SPEAKER_00 0:00

Because otherwise they reflect. Welcome to the Future Ventures Podcast. Today we're joined by Mike Solo. Mike is the co-founder of 99 Proof, a boutique investment firm focused on backing and scaling emerging beverage alcohol brands. With over two decades of experience across business development, sales leadership, and capital strategy, Mike operates at the intersection of operators and investors, helping founders not just raise capital, but employ it in ways that actually drive growth. At 99 Proof, he and his team invest across equity, debt, and real asset structures taking a hands-on approach that extends into distribution partnership and long-term scaling strategy. He's also advised over 200 entrepreneurs navigating one of the most competitive and often misunderstood categories in the consumer. Today we're going to unpack what really drives success in beverage, how capital strategy has shifted, where founders go wrong when raising money, and what it actually takes to build a brand that survives beyond the hype. Welcome to the stage, Mike.

SPEAKER_01 1:22

Thank you. Glad to be here.

SPEAKER_00 1:25

I have been looking forward to this interview for quite some time. Um, it's not that often that we meet um an investor in what I would consider to be a very sexy industry, but maybe quite misunderstood. So why don't you just kind of start us with a bit of a um a journey in terms of what was your journey into a venture? How did you come to doing what you're doing now?

SPEAKER_01 1:52

Sure. So um more years ago than I care to admit, uh I uh started my career in business development in like a boiler room kind of environment. Um truthfully, I took that position because of the training. Um, you know, it's it's as aggressive as it gets. Um, but that kind of led me down this journey of of really being focused on revenue, um, but also focused on um culture and influence and the things that kind of drive um the awareness and um we kind of refer to as virality uh inside of my companies, but the things that kind of give your brand or your company um gravity to the consumer. So those were all things that were important to me. Um, you know, spent uh again early on uh, you know, just driving revenue for our other companies before uh I got into my own sort of entrepreneurial journey. Um my first company um was not super successful, but what it did teach us was uh things not to do. Uh and we turned that into more of a consulting kind of company to help other entrepreneurs uh avoid doing the things wrong that we did uh and help them uh you know raise capital and um form their businesses, business plans, um, you know, figure out how to make the thing that they're trying to make and get it to market, commercialize it, hire fire, uh, you know, train people, sales teams, you know, uh the fill out their leadership teams. And um, you know, it's been uh a bit of a sprint ever since then. So uh back in like the mid-teens, um, we kind of grew that company into a more of a management consulting kind of company. So um moving out of the you know early stage startups and into larger companies. And that took us into an investment bank, um, which was um another you know very interesting set of experiences. Um, but my group again was was just focused on revenue and and business growth at the time. And um for really a myriad of of somewhat random reasons, the investment bank had a lot of beverage alcohol exposure. Um, we myself and and my partner um at the time, uh we both were already um kind of waist deep in beverage alcohol, uh ancillary, like drink mixers and that kind of stuff. Uh and um so we found ourselves working kind of hand in hand with the capital raise teams at the investment bank um to help you know grow these businesses. And we found ourselves in the boardroom, uh, you know, sitting across the table from a family office or their at least their you know represents uh representatives, and uh, and then on our side of the table, the brand that you know the investment bank was working with. And at the time, um, you know, it just felt a lot like the two sides of the table didn't know how to talk to each other. Um so you know, the folks didn't understand how family offices think. The family offices weren't willing to devote internal resources towards figuring out beverage alcohol uh as a category. Uh perhaps they came from oil and now they were kind of you know branching out a bit. Um, and so for mostly for those reasons, um, the family offices ended up just talking to us instead of folks that are actually raising capital. So um, you know, in a very rudimentary way, that's how 99 Proof got its start, just making marriages happen uh inside of the US B. Um, you know, and kind of helping them, the investors understand how this category performs, why valuations are what they are, or you know, the methodologies behind them, how is it supportable? And um, you know, how do you how do you get your money back? And um, you know, on the on the brand side, the smaller companies, you know, how do you speak to these people? How do they how do you make deal make sense to them? And um, and so you know, moving forward from there, you know, we we grew a pretty decent sized uh Rolodex of investors that are um venture investors that are looking at uh or open to looking at deals in our sector. Um it's a very fun, experiential sector. It still has that, you know, really up to the bar kind of feel to it. You know, the companies within it are telling their stories. You know, you can still go into your neighborhood bar and you know, tell your story to the bartender and they'll tell you all about the brand, uh the feeling you're drinking, where it's from, the you know, the type of terroir, if it's a wine and you know, all that stuff. So uh it's just a very cool kind of cross-section of makers and uh consumers. And um, and then on the on the maker side, you know, there's this there's this maker pride. Uh, you know, they're very, very willing to sit down and tell you about the company they're building or the stuff that they're making, like what's on the inside of the glass. And so it's just all very cool. It's uh, you know, it's it's the type of industry that once it gets you, it you know, it it pulls you in deeper and deeper. Um, I'd be remiss if I didn't say that, you know, the folks that are trying to grow the small businesses in our sector, it's I mean, that that that is a rugged heavy lift. Um so it, you know, it has its its you know troublesome moments. Um, but there's a playbook, you know, there's there's tons of folks that are here that want to help. And um, so it's a it's a nice little uh niche that we're you know that we're playing in.

SPEAKER_00 7:43

I completely agree. I mean, as you know, we own a number of uh alcohol-related uh businesses. So help me um kind of unpack some of the things that you said. Um on one hand you were saying that uh you were looking for businesses that that that can achieve virality. So how do you determine what emerging brands will achieve virality? And the second component there is like, how do these businesses how should they think about competing against the the super majors, like the constellation brands of the world that like publicly traded company with thousands of brands and uh seemingly um unlimited marketing resources?

