo’s Distill Ventures, that partner new businesses and help them start, grow and hopefully flourish.
OK, so what’s the advice about crowdfunding?
Scott Simpkin at Seedrs was able to explain the success it has already had with a number of drinks businesses, most impressively with its crowdfunding campaigns for English winery, Chapel Down (close to £4m) and wine merchants, Humble Grape (over £1.5m across different funds). He said drinks brands and companies are always popular with big and small investors “because it gets people’s passions up”. After all you ideally want to be able to enjoy the fruits of the company you have backed, which makes a wine, beer or spirits business so popular, he added. The key for any successful crowdfunding campaign is how big your personal network of contacts is. You will need to have raised at least 20% of the money you need before it can go live on the Seedrs platform. It is therefore looking to back someone with “an exceptional network,” said Simpkin.
So what about Distill Ventures and these so-called accelerator growth companies?
Distill Ventures was set up to provide a new opportunity for start-up drinks companies that often find it so hard to get initial traditional funding as drinks is such a precarious and competitive industry to enter, explained one of its founders Shilen Patel. Established in 2013 it has gone on to invest over $60m in new start-ups. He said the key for any new business is to not just look for funding, but to try and get what he called “smart money”. “It’s important to get that initial financial support, but if you can also tap into someone’s entrepreneurial skills and talent then that’s really important,” he explained. He said he is available 24 hours a day, if needed, for the companies he works with.
So what does a business like Distill Ventures look for in a new drinks company?
Good question. Patel said it ultimately comes down to being able to show you have both an authentic and genuinely new product, but a brand that is really going to connect with a specific target consumer. “What is its purpose?” he asked. To convince an accelerator business like Distill Ventures to get on board you also need to be completely open, transparent and honest about what it is you are looking to do and how you are going to do it. Just one tiny skeleton in your cupboard and they will walk away. Or as Patel said: “One little lie on your CV.” No-one can do business with someone they can’t trust implicitly. Interestingly Liam Manton of Didsbury Gin revealed up to 80% of the deals you see on Dragon’s Den fall through when they go into due diligence.
They will also want to know about your team, the people behind it, the founder, the creator, said Tim Boag, a former investment banker at the Royal Bank of Scotland. Are you all on the same page? Do you share the same passion, goals and targets? “How good are you at listening and learning,” added Patel. That, he said, was a vital skill to have if you are really going to understand how to grow and potentially adapt your business to do so. “You also need to have a ruthless focus on what really matters. The right balance between having a vision and the attention to detail of what is happening in the business today,” he added.
How about the individual entrepreneur?
Keith Webb, former managing director of Bargain Booze, who has invested in and consults for a number of drinks companies, including Seven Bro7hers Brewery, said he looks for three key things in any potential investment: first the product has to be excellent quality; second the people behind it have to be “believable”; and third do they have a credible three to five year business plan he can buy into. Are they capable of looking into the future and thinking “where next?”. Too many entrepreneurs, he said, don’t know how much actual profit they are making and get too excited in running the business.
And the traditional banking route?
Tim Boag said a major bank would always look at the characteristics and quality of the people involved and their ability to present a clear, detailed strategy for the business. A plan with enough clarity that will assure the bank it can repay any investment. In the banking world it is known as CAMPARI (Character, Ability to repay, Margin of Finance, Purpose, Amount, Repayment terms, and Insurance). “Can you work with them and build a long-term relationship?” are the questions a bank will ask, said Boag. It’s why it’s vital to have a medium to long term plan to get a bank to support you, added Boag. “How can I help you get better, who do I need to introduce you to over the next five years,” he said. Because ultimately, said Patel, the investor does not make any money until the business they have invested in does.