Monday, June 7, 2010

More Options

So on Thursday we looked at one way for young brewers to raise money: angel investors. That article looked at how investors might be willing to invest in brewing with the tacit recognition that, like investing software companies, the investors don't actually want to own a brewing company - they want to make money. Today, we'll look at a little bit different of a model, also based on the technology industry: incubators.

Let's pretend that you are a brewer who wants to start your own brewing company. You have a partner who is charismatic and friendly who will take care of your sales. You are 25 years old, you've been an assistant brewer at a few breweries around the country, and you don't have a trust fund that gives you access to endless cash. You also don't have the kind of financial connections that give you access to people who have endless cash that they are willing to hand over to you.

OK. Stop. Let's change directions for a minute.

Let's say that you are a Brewers Guild in a state known for its brewing heritage. There is plenty of room for growth in an industry that seems to have almost endless demand. You have a handful of "rich" brewers and a lot of brewers that are getting by fairly well. You'd like to encourage brewing in your state, but you'd like to control that growth in a responsible manner. Let's say you have something like 75 members in your guild.

OK. Now that we've set the background, my proposal is this: the Brewers' Guild purchases a brewery that is specifically for one of two things: 1) research and development; 2) young brewers' incubator.

So, what would that structure look like? Maybe the Guild decides a 7 (or, really, even a full-scale 30) barrel system would be about the right size and that said 7 bbl system will cost, with land acquisition, approximately $750,000 (probably on the low side, but they can situate the land anywhere and some breweries probably have some equipment that can be used to off-set prices); so, you have $10,000 investment by each member of the Guild and the Guild can buy the system outright. More realistically, you have a $4,000 investment by each member to make the 40% down payment (common for these kinds of business deals) for a mortgage on the land and equipment; mortgage payments would be made by renting/leasing the equipment.

Now, the Guild itself owns a brewery for the benefit of Guild members. How does the Guild make money? If you want to use the brewery you can rent it/timeshare it. This could be either a straight contract, or more likely, an alternating proprietorship whereby the tenant brewer would lease the equipment while it makes its own beer.

There could be some rules in place to make it a true incubator and not just a contract brewery. First, any brewer renting it must be a member of the Brewers Guild. Second, any brewer not using it for research purposes can only rent/lease it for the equivalent of 2 or 3 years, after which they must go somewhere else. Third, the Guild could also establish, in partnership with one of the many fine Universities, an educational component that would teach brewers how to run their business and structure financing for their own brewery. This provides two benefits: 1) educating the brewers; 2) (and more importantly) gives brewers access to people connected with the University that typically have the money associated with these kinds of investments.

Why would a Brewers' Guild do this? Well, it would provide an invaluable service to its members. Not just in terms of providing brewers a place to brew. Having this kind of structure in place would encourage the kind of education and research in brewing that would make the Brewers Guild and the state one of the top brewing centers in the world. On top of that it provides income to the Brewers Guild for the kind of marketing that its members could take advantage of to raise awareness of the benefits that local breweries have in the community. Not to mention that it could provide common research systems that none but the richest breweries can afford.

But wouldn't it compete with other contract breweries in the state? Sort of, but not really. Brewers that aren't a member of the state's Brewers Guild couldn't use it, so out-of-state breweries looking to brew in-state would still have to go to contract breweries in the state. Brewers that are purely marketing companies would not have access to it because they wouldn't be brewers, i.e., they wouldn't qualify for a Federal Brewer's License. Brewers who aren't prepared after 3 years would also need to look elsewhere to other contract breweries in the state. Brewers that need more than 7 bbl system would need to look elsewhere.

Again, it's just an idea. It would, admittedly, require a Brewers Guild that actually cared about its members and the state of the industry. Is Wisconsin there yet? Probably not. But it could be.

8 comments:

  1. Nathan Peck assistant brewer Sand Creek breweryJune 7, 2010 at 7:55 PM

    I thought your idea was interesting until I got to the part about how much money you think brewers and breweries in this state make. Some members of the brewers guild may be able to afford 4,000 but I would bet that a lot of them could not. If they did have 4,000 I would imagine they would upgrade equipment to provide more quality beer to you and everyone else in their distribution area. And as to your last comment "it would, admittedly, require a Brewers Guild that actually cared about its members and the state of the industry," I have to vehemently disagree with this. As a brewer working for a member of the Wisconsin Brewers Guild I have had the pleasure of meeting many of the people in the brewers guild. I think your remark about them not caring either about its members or the state of the industry is the furthest thing from the truth. I have never seen such camaraderie in any other industry that currently exists in brewing.

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  2. Nathan is right on. If you could have witnessed the combined efforts by members of the Guild dealing with threats that could have been a major hurdle for our current members and future start ups it was a thing of beauty (and successful). If folks are really interested in supporting a strong and effective Wisconsin Brewers Guild then attend the Summer Solstice Beer Lovers Festival at Bayshore Town Center in Glendale June 26th.

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  3. I forgot to mention in my previous post the combined efforts where involving the last state legislative session. Sorry.

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  4. Nathan and Kirby, thank you for the comments. You'll notice that I did not actually NAME the Wisconsin Brewers Guild. Accepting that as the cheap cop-out that it is, the numbers I threw out were just "guesstimates" (relatively educated guesstimates, but guesstimates at that) and I certainly don't suggest lightly that members be asked to fork out $4,000 each. I understand that it would be a significant sum for some (though certainly not for all), but membership groups often ask for sacrifice from their members - and in this case there is marketable upside with the potential to get some (or all) of the money back. But, yes, the point that many brewers could not afford even a "nominal" sum of $4,000 is well taken.

    As to the second point, I certainly did not mean to imply that Wisconsin's Brewers Guild does not care about its members. Though, it retrospect I can see how that might be read. But, in my defense, while I can respect your defense of the Brewers Guild, it is understandable and perhaps justifiable, I have heard (not so much unlike the anonymous comment above) grumblings and complaints about the Brewers Guild for years - both by junior and senior members of the Guild. And, until recently (as Kirby has noted), it would be difficult to point to an activity of the Brewers Guild that demonstrated its support of the growth of the industry over above simple defense and support of its current members.

    I think the Guild is starting to realize that growth (i.e., competition) is going to occur whether they want it or not. My proposal, and it's only that, would be one way for the Guild to at least exert some control over that growth to ensure that the young brewers and breweries are growing in the right ways and not damaging the industry and the reputation of the state (two things very much within the mission of the Guild) in the process.

    Finally, believe you me, this proposal is in no way a claim to altruism. There is a fully fledged for-profit business model in there that not only compensates the owners of the equipment, but still manages to provide beneficial public and private benefits.

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  5. Jeebus, MBR - was that second paragraph written by a lawyer or something?

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  6. I had the triple word score and wanted to take advantage of the increased points.

    What? Too many polysyllabic words contained within the compound-complex sentence structures? Should I use fewer independent and dependent clauses next time?

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  7. Qualifiers everywhere. Can't pin that sucker down. More back doors than a Marilyn Chambers film.

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  8. I can't figure out which single brewery the guild represents, or (alternatively) what "Wisconsin Brewer Is Guild" means.

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