SPEAKER_01 8:30

Yeah, um I'm gonna I'm gonna unpack the last piece first. Um you know, there's there is definitely this um stigma about competition in our segment. Um, you know, and and anybody that's been paying attention to the press will know that, you know, over the last like 24 or so months, 24 to 36 months, there's been a big market research reset across most categories within beverage alcohol. Um some people, depending on who you talk to, some people will tell you that that's that was a rationalization, like you know, things were going too fast, you know, too wild, too many companies, too many brands, then you know, there was need for um others will give you other stories um, you know, about supply side and um you know logistical challenges, over ordering, and you know, there's there's a bunch of different stuff that we can um that we can dive into. But the long and short of it is um the the comp the competitive piece, it's it is very competitive. Um you you if as a small brand, as a as a craft distiller, if you will, um you know, you're you are competing against the big guys, but you're also competing against the other use. And there's a lot of other use too. So, you know, again, it's it's very important to be extremely clear-eyed when you come into this industry uh about what the what the SWAT looks like, what the competitive set looks like. Um, you know, depending on the category, there's there's probably too many entrants in the category. If you just walk into a liquor store, you know, your average liquor store, uh, you know, it takes you like 30 minutes to decide what bourbons to pull. Um, you know, but on the other end of it, we don't want it to be a situation where you walk into the liquor store and it takes you 10 seconds to pull, right? You know, you want you to be able to experience different things and try different things and get a sample of this and that. So, so there's there's a middle ground, you know, that that really does make sense here. Um, in terms of competing with the big guys, there's there's this sort of underbelly and MA in the sector where you know that is the exit. So first off, the small companies, just for anybody that's that's not really familiar, small companies sell to the big companies, same everywhere, right? So um, you know, the the strategics in our comp in our sector um are gonna look for those small brands, medium-sized brands that have kind of cut through that um, you know, very competitive, you know, thin water type environment, and you know, pick the ones that seem to have the right type of following, the right type of messaging that fit into their portfolio, obviously, that are um, you know, achieving some version of exciting, you know, growth metrics and um and seem to have a very good understanding of who they are, why they're there, and who their customer is. And um, you know, over time, it's really been the craft producers that have been the innovators in this sector, right? So the big guys mostly um wait for the for them to put enough to poke through, you know, and then they grab them. Um you know, that's that's what the venture space looks like in this segment. So it's not necessarily trying to compete directly with if you're a tequila, like competing with Casamigos, which is you know huge, or Patron, um, or any of the you know, like historical, like generational brands, um, Herodora and you know, those types of companies that have been around for, you know, an eon. Um, you know, what they're trying to do is carve out a more specific niche that's more in line with who they think they are. And we see that happening much more competitively across the category with the smaller companies. You know, once you get big enough to be in the Patron category, you're really not competing with G4 or you know, some of these new or relatively speaking, you know, newer companies um that are that are you know craft and you know kind of champions of the small uh company thing, right? You know, um, and so some, you know, depending on how deep you go into the sector, bourbon guys, tequila guys as well, will will give you some version of like a quality uh argument as well, where these like craft players are are paying very close attention to grain to glass, and you know, they have the ability to do so because they're not doing these massive runs and that kind of stuff. Um so that's another you know, real uh important, like depending on the category, um, you know, important um feature set is this um, you know, no additives in if it's in tequila or grain to glass if it's in bourbon, this this um persona that the company takes on, that it's extremely high quality, small batch, you know, kind of akin to artisanal, artisanal, yeah, akin to like making it in your own kitchen with high quality only ingredients, that kind of stuff. And that resonates in our sector, in our market. People want this high quality, um, you know, not overproduced kind of product. Um, so you know, that's the playbook. That's what people are using today, um, in order to differentiate themselves from really anybody else. From there, you know, you get into authenticity. That does uh kind of dovetail into the product itself, but also authenticity and the brand messaging strategies. You know, there's a lot of of um you know, tombstones in our sector where you know the brand leadership got a celebrity involved. It wasn't you know, it wasn't an organic partnership, perhaps the celebrity didn't even drink, you know, or at least they didn't drink that. And somehow, you know, the powers that be thought that that would be a smart partnership. Good idea. Yeah. Yeah. And and our consumer, the consumer today can see right through that. Um, you know, there's always this like, uh, do we really need another celebrity brand kind of situation? But the the simple fact is if it's if it's very organic, then it can work. You know, you've got to be able to attract attention to your to your company. And if that's something that your company, you know, has in its repertoire, if it resonates specifically with a you know, a high-influence celebrity or influencer, then you know, that playbook's been written. You can do it. It's there, it's it's if it's as long as authenticity is there, um, you know, then then it's a smart move. And if you can get enough um effort, let's call it, out of that partnership, you know, then then you can get a lot of eyeballs on your product. And if the product can pass muster, then you know, you get repeat sales. So um, you know, that's that's definitely one way to get it done. It's not the way to get it done, it is a way. Um and um, you know, there's also part of this uh this reset that's that's happened over the last several years that um has kind of taken early mid-stage Bev Alc um further away from this comparison that we used to make to early stage tech startups, which was like all spend and no revenue. Um, you know, that was uh maybe late teens, early 2020s was kind of the death of that in our sector. Um, you know, it used to be possible to expand from you know a very few number of states where your product is distributed to like 30 or 40 um almost overnight, um, and just throw money at it, cash incinerator style, marketing, you know, dumping money into marketing and um creating you know massive awareness. But it's very expensive. And um, you know, the the uh over the last couple of years, you know, investors have been much more careful about um trying to invest into profitable companies or companies that have very clear line of sight into their point of profitability uh and to become EBITA positive. And so that's another trend, you know, if if people are thinking of getting into this category or are into this category and they're you know listening to me drone on and searching for something about how they run their company, uh, you know, that efficiency with your capital is is um front and center with investors now. Uh it's certainly front and center with strategics uh who are seeking to extract as much enterprise value out of their acquisition as possible. Um and so that like cash incinerator style marketing budget, that's toast now.

