How The World’s Biggest Whisky Company Is Investing in Startup Distillers

Diageo-backed Distill Ventures has been in the news recently. Essentially it’s a venture capital fund for small start-up distillers using the incubator model of business development: a creative attempt to identify real long-term winners from the craft distilling scene. In return, Diageo gets equity in the business.

Until recently, investment levels have been relatively modest but with a commitment of around $14 million in Denmark’s Stauning Whisky just announced and an unspecified but presumably similar amount in Starward New World Whisky of Melbourne, Australia, I asked Frank Lampen, co-founder and CEO of Distill Ventures what marked out these investments. 

“Typical to all of our investments, the first thing to attract us is the team,” he told me. “In Stauning’s case, you have nine friends, all with very different backgrounds, perspectives, and skill sets. They are a real mix and you can see the influences from each of them reflected in the decisions they make… [it’s] the interesting story of nine friends who started out making whisky as a hobby, and created one of the best new single malts in Europe.”

“With Starward, again the team that David Vitale has put together stands out,” claims Lampen. “What they’ve done is to create something which is really distinctively Australian, maturing all their whisky exclusively in Australian wine barrels, and working with Melbourne’s ‘four seasons in a day’ climate.”

We then discussed the criteria for a successful investment. First up, Distill Ventures looks for, “a distinctive idea reflected in the liquid, the packaging, and the brand story.”  If that wasn’t challenge enough, the business needs a compelling ambition for global scale with the team having the right mix of skills, perseverance, and ability to stay optimistic and keep driving forward.  Clearly, Sunday distillers aiming for a lifestyle need not apply!

Then details of the business, particularly maturation and the stock that is going to be available for sale over the next few years are appraised. From this and an assessment of the management support required, Distill Ventures can determine the required investment level, which is then presented to an investment board.

Is there any point then, I asked, in new applications?  The answer was clear. “Our key principle is that we are opportunity-led: for us it depends on finding sufficient opportunities of the right quality,” said Lampen. “We believe there are plenty out there, and we hope that we can continue at this level.”

Diageo clearly believes we’ve not reached “peak craft.” Lampen describes the opportunity as, “big [with] the potential to scale considerably.”  So what are their competitors doing?

William Grant & Sons simply bought the Hudson Whiskey brand, leaving production at its Tuthilltown craft home (somewhat expanded) but taking the brand to new world markets further and faster than the founders could have ever contemplated.  Signs are that it’s been a successful venture for both parties.

More recently, in September 2015 Pernod Ricard’s Irish Distillers started their own in-house craft distillery to experiment with new styles of Irish whiskey.

The facility, in County Cork’s Midleton, is described as a “key innovation hub” and will distill whiskey using a range of cereals. Irish Distillers also plans to open a craft brewery to provide a wider range of cereals and yeast strains.

Anna Malmhake, Chairman & CEO of Irish Distillers, said, “As Jameson continues to underpin the success of the Irish whiskey category, we are looking at new ways of building on our tradition while also forging the future of Irish whiskey.”  Malmhake claimed that the distillery will be able to produce 400 casks a year. “These will be innovative, small batch expressions that will play a key role in the development of the category,” she added.

Pernod has also backed the Our/Vodka craft distillery project, now producing in five sites worldwide, with four further operations in development.

Invest in promising start-ups, buy something you like, or just do it yourself; there wouldn’t seem to be any barrier to entry here for the big players looking to be small—on the label at least.

For budding distillery entrepreneurs, the message is clear: get your product, proposition, packaging, and people right and the global success you deeply desire may just follow.

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