Author Topic: Investing in friend's upcoming brewery  (Read 29874 times)

ac

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Re: Investing in friend's upcoming brewery
« Reply #100 on: June 04, 2015, 02:20:16 PM »
AC, I'm guessing you already cut your friends (?) a check.

If not, consider that there are more options than "No...crap, I'll be left out if I don't donate" and "Yes, here's my money to fulfill your desire."  Examples:

1. "I'm not in now, but keep me posted.  If you ever reach a point where different terms are offered, I might give it a second look."
2. "My time is probably worth more than my money.  Let me put in some of that sweat in return for some of that sweat equity." (you'd be an insider...)
3. "If you don't complete this round of financing, let me know.  Maybe I can help you better then, whether with cash or with advice." (the price might be better at that point; or enough data might appear to change your mind)
4. "Do you have any customers yet?  I pledge to be your first customer."

There are more, but I'll stop.

I financed a friend's business idea for a few thousand bucks.  He had no serious business plan, and it showed.  During his descent into undeclared bankruptcy, he withdrew from friendship because he felt he needed to "work on the business" instead of talk...until it was too late and he had to quit in embarassment, stiffing all investors and all suppliers.  Your pals may get more benefit from you staying in touch proactively as a non-investor than they will from the cash they think they want right now.

Best of luck regardless!!


Nope - I have not invested yet. 

To give you an idea of how well craft beer is doing in my area:  I tried to buy a growler fill last Friday from a small brewery, and the response I got was "We only fill our own growlers, so you'll have to buy one for $3.  And we don't fill them with our most popular beers."  So I went to a different brewery to buy a growler fill using my own growler.

Point is, yes, the craft beer market here is very hot.  So hot they make it hard to buy their dang beer.  Because they can. 

+1 to lithy on not starting too small of a brewery.

Maybe I'll ask for a beer dividend. 

I had a very similar opportunity last year except they valued it at 1.2million- 1% share cost @ 12k.  3 owners who have 20% ownership each and will not take salaries for first 3 years.  The other 40% is owned by investors like myself and we have an anti-dilution clause and some other safegaurds.

I went ahead and bought some shares; however,  there were some different justifications:
The location that they have opened in is extremely prime.  Tap room has been full every night since opening about 3 months ago (I made the initial investment last year) and it *should* continue to flourish.  This was the major cost of the initial investment.
The craft beer market has not been saturated in this area yet and there are only 2 other competitors in the area none with current plans to be medium scale distributors.
Income comes from tap room until wholesale contracts are in place this year currently- at 15barrel system with plans to expand to a 30barrel system if/when sales are steady at 3000bbls/yr
They have the brewing licenses- a huge step for this business.
The brewmaster is well known and has several brewing awards from around the nation
One co-owner has opened and owns a successful similar business in another state (he has some experience)
Agreements had been reached for medium scale distribution in local grocery stores/shops on opening of the 15bbl system.
The business model is "green" something that people love forking money over for nowadays and they advertise this well (and practice it too).
The amount invested fell within my gambling portion of my account- I will not miss it if all is lost - I think this is key because I don't plan on seeing any shareholder dividends for a little while....

Again I think it could have been a foolish "investment" if I didn't just consider it an all or nothing "gamble".
Oh and they provided free kegs for my sister's wedding and the wife and I get free beer when we visit (part of the contract).

Once concern I do have is the area that they are opening in has a typical craft beer cost of $5- seems a little low to me but I guess the lower price brings people in the door...

How did the 3 owners get their 20% each?  By putting money in?  Or something else?

2Birds1Stone

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Re: Investing in friend's upcoming brewery
« Reply #101 on: June 04, 2015, 02:45:05 PM »
I have to echo the poor valuation.

I find it very hard to believe a brewery startup being worth 1MM+ even if it owned a serious operation including all necc equipment to scale, and the building/land + distribution established.

I have a lot of friends who have started startups or work for them, and SMB that focus on one product and have little assets are valued way more conservatively than large business.

Just a rule of thumb, such a business might be valued at 1-2x annual revenue, thats revenue, not cash flow.

dandarc

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Re: Investing in friend's upcoming brewery
« Reply #102 on: June 04, 2015, 03:33:41 PM »
bluecheez's example - the 3 founders there are getting actual sweat equity.  No salary for 3 years.  That's how they get 60% between them.  Another way to look at it is each of these guys compensation is 6.66% of the business per year for the first 3 years.  Obviously a huge incentive for them to do everything they can to make the deal profitable - if this thing tanks, they get nothing for 3 years of work, likely a lot of work.

forummm

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Re: Investing in friend's upcoming brewery
« Reply #103 on: June 04, 2015, 04:15:32 PM »
bluecheez's example - the 3 founders there are getting actual sweat equity.  No salary for 3 years.  That's how they get 60% between them.  Another way to look at it is each of these guys compensation is 6.66% of the business per year for the first 3 years.  Obviously a huge incentive for them to do everything they can to make the deal profitable - if this thing tanks, they get nothing for 3 years of work, likely a lot of work.

OP, this is one reason why people were saying that your potential majority partners aren't getting "sweat equity" since they are getting paid a decent salary regardless of performance of the business.