SPEAKER_00 17:15

So based on that, Mike, are you seeing a bit more emergence of RTDs or uh products that they usually bring to market, like vodkas and jeans versus like like bourbon, something that you have to age or the killer, something you have to age or wine that like it, you know, that it would take you easily two, three, four years before you have like your inventory available for sale.

SPEAKER_01 17:40

Yeah, so you know, again, this is this kind of gets into a like a complex topic, but um so first off, there are a lot of entrants in lots of those categories. Um certainly there's a larger moat around the aged spirits, so bourbon, tequila, um, there's some aging of gin. Um you know, vodka is is pretty fast to make. Um most gins, relatively speaking, fast to make. There's a lot of of raw ingredient stuff that you know that has to happen on the gin side, but nonetheless, um, and then um kind of going for further, um, you know, wine definitely akin to the to the more akin to the aging um process or or timelines. Um, but you get into the like the RTDs, um that those are almost no moat around them, right? And so you're really you're you're looking at, you know, how do we establish a brand? Like what is this, what is this company all about? Um, because there's you know, there's a million vodka sodas, a million tequila sodas that are out there. So it's got you know, there's gotta be something what's different about the one you have. Exactly, exactly. And I'll tell you, like if you're if you're about to launch one and you can't answer that question, it's gonna be very difficult for you when you're in a cold case, you know, and there's there's just rows of tequila sodas, right? So it's it's gotta there's gotta be something different about it that the consumer wants, not you know, just what you think is important. Um so but you know, you raise an interesting point that you know the aged spirits, those um I mean this this kind of got into some of the downturn in the over the last couple of years, but by and large, those are appreciating assets. And so those companies, if you if you can find lenders or or investors that you know can view your inventory as uh as an asset, uh, you know, you can you can unlock some capital there to help you get from this this dry period where there's no revenue possible because you have to age your product. Um there's also you know, sourcing where um companies are buying aged product from somebody else and then you know putting their label on it, and that that happens in you know really in all spirits.

SPEAKER_00 19:59

It's interesting. I mean, on we primarily specialize on the wine side. What we're finding is that uh uh the the market that previously existed on Primeur, like you know, buying Bordeaux or Burgundy's futures, that has kind of disappeared because for us at the moment it's a lower risk and in some cases lower prices for us to to buy back vintages and library releases than it is to buy futures.

SPEAKER_01 20:25

Yeah, absolutely. Um, you know, we saw that a lot in bourbon, um maybe most often in bourbon. Um, you know, a couple of years ago, you're looking at like a thousand twelve hundred bucks for a new barrel of bourbon. Um, you know, depending maybe if you're at a distillery, you know, you can get a little south of that. And um, you know, you age it for you know three, four years and start selling it to companies that can actually use it. And um, you know, you make a nice tidy profit, you know, two, three X sometimes, right? Yep. But that market bottomed, um, you know, and so now that same thousand dollar input cost is like down in the like six hundred or a little lower than that, right? So um uh the like all just all of the age statements that those barrels appreciate annually. So all the age statements, all those prices are south of where they were, um, sort of at their peak, you know, heading into this downturn, like right post-COVID. Yep. Um, and so you know, people got upside down there and started trying to liquidate. That's still happening. Um, you know, still are trying to figure out what to do with their with their aging inventory. Um, I think pricing ends up coming back on that. You mentioned Bordeaux, you know, I think it's cyclical, and you know, there's a lot of of short term thinking that happens in our industry and in and in many. And so, you know, when you see articles come out that say, like, is this the end of the bourbon boom or whatever? Uh I mean, there's just no, there's just no depth to that at all. And you know, it ignores entirely the fact that this is a commodities uh heavy sector. And that type of investment, that type of entity, that thing runs in cycles. It peaks, it valleys, it's always moving. It's similar to our stock market. It's moving like this, but you know, we see you know valuation work that that looks like peaks and valleys. And so this is simply that. Um, you know, I think you you hang around long enough, you'll see um, you know, more exciting growth, depending on who you're reading right now. Uh, they're still saying somewhere in the you know one and a half to almost three percent growth rate is expected across Bev Alc this year. Um I I would be lying to you if I told you I was confident giving you my number. Um, you know, it's been it's been so up and down the last you know couple of years, but certainly growth this year. I think uh if we could solve like some of the inflation issues at the consumer level, I think we'd see you know some more predictable numbers at retail, which our industry is very uh reliant on, both at the restaurant and bar you know level and then at the liquor store level. So, you know, when the when the belt gets tightened at home, we feel that. Um for sure.

SPEAKER_00 23:22

And we're seeing this here in Canada as well. Um the one thing that's really negatively impacting um the industry. I mean, obviously, we talk about the GLP one drugs and what's the impact on them, and the 10% of the population is already on them as a as a stimulant or appetite suppressant or uh urge suppressant. Um food inflation is probably our biggest uh uh counteracting force because um it in some cases food has gone up as much as 10 to 15 percent up, particularly uh chicken uh and and beef. Um in some cases it has gone down, but on average we're seeing a massive increase in food inflation. The other trend that's actually in favor of the alcohol industry that we're seeing um is the continuous increase in desire of the consumer for analog events. People are just so fed up of being lonely, so fed up of digital events, they want to be out surrounded by people. Like I think we talked about it last time. One of my favorite podcasters is Scott Galloway, and his favorite saying is that drunkenness is togetherness. So if you're out for an event, what do you do? You drink water? I mean, I love liquid debt, but is that what you want to drink the entire time?

