Matt Brown had worked with entrepreneurs for more than 20 years, but it was his first beverage client who lured him into craft spirits. Now, the business advisor and entrepreneur is all in, with two partners who are focused on investing in craft spirits brands that have stories that make a splash.
Brown is the co-founder of 99 Proof Partners, a Dallas-based investment firm that organizes, manages, and syndicates investments in craft spirits. In October, 2020, Brown and partners Mike Solow and Tucker McCormack launched the firm, building a model that goes beyond addressing the financial pain points for craft distillers by adding an operations and sales arm.
“We know the industry, we know the players and we have boots on the ground that can help sell spirits and take these brands to the next level,” Brown said.
And they’re making it social, and not in a Twitter kind of way: In August, 99 Proof plans to open a members-only lounge that, with a minimum annual investment, will let partners work, socialize, and get exposure to investment opportunities while enjoying craft spirits.
Solow and Brown worked together through their previous firm, Octane, which focused on helping companies drive top-line revenue growth. Brown has led organizational improvements for venture, mid-cap and Fortune 500 companies in industries from food and beverage to tech. Solow brings experience in business development and leadership earned starting and growing several companies. McCormack, who Solow and Brown met through their first Octane spirit client, offers operational and executive experience in the venture space, and previously was vice president of HarloKyn Advisors, a lower middle market advisory firm.
At 99 Proof the founders’ goal is to invest in spirits companies in the $2-$10 million revenue range and grow them to $20-$30 million in three to five years. The firm has also provided debt investments by financing bourbon barrels, which are in high demand and short supply. The focus is on nurturing independent brands for acquisition by larger beverage companies.
99 Proof has seven brands in their portfolio with an average size deal of $415,000.Those companies were selected out of more than 100 applicants.
“We are looking at anywhere from three to five brands a week,” Brown said.
So, how do brands stand out from the crowd? They’re primarily focused on categories that are gaining momentum and a story that’ll jump out on today’s crowded shelf.
Compelling Stories
“When you walk into a liquor store today or even a bar, there are just a ton of products and labels,” Brown said. “So for us, there has to be a phenomenal story behind the product.”
That means unique founder stories such as Hotel Tango Distillery, the first combat veteran-owned distillery in the country. Owner Travis Barnes was honorably discharged after being wounded by several IEDs during his three tours in Iraq. He returned to civilian life, went to law school, and started whiskey distilling. The company has now amassed several other spirits branded in the style of ready-to-eat meals for the military, or MREs.
“They’re an amazing group of human beings and with their military background; these guys develop a strategy and they execute,” Brown said. Last year the company sold 30,000 cases and the business has grown 175% in the last two years.
Trending Categories
Other portfolio brands include two female-founded brands in sectors gaining momentum. Kentucky 74 is a non-alcoholic bourbon flavored spirit, while canned wine company Archer Roose is co-owned by actor Elizabeth Banks. The former is tapping into the demand from a younger, “sober curious” generation interested in healthier lifestyles.
Archer Roose’s proposition to “democratize” wine, plus the presence of a deeply involved celebrity, were selling points for Brown. Banks is a co-owner and Chief Creative Officer, and her performance is incentives-driven — the metrics on her social media account directly correspond to compensation goals, for example.
“It has to be the engagement and not just the name,” Brown said. The company is on target to exceed 100% year-over-year growth.
99 Proof is also partial to brown spirits, banking on some runway for Texas bourbon and whiskey, as well as agave spirits. Next year, they’ll be looking to dip into spirit-based RTDs.
But assessing investments also comes down to how a pitch fits with the firm’s goals to partner with companies that can execute a solid plan in the three to five year trajectory to acquisition. They’re also looking for brands with distribution they can build on.
“We want to make sure we’re providing the support, both capital and operationally so that they succeed because our job really boils down to picking winners for our investors,” Brown said.
Expanding Investors
99 Proof syndicates investments, allowing accredited investors and family offices to engage in the debt or equity side. Unlike some traditional private equity funds, the firm eschews the 2-and-20 structure (2% of assets under management, 20% of profits made by the fund above a certain benchmark) for equity on an eventual transaction.
“It’s a very flexible investment model where somebody that wants to get involved in investing in spirits but doesn’t quite know where to begin or doesn’t have $100,000 or $200,000 to invest can come in and get engaged either in the debt or the equity side and perhaps have a brand that they can be proud of and attach their name to as an investor,” Brown said.
After investing nearly $5 million in 2021, 99 Proof is aiming to double that this year. Brown said they’re in conversations with hedge funds to serve as part of their alternative portfolio, an approach that makes becoming a $100, $200 or $500 million fund a realistic target.
The partners brought 60 investors into the fold in 2021, and they hope the lounge will allow them to fill up their investor roster with partners interested in new brands. Founding members will have priority access to guided tastings, happy hours and events, coupled with mixology experiences and personal concierge services. For the partners, the lounge allows them to capitalize on the tangible and experiential aspects of the spirits business.
“We want investors that want to sit, talk spirits, have a good time and are proud of the portfolio — and can get great returns,” Brown said.