This editorial was contributed by Jacob McKean, founder of Modern Times Beer, a brewery-in-planning in San Diego. Previously, he was Communications Specialist at Stone Brewing Co., and he has also worked as a freelance writer for a smattering of beer publications. He’s a beer geek and occasional contributor to BeerPulse. Back in March, he penned, “Why I Think I’m Mostly Not Crazy for Opening a Brewery.”
I have finally, mercifully raised the money I will need to start my brewery, Modern Times Beer. As you’d expect, I’m incredibly excited and relieved, but the process of making it happen wasn’t at all what I expected.
If you love raising money, you probably do it for a living. For the rest of us, it’s not exactly a blast wave of glee. I’ve never heard anyone enthuse about the exhausting pitches, endless pleas for checks, or non-stop negotiating it takes to raise capital.
In the interest of helping other passionate beer geeks navigate the strange world of fundraising, I offer these hard-won lessons from my experience successfully financing Modern Times.
How Much Is Enough?
The first problem is figuring out how much capital you will need to build a brewery, hire the proper amount of employees, produce outstanding beer, distribute that beer and survive – all without asking your existing investors for more money or diluting their equity. This is necessarily an inexact science, and the number must be computed by determining what you need, what you can use, and how much you can realistically raise. Even if you do a ton of research, as I did, these variables will still be moving targets: the cost of buildings, equipment and ingredients will change; the opportunities will change; and the fundraising landscape will change, sometimes in dramatically unexpected ways.
So if you’re not a fan of the unknown–and I am very much not a fan of the unknown, especially in matters financial–calculating this number will be a real challenge. I arrived at $1.25 million by figuring out what I thought it would take to open the brewery plus a year of operating expenses and a substantial cushion for contingencies. I also asked other young breweries how much they raised and many very generously shared their numbers. Fortunately, several breweries similar to mine have opened recently with about the same amount of cash, so I feel very confident in my number. Nonetheless, cash anxiety is perpetual for everyone but the extremely wealthy. I figure I could profitably deploy about twice as much money, if I had it.
After settling on the fundraising goal and drawing up the necessary documents (no minor detail), I had to go about actually convincing people to invest.
What Could You Possibly Accomplish with Less Than $5 million?
The goal amount is partly a strategic choice with potential investors. Something unexpected I encountered was that quite a few people doubted that a brewery could be started for “so little money” (Modern Times will have a 30bbl system, but when most people envision a generic brewery, they’re thinking of a giant factory). I tried to put things in perspective for them, but it took a lot of convincing. Many professional investors are more accustomed to seeing deals for $5 million and up, making mine seem puny by comparison. How could it be worth their time? Wouldn’t I need to dilute them in the near future? In many ways, it would’ve been an easier sell if I’d asked for more.
You Won’t Make a Bazillion Dollars in the First 6 months?
Another thing they’re used to seeing are preposterously juiced numbers. Every start-up in the world is going to take over the world next year, if only you’d give them the $20 million they need. I kept my numbers conservative because I’d rather have my investors be pleasantly surprised than perpetually disappointed. I thought people would appreciate the honesty of reasonable numbers, but in the end, I think I would’ve had an easier time if I’d promised the moon and the stars.