SPEAKER_01 24:41

Yeah, yeah, absolutely. You know, I I think one of my favorite things about this industry is there's like literally something for everybody, right? I mean, if you if you are uh a hundred percent sober or even like sober curious, there's 50-50 cocktails that are out there, there's alcohol-free cocktails that are out there. There's yeah, you know, if if you like bourbon or you know, you want to drink it neat, whatever the type of spirit is, there's that. But there's there's a a whole class of very talented mixologists, uh, and bartenders, you know, professional and at home, that are capable of producing like really fun things to try. It's it's very similar to food to your you know, to your mention, where you know, you can you can go nuts with food, right? I mean, if you if you really want to dig in, you can, you know, you can at home produce bouffe bar mignon. If you if you want to go that route, you know, you can wow your friends. Same thing with your bar program, whether it's at home or or if you are a bar, uh, you know, it is you it is a great time to be you on either end of that. Um so you know, the entertaining piece uh is this is a a great add-on to you know having a party. Um, some still are are having parties around the entrance in this category, uh, you know, as like the primary reason for the get together. Um similar to you know, food, like having a barbecue. Like a lot of times the beer is just as important as the barbecue is. So um, you know, that that I don't think ever changes in this industry. It's been like that as as almost as long as the industry has been around. Uh, this occasionality for drinking is uh um uh uh an often discussed topic. It's one of the ways that brands also can differentiate is you know to own an occasion or occasionality. And um, you know, it it's fun at the end of the day, people want to have fun. Uh it doesn't matter if you're an introvert or an extrovert.

SPEAKER_00 26:47

So I agree. Yeah, if you're an introvert, a little bit of liquid courage helps in getting the conversations going.

SPEAKER_01 26:54

Yeah, exactly. Exactly. So um, so yeah, you know, it's I I think I think you know, for sure, regardless of the you know, revenue cycles or you know, production difficulties, production ease, logistical challenges, logistical ease, yeah, I don't think that the uh experiential nature of this business changes much as it goes forward. Um I think that um you know, if anything, people will continue to get creative about you know how they're delivering products to the market. Um, it's a great example. A great example of this, I think to me, is is in the wine sector. So kind of touching on one of your passions. So um there's new delivery of the liquid itself, uh again over the same you know, three, four-year period, where um you know high-quality wines are being delivered to the consumer in boxes and cans instead of in glass. Um, you know, there's a lot, the average consumer doesn't really know this, but there's a lot of thought that has to go into that first as a product line. So if you're delivering red wine to a consumer in an aluminum can, you know, it often takes a special liner. So the wine doesn't pick up aluminum. Um, oftentimes part of the age statement of the wine includes what happens to the wine when it's in glass, which is often why you'll see red wine in tinted glass. Uh and so um, you know, a lot of times red wine that's delivered to a consumer in an aluminum can is gonna taste younger, right? So you need to so you need to.

SPEAKER_00 28:28

And look for the microoxygenation, yeah.

SPEAKER_01 28:31

Absolutely. And so um, but on the other end of it, you know, touching on occasionality, the average consumer um is is very health conscious and very quality conscious, right? So they want it, they want to drink something that's high quality, thus, you know, a lot of the prices per drink have kind of gone up recently. Um we can touch on that, but but also the occasionality of having a glass of wine per night instead of a bottle or half, you know, half a bottle. For me, it maybe, maybe I want to have half a bottle tonight. That's great. I that sounds like fun, but you know, for some, um, that's gonna be too much. You know, they want just one glass of wine, and so you know, the cans are a really interesting entrant where you know a single person who is just gonna have one glass of wine tonight when he or she is, you know, having their dinner, they want that accompaniment, but then they want to go to bed and hang over, they don't want to deal with anything else. So, you know, one glass of wine out of a bottle of wine, um, you know, you're looking at four days on average if if you're a regular pourer and some people are pouring light. Um, so maybe five days, you know, the thesis is maybe that wine, you know, starts to not taste as great. Yep. Or if it's champagne, then forget it. There's no bubbles left by the end of that. So, you know, the the entrance of some of these small, Mike, there's there's a way to combat this.

SPEAKER_00 29:57

Um, like we we represent uh a report, it's uh it's a bottle stopper with uh oxygen absorbing molecules. Uh so you put the report, it it keeps the wine fresh for for weeks and months. Um, you you can have core in for and you can have uh sparkling closures, you can have uh flat like steel wine enclosures. Um now uh not very many people would have this, so maybe they they kind of resort to vacuum pumps, or which is not really good, but but you know, there's options for people that want to be wine curious or uh that that would not spoil the wine because I I I don't I personally don't drink much. Um but I I I love to have a glass of wine, and if I want to have a glass of wine, like I want the the wine to match my mood. So if I feel like something big and bold, I want to have a glass of Barolo. I don't want to have the full glass full bottle. My wife doesn't drink, so for me it's like, okay, I'm just gonna open it up, open up a bottle, doesn't really matter. I'm just gonna close it and all it's good. Yeah, yeah.

SPEAKER_01 30:59

And so you're you're you're going right down my lane here. You know, there's a bunch of new tech, uh, there's a bunch of new products, uh, you know, well beyond just the way that the liquid is delivered, you know, to the person's mouth. And um, you know, I like I love that you mentioned, you know, new types of stoppers. Like there's there's new types of openers, there's new types of stoppers, right? And um honestly, like if you're if you're a wine drinker, you should probably invest, you know, decently into one of those, um or a you know, a flight of them, if you will, versus just the little rubber stopper that you like, right? So um, and the I mean those you often get them like on uh for champagne, like a like a if you if you buy a nice enough bottle, it'll come with the bottom topper. And they're you're mostly just medium, you know, they're mostly mediocre. Um, but there's but there's a there's a bunch of room for those kinds of products now because of how people are enjoying those types of liquids.

