After the realization that an SBA loan was not going to happen we realized we started to rethink the way we planned on raising the money. Now knowing that we could probably raise somewhere in the neighborhood of $150,000 from the bank, and not the $575,000 like the SBA told us, we needed to find the rest of the money from investors. Now, as I have mentioned in a previous blog, we projected needing $720,000. This estimate was extremely pessimistic. It covered a year of getting setup and another year of expenses should we not sell any beer at all. So, in total two years of expenses without selling one beer. We also factored in some expenses that we would need down the road, but could purchase once we needed them. In general though we grossly overestimated everything.
Now that reality had set in, we went back and look hard at each line item and realized we could get up and running with about $420,000 instead of $720,000. So we were still going to need a lot more external capital since the bank was probably only going to give us around $150,000, and we had only raised $85,000 at that point.
We never really felt like Angel investors would be the right direction to go because they typically don’t invest in things like this. They usually stay in tech related fields where the growth potential is extremely high. I had read a couple books The Craft of Stone Brewing Co. and Beer School: Bottling Success at the Brooklyn Brewery. With both businesses they raised funds through angel investors. Although both cases occurred during the late 80’s and mid 90’s we really had nothing to lose.
With that we started emailing our plans to different groups around DFW. I was shocked to get an email back from one of them that said they were interested. Thinking this might have been a form letter I called to confirm. During our conversation it was revealed that they would like us to come down to present the next day. They do presentations every third Tuesday of each month. Now, the problem was that we had no presentation ready, as we had not been approaching investment groups before. With that we had to hustle to get something put together. Per the group’s leader’s instructions we put together a 10 slide deck. Just as a side note. Anyone that is interested in raising money from a group like this should know that PowerPoint’s are rapidly replacing business plans. A lot of tech companies don’t even make a business plan.
To make a long story short, we made two presentations to these guys and spent a majority of our time trying to explain what craft beer was. At the end of the day the investor’s had two main things stopping them from investing. #1 They didn’t know the beer business. They were tech guys. #2 They, like the bank’s, had a tough time valuing risk. Unlike tech start-ups we won’t have the same trajectory of growth, but at the same time won’t have the same level of risk. They were expecting us to have a 10X return on investment over the course of five years like other tech start-ups. That was most likely not going to happen. After speaking with other start-up breweries trying to raise funds from angels our suspicions were confirmed and we halted our search for angel funds and switched strategies again.