SPEAKER_00 32:04

And um and I mean what I have in my hand is I don't know if you can see it, uh the company sent it to me. It's very popular in New York, it's called Pultex, and it's uh antioxidant. There's a antioxidation carbon filter. So there's plenty of products out there for people to want to be wine curious or alcohol curious, like it just there's no excuse. And the problem like like report comes to about a dollar, I think. Uh a report, you can use it for uh the entire bottle. It can it there's no like lifespan limitation that you can use it for three weeks, three to three to four months, because essentially it's kind of like those packets that they're in that you find in suitcases or a product, just it just absorb the oxygen. So if anything, the wine becomes redactive, so you have to open it to let it breathe, absorb some of the oxygen back.

SPEAKER_01 32:54

Yeah, yeah, absolutely. I mean, there's there's there's a product, depending on you know what your occasion is, what kind of person you are, uh, there's a product for you that you will brutalize, you will use it, you know, every day. Now, you know, in in today's, I mean, there's there's what somebody just sent me the uh it's sort of like a Yeti for wine, you know, and it's got a cup on each side. So you just bring that and you've got you know your picnic. So, you know, there's something for everybody right now uh in this industry. And um, you know, it is, it's it's an exciting time. Like I'll touch on some of the uh you know, some of the negative stuff because I mentioned it several times. Um I feel like we should at least tell your viewers a little bit about uh how people are looking at it. So, you know, the the the industry had several resettable um let's call it events um happening in concert all at the same time. So um the result of it starting at the from the most recent and moving backwards, the result is that for the first time in the last decade, PE in our group has gone down over the last year. So private equity investment in this sector was lower last year than it was any of the years before. Over the last decade, it's always gone up. And it's a result of one some of the things we've touched on, but really coming out of COVID, what happened was this massive, massive restocking that sort of choked the logistical, like this, the entire supply side of beverage alcohol. So, you know, in your mind's eye, if you'll think back to what was happening during COVID, 50% of the revenue chain for an average spirit or doesn't matter, alcohol company, um, 50% of that disappeared because bars and restaurants were shut down. So you had only online, which was in its infancy at the time, you had direct delivery like Drizzly, which was on fumes going into COVID, and you had retail. And but most people weren't going to retail stores, you know, at least a little bit of that kind of took a hit. But then, you know, as things started opening up again, you know, you you felt more confident, at least with a mask on, you know, you could go into a retail store and buy stuff. So um what happened here was uh people were making their like monthly liquor run every week. So there was a lot because people were miserable. And again, like mostly people want to party, right? Like people were outside uh you know, in our neighborhood, outside on their driveways where you could be outside and far enough away from somebody where you you know you wouldn't, yeah. Yeah, but you were outside with a bottle of wine or a bottle of something or you know, a few beers, and um, we were doing that like every single night. So um, so you know, uh because we we were nobody wanted to be in their house anymore. So um, so moving forward, when the other 50% of the revenue chain opened back up, uh bars, restaurants, distributors, the whole middle tier in the in the US beverage alcohol sector, um, everybody was restocking. Most of the warehouses were empty, all the bars and restaurants were empty, some of the retail was empty, and suppliers turned the machines on full blast, right? So then all of these orders hit the warehouses at the distributor. They mostly went all out the door to retail and to bars and restaurants. They had a restocking event in the middle tier, and then now you've got to rely on consumers to buy stuff, yeah, to clear the to clear the shelves or to open up um space at the bar and restaurant. And when you pair that with inflation and the declining um, you know, restaurant spend that was happening at the time, like most people weren't really going back to bars and restaurants yet. You saw there's this uh period of time where a lot of bars and restaurants were going out of business um after they had been reopened. Um, that like that period of time is kind of what I'm referencing here, uh, where the whole system got choked. So it takes time to recover from that, you know. And a lot of businesses in our sector uh were struggling with their finances. They were trying to raise money then all at the same time. Yeah. So it became very polluted as far as the capital raise segment. Um, there was just everybody, it still feels like that now. Everybody's raising money, big companies, small companies. Um, and um so it it all sort of contributed to this contraction along or running in parallel with that was this scenario I mentioned earlier, where a bunch of you know, folks like me, um, our like our our uh colleagues, I guess I would call them, came in and bought up a bunch of bourbon barrels and had been aging them, and and it's a was a great move, right? Uh appreciating the asset. Uh similar in wine, right? That definitely happened there. It's been happening for a long time there. And um it started getting to the age statement, like produce a return timeline, and um they had to lower the prices in order to move it because there wasn't enough need for that amount of liquid uh because of all the contraction that you know has been previously mentioned. So all of those things happened all at once. You know, any one of them happens at any one point in time, fine. Yeah, yeah, no big deal. But it happened all at the same time, and so we saw a negative growth um in this in this industry, which really doesn't really happen. It's grown, you know, for decades at like three-ish percent uh annual growth rate. And um, and so you know, everybody approached it like the sky is falling, and every uh this is the end of out. Is alcohol over? There was actually like some of those articles that came out like is the alcohol industry dead? Like, no, no, it's not, it's not dead, it contracted, you know. So have some patience and deal with it. So, and that's where we're at. So, you know, we're coming out of that. It's a great time to be an investor in this sector. There are great, great companies in this sector that now have normal valuations, yeah, and um, and they have a very clear path to eBit up positivity, or you know, the ones that are a little larger have a very clear path to exit. Uh, you know, the quality of the teams that are running them is superb across the board. Uh, you know, there's there's not a lot of you know, founders out there that even the first-time founders that that we're seeing, you know, currently um have a very high acumen where they're not like learning on the fly as the you know as the parachute is right. So um, you know, that and that used to be way more common when it was very easy to raise capital. You know, we saw a lot of founders that were first-time founders and you know, were just figuring it out on the fly. And you know, you had to, as an investor, you had to figure out how do you you know maybe some of them be successful, but you know, mostly they're they're not, um, or they're not ready to to receive, you know, institutional capital. And so um, you know, again, in this industry, it's a it's a good time to be an investor right now.

SPEAKER_00 40:29

What are you seeing in terms of valuations, price to earnings ratios? Kind of like, well, like and and I'm not asking you to generalize, but if if uh because obviously that will be top of mind for our listeners and viewers, kind of like, well, what's my business worth?

SPEAKER_01 40:44

Yeah. So, you know, remembering that the companies that we're looking at that are pre-exit, yeah, most of them in our in our sector are gonna be in the red. There are very few of them get to that e bit of positivity until a bit like a very short period of time before there's some kind of an exit, right? Um, so so disclosing that, right? So um it's it it normal valuation work doesn't work, right? Like if you're can't do this, yeah. Yeah, yeah, no. So it's always historically been done on revenue multiples or some type of case volume math, which differ depending on which strategic you're talking to. Some will uh you know, let me let me give a little bit of a backdrop. So, you know, prior to this reset, we would see double digit revenue multiples as valuation, right? So you're a you're a one million dollar company and you're trying to provide a you know supporting supporting documentation for a$10 million valuation, right?$10 to one. Um or maybe maybe even more than that, right? Like we saw plenty of$20,$25 million valuations for a you know, half a million dollar company. So yeah, on revenue. So um, so it you you get to a point where you just you can't support that. Um, and the reason is mostly because they're very early, they've gotten some kind of, you know, it's it always kind of goes like so. They get to that first thing and they're like, Well, we're you know, we're exploding, but it's just you know, it's just a small explosion, right?

SPEAKER_00 42:30

So the curve doesn't stay on an incline, right? Yeah, yeah.

SPEAKER_01 42:34

Right, right. So um, you know, that that makes me answering your question a it makes it a little more difficult to do that. Um, now we're seeing something more like a six times revenue multiple. Yeah. Um earlier on, it's it's more mentally, it's more like just get the money. Yeah, don't try and and be this, you know, enormous valuation today. Prove the valuation by your results. And at the beginning, just do what it takes to get the money. Um, and so you know, there's there's not, I mean, I'm I'm not telling you to give your valuation away, but this, you know, 12x revenue multiple, 15x revenue multiple, and they and it's almost always supported by these salacious exits that have happened you know, historically. And there's a there's a key point that's been forgotten, that argument is that you're not that company right now. You're a half a million company, you're not selling$50 million worth of product today, you're selling less than one. So you can't prove that valuation. Anybody that's you know that looks at deals commonly is gonna, you know, blast right through that. So yeah, so you know, uh on on exit, we're seeing also um kind of the the same thesis, right? Sub N X um revenue multiple, and and you know, mostly the strategics will find uh differing ways, right? But some way to um to cap that. That revenue multiple to get it back down from a you know a thesis 10x down to like a thesis 7x um revenue multiple. Um they'll take marketing out of it or you know, a bunch of different you know ways that they have to to value it. But that's roughly what we're looking at. It's somewhere between five and eight X on average revenue multiples.

SPEAKER_00 44:20

Um and that's consistent with what we when we do private company evaluation that like we pull information from a whole multitude of sources like Crans Race and Page Book and Capital IQ and we use public sources. Um and so our observation from 2025 to 2026, the evaluations on revenue, the multiples on revenue went from 7.3 to about 6.2. It's kind of based on the multitude of sources. Now we're averaging, and some companies are bigger than some we're smaller, so there's some of them have more of a higher earned uh uh quality of earnings. So that aside, this is kind of what we're seeing in terms of the general trend. So that dice really well with what you're saying.

SPEAKER_01 45:04

Yeah, yeah, I I agree. And I uh we always attribute it to the founder mentality. Um it's it's a soft point that you know is is pretty hard to mine when you're when you're doing diligence. But everybody thinks that that their baby is the best best baby, cutest baby, shiniest. This is my shiniest object in the industry. Yeah. Of course. Yeah. So uh, you know, and we see that kind of proliferate in the valuation conversation, right? Um, so it's important to level set expectations when you're early on in these conversations. Um, you know, again, I'm not telling founders to go out there and just you know dribble in with a 1x revenue multiple, you know, or one 1.2x revenue multiple. Um, like that's a that's a great value for an investor. But um, you know, you need to know where you are and and have a very, very clear, very clear, highly executable roadmap to get to if if you want to be a you want to be a 10x multiple, okay. Like show me the plan.

SPEAKER_00 46:09

So let's double-click on this because we never answered the the first questions around virality. I mean, obviously, in order to get to 10x versus 2x, like you have to have something that's that has that gravitas that that pulls people into the brand. The brand has sticking pop, the brand has relevance in the consumer mind. Um, so tell me a little bit more, kind of like what are you looking for when you're looking for virality?

SPEAKER_01 46:34

Yeah, we're looking for we're looking for a bunch of inside baseball, really. Um, you know, we're looking for um ROAS, you know, your return on your ad spend, um, if you're overweight, if you're buying market share. It's it's when we get into the financials, it's gonna be obvious, you know. And if if that's the case, uh really only a strategic is gonna be able to help there, right? Yeah. That has just a ton of capital, unless you can increase your influence and um keep your your ad spend at least flat there, yeah, um, or lower, right? So you that you dilute it so it's it's not as expensive to reach the same or a larger number of people. Um there's a bunch of different metrics that you know different firms use to you know to calculate on a you know per case basis or you know, however you want to chop that up, but but nonetheless, we look at it. Um and uh outside of that, so there are there are definitely um a somewhat statistically significant number of companies that are able to just take the ground in pound approach, uh you know, small first, own your backyard kind of mentality, yeah, and prove that they are a quality product that people want, they prove that their messaging is quality and people respond to it, right? In these smaller, less expensive kind of ways. And when they expand from there, they expand in a way that's rationalized too. And so you know it's important for people to understand, scalable, yeah. Yeah, exactly, right? So if you're again, because this is this is a high touch kind of uh sales engagement for the most part, um, whether it's digital, you know, or whether it's in person, there's still a lot of touching that has to happen here, plus it's a very taste and feel, you know, environment. So um for those for those people that are in expansion mode and they're looking at expanding from like Texas, which is a massive market, and you know, there's there's just a bunch of products that are new that that come to Texas first. So I'm just gonna use it as an example. But if you're in Texas and then you expand to California, that's very difficult to support as a small brand. One, there's it's a very disparate geography, right? So if you're based in Dallas, it's very, very far away to get to get to California. It's closer to drive from El Paso, the east, the western tip of Texas, it's closer to drive from there to California than it is to drive across Texas. So it's it's very, it's very difficult to be um efficient with your capital if that's the plan. Um, and everybody has you know dollar signs in their eyes when they look at these you know big states to expand to. Um, instead, what might make sense is the contiguous states around the state that you're in, or just something else besides spreading yourself all over hell and trying to support that. Um so you know, that's one way to uh ensure on the on the virality piece, getting back to um being efficient, um, you have to be efficient with your messaging, efficient with your capital. And um it again, it's it's very difficult to message enough times those two very disparate, very big audiences. So, you know, what we see, um, giving an example without you know dropping names and stuff, but one of the companies in our portfolio is in a very small number of states, except for one strategic partnership, really, with a very big retail um organization. Um, and they they very much over like 10, 11 years now, um, have been a champion of of their um it's I mean it's evolved several times, but they're they're the champion of their own um messaging, right? They're not relying on other people to to shout that for them. They don't have a celebrity, they're not doing any of that stuff. It's it's them, it's it's who the brand is. Yeah and and that resonates with people. Um, it's a laid back. Yeah, it's authentic, exactly. And so, you know, again, kind of touching on the how do you be a viral brand in this space, authenticity is is key, and it's hard to replicate, you know, because there's so many opportunities that come through the door for a brand on an average day, right? But this brand, you know, down to the type of charities that they support, um, everything contributes to the same kind of messaging statements that they're making about who they are and why they exist. And um, you know, in this sector, definitely with the younger consumers, they want to feel like they're making a difference. They want to feel like they know the the companies that they're you know, buying or that they're evangelizing in the best case scenario. So, so that you know, getting people comfortable enough with the brand, believing in the brand itself, the company itself, and they're out there saying, Well, yeah, I drink this company. I, I, you know, whenever I'm drinking tequila, I'm drinking this. Or people go over to their house and they see the bottles, right? It's all the same bottle. Um, you know, so in a in a very winding way, like that's what virality looks like. The the simple answer, of course, is to you know, attach a celebrity to it and then their thing like goes viral, Kendall Jenner or whatever. But you know, there's only a very few, a small like handful of the Kendall Jenners or the George Clooney's or the Ryan Reynolds, right? Like it and the next time that Ryan or George gets involved in a liquor brand, is it gonna be as authentic? Right? Because I I thought you drank gin, dude. You know, so now you're doing a tequila. I I'm not saying that he is, but you know, that that kind of thing, like there's only so many rocket ships. So, you know, you have to, as a company, you've got to be responsible for generating your own who are we ethos. And then, you know, if there's a celebrity that you know you can attach to it, great. That helps, you know, that helps it go viral. It helps you get eyes on it. But if it's not a good message, if it's not something that's resonated that you've already proven out, and you know, like this language works, and it's who we are at our core, and you can you can look at my LinkedIn, you can look at you can go talk to people that know me, and you'll they'll tell you that's who I am. Like if it's not that authentic, once it goes, once it goes more broad, uh, it's dead.

SPEAKER_00 53:23

Yeah. What about um I I mean some people are a lot more comfortable in front of cameras. For some people, it comes easy to be authentic, um, to be on brand, to to to drive this message out when we're meeting with uh hospitality food businesses, um, or liquor brands. Um, one of the common things that we get is like, well, I'm a small business, I don't have the resources, or like I do everything. Like, like, so how should they think about what they should keep in-house versus what should they give up in outsource or delegate away?

SPEAKER_01 54:05

Yeah, I mean, that's that's gonna be different for you know most, yeah, most of the companies. But if if I could be, man, as general, as general as possible, as general as I can, um I would me, you know, my nickels worth of like mic advice here is to focus on on who you are. You you the human being leadership team also, but but who you are as a company. So I'll give you an example. Uh if you're if you're a high quality, like luxury or prestige category, um tequila, if you bring things to the market that don't fit in with that messaging, then you are working against yourself. In defining that, you need to know like what's the size of that category, yeah. How am I gonna how am I gonna make enough money to be interesting or make enough damage or you know, do enough damage rather uh you know, make enough impact um in order to get where I want it to go. And if those two things are out of alignment before you even penetrate the market, you you have to fix that a hundred percent. I'm keeping that in-house. If I I hire a marketing firm to generate that for me, all of automatic already, not authentic.

unknown 55:26

Right.

SPEAKER_00 55:27

Well, and it's it's it it's as old the day that the report is published with the marketing and research, you have to constantly stay on the market to understand it.

SPEAKER_01 55:35

Sure, but uh if it's if it's out of alignment with with who you are as a company and the kind of company that you want to be, then you the cons like today's consumer cuts right through that. It used to like it used to not matter, right? It was Jack and Coke when we were in college. Like, I didn't care, I don't I don't know Jack, right? Yeah, I don't care. Now they want to know where the farm is, where the wheat comes from, where they're making the bourbon, right? Like, yeah, if how's it made? What's in it? Yeah, exactly. So if you if you're if you're bringing a 10-year bourbon, they want to know that it was yours for 10 years. And if it wasn't, if you're buying it, then they want to know where that was from and the story there. So uh again, like if you're gonna be a sourced brand that's sourcing you know liquid from wherever, you're gonna have to concoct your way of telling the market that this is who we are and why we're doing business the way that we're doing the things that we believe in, all that stuff in-house, a hundred percent in-house. Okay, you and I are a marketing firm to help you understand how to tell people that, but not to come up with that, right? So if you know, on on the production side, the just the sheer economics of starting a distillery, regardless of what kind of alcohol you're making or a vineyard, or you know, even worse, right? The the economics of of beginning that are a full showstopper for most people. So yeah, I would say, you know, this industry is is very receptive to contract manufacturing as long as, again, as long as it is in alignment with your messaging. So if you're a prestige product, you're sourcing very high quality stuff and buying it, probably at a premium. Yeah, yeah. If you're in the in the mid-tier where price is your game, you're gonna compete on price, then you know, you're gonna sacrifice on some of the quality items uh, you know, that are going into your can, bottle, whatever. For sure. Um, and if you're in the low uh tier pricing point, then you know you're looking to be a well or you're gonna package your stuff in plastic or whatever. And and but then but then don't charge$150 for that jug of whatever it is, right? Because the consumer's not gonna do that. So, you know, again, that that all that all of that is in-house. The production, sure, out of house. As long as it's in alignment, uh, you know, I love the warehouse and distribution, yeah.

SPEAKER_00 58:05

Push it out. Um for sure, for sure.

SPEAKER_01 58:09

I would own also internally uh a large degree of your sales efforts from a uh strategy messaging standpoint. Um, you know, again, like in the early stages, like people have to use brokers uh a lot of times. They've got to rely on the distributor to pull weight somewhere, they've gotta um, you know, maybe share resources with another brand. Uh, you know, so you have like a shared sales rep kind of situation. So you're giving up control somewhere, but how they say, what they say, what they leave behind, all that stuff, again, it has to be true to who you are. And so you need to own that process, you know, of it, and and so on.

SPEAKER_00 58:45

So, you know, um and I mean you said that it's a very high-touch business, it's a very relationship-based business. And so, without that, um people treat your product as a commodity unless you have some kind of a marketing message in and a very well-established brand that just sells itself.

SPEAKER_01 59:03

Right, right. Yeah, and uh, you know, as many of the relationships that you as you can bring in-house, um at the end of the day, you know, once you kind of start getting into new states and trying to get into bigger accounts and and so on, um, you know, that can really become part of your IP. Um you know, if you're like some of the brokers are great at it, but others, you know, haven't figured out how to how to manage it when you have you like the sales broker has like nine different tequilas that you're that you're trying to sell into uh Target. Same accounts, yeah, yeah, yeah. Yeah, or whatever, like total wine. Like you're you you're not that has to be authentic too, right? So each time the guy walks into the store, like you can't tell the buyer this is the best tequila because you're gonna say, well, that you got eight. Yeah, there's eight other eight other tequilas sold me. So um, you know, again, uh uh authenticity, authenticity, authenticity, authenticity. Um it's it's I mean, it's true, I would argue, in all the sales roles I've ever had, all the business development, all the leadership roles I've ever had. If you're if you're in it for no not the right reason, um, it comes across. If you're talking to this person for um and and saying things that are that are you know borderline on true about who your company is and and you know why people are gravitating to it or not gravitating to it, like you've you've got to have all that figured out inside, um you know, before you bring on a sales team, you know, to try and sell selling with that kind of messaging in environments, and that's it's not gonna work. I've I've had that, you know, personally, it's just it's brutal.

SPEAKER_00 1:00:53

So, Mike, I noticed by time. Um you you you talked about uh focusing on sustainability, focusing on on running a good business, being authentic, any out of parking thoughts and comments.

SPEAKER_01 1:01:10

Um yeah. So it's important for people, even in the ones that are in it and already know this. I think it's important just to hear it. You know, on the investor side, we know it's a this is a grind. It's a grind in our industry, it's a grind in many industries. You know, to grow small businesses is difficult. Um give yourself give yourself the space and time to one to be okay with that and to not give up. And you know, the confidence to not give up. And um, you know, I find that when you when you're when you're okay with that, when you get right with that, you can get in the room and whiteboard out a solution for many of the problems that you're against. Um they're not necessarily a full-on show stopper until it's quite obviously time to stop a show. Right. So so you know, my my advice is to is to not just take take it on the chin, you know, to um to maintain a positive attitude. So maintain that positive attitude and um and and and use that in your leadership style and uh and be okay with it. Be in a grind. We're all grinding, you know. My job is a grind too. You know, there are days that are terrible. Uh so um, you know, we can we can all identify with what you're going through and and um and hopefully, you know, doing those things that I just mentioned will help you have many more sunny days than rainy ones.

SPEAKER_00 1:02:58

That's awesome, Mike. Really appreciate your time and insights. That that's been a fantastic conversation. Um in the show notes, we'll put uh where people can find you, where people can follow your work, um, and keep doing what you're doing because you're definitely helping the industry drive.

SPEAKER_01 1:03:15

Thanks, man. Well, uh, I enjoy being here, and uh you know it's been great to get to know you and um hopefully we talk again.

unknown 1:03:22

For sure.