The Startup CPG Podcast

Jason Sherman
Foreign should focus on where they think they'll sell the best brands in the alcohol space. They aren't all the same in every place, you know. And I think when you're thinking about your consumer and who's going to want to order it may work. And you may have a brand that only does well in New York City, in Miami and Los Angeles. So you should expand to those three states, right? That's where you should be. Or you could be like a carbless or a mom water that do terribly in major cities but do exceptionally well in the rural Midwest.

00:44
Hannah Dittman
Hey everybody. I'm Hannah Dittman, operations and finance correspondent at startup CPG and the current founder of Ready Basics. As a former CPG investor, I'm especially excited to host this investor spotlight with Jason Sherman of Top Shelf Ventures. If you're building in the alcohol or just want to understand how investors think, this episode is for you, we're going behind the scenes with Jason Sherman of Top Shelf Ventures, an early stage fund focused on the next generation of alcohol and vice brands. Jason brings a deep operational background with experience across the alcohol industry, including a wealth of knowledge from his time at ab. He sat in nearly every seat. Founder, operator and investor. In this conversation, we break down what founders should really know about the fundraising process, investor psychology and target metrics that matter.

01:29
Hannah Dittman
We also dig into what makes the alcohol category unique and exits and acquisitions in the space. So crack open that can or pop that cork and let's get into it. Cheers. Hey everybody. Welcome back to the Startup CPG podcast. I'm Hannah and today I'm here with Jason Sherman, an investor from Top Shelf Ventures. Jason, welcome to the show.

01:56
Jason Sherman
Thanks for having me.

01:57
Hannah Dittman
I'd love to kick off with you introducing yourself. Can you share maybe your title, a brief background of your experience prior to investing and what led you top Shelf Ventures?

02:06
Jason Sherman
Yeah, absolutely. I'm Jason Sherman, co founder and managing partner at Top Shelf Ventures. We are an alcohol and vice fund focused early on the early stage primarily, but you know, also playing in some special situations in distressed MPE work. But you know, his background and actually somewhat traditional background. I started off as a lawyer at Harvard Law and kind of got into the alcohol space working on a very large alcohol deal. And following that deal I was pushed over to AB InBev where they were just starting, which if you don't know, is the largest alcohol company in the world. They were just starting a big global internal venture arm where me and a handful of people got together and you know, our mandate was disruption. I mean in three years we did about 220 deals around the world, deployed just about a billion dollars.

02:59
Jason Sherman
A lot of E commerce projects, a lot of craft beer, but also a lot of frontier projects in the alcohol space. Everything from in home brewing machines to cleaner, better wastewater treatment to more sustainable ways to support our 500 breweries around the world. So really quite a big mandate, a lot of work there.

03:19
Jason Sherman
And then on the back of a couple of very good investments in the E commerce side, I left to solo found venture backed e commerce and distribution company Tapirm Taprm in the beer industry where we supported just about 400 different beer brands all the way from Stella and Budweiser all the way down to a lot of small local breweries and as far away as Nebraska and Tennessee with their E commerce by both being their platform online but also their full service distributor, exclusive distributor in New York, thousands of accounts around the state and we did pick, pack, shipping, fulfillment. So it was a very unique model in our industry. You know, if you're familiar, the regulations are pretty wild and being able to create that.

04:00
Jason Sherman
And then were ended up being the fastest growing alcohol company on the Inc. 5000 list two years in a row in 2020 and 2021. Got through a sizable series A round and then sold the business in 2022. So I've been in the alcohol space about 12 years because following that I got together with Noah Friedman and started Top Shelf Ventures on the back of that experience. Really having seen so many deals gone well, gone badly. Been an operator and a founder myself. But also seeing for the first time in the history of the alcohol industry, there is a moment to really now to make a lot of money for investors and by being an institutional fund focused on early stage brands. And we can get into that a little bit more as well.

04:41
Hannah Dittman
Awesome. Yeah, I love when you get to see and make the sausage from all angles and it sounds like you have, you've been in and around upside down every angle from your industry. So that's awesome. My next question was just kind of diving into your mandate and differentiation a little bit more, but could you briefly kind of double click on what vice is, what you consider that category and what kind of alcoholic beverages does that include? Maybe a dumb question, but non alcoholic beverages as well? Or is that purely actually alcoholic beverages?

05:11
Jason Sherman
It's a good question. I mean for us, everyone probably defines vice slightly differently. You know, for us it really is focused on the alcohol industry and things that run or could run on the rails of the alcohol industry. So that could be everything from it's wine, spirits, beer. Obviously you know we really are very focused in that, you know we are in our second fund, it's a $25 million vehicle. We will probably do 80, 90% deployment through alcohol. So there would be alcohol brands of sorts.

05:40
Jason Sherman
However, we do reserve quite a lot and have the optionality to put as much as we'd like into other categories in vice which for us right now we've done two deals in hemp derived beverages who are, that's an exploding category right now sitting on with alcohol distributors sitting in alcohol stores and sitting next to alcohol brands on shelves. So we are very bullish on industry. Obviously the regulations are still working to be flushed out. But additionally we just invested into a very fast growing, explosively growing nicotine pouch business and independently owned nicotine pouch business. If you're following that space, obviously the Zyn the on people are doing them like crazy. You know I think the study came out last October 2024 between 18 and 35 year olds. 30% of them had a nicotine patch 20 of the last 30 days. That's incredible.

06:28
Jason Sherman
In the US and so for us, we truly believe in they are going to be running on the alcohol rails with us and we believe that could be an absolute big disruptor. We will not currently touch anything else in Vice that I can think of. You know something comes along. We have looked in Kratom and Cobb some of the nootropics. We've also looked at non elk but the reality for non elk, at least for us at this moment, it's just not big enough. You know the entire industry right now is about $850 million. You know, when you look at the overall alcohol industry, it's closer to $550 billion in the US so the scale is not quite big enough for us. And of that 850 million 80, 90% is likely just non alcoholic beer.

07:09
Jason Sherman
And of that it's mostly athletic beer and some of the major brands have their own 00 lines like Heineken and Corona. So the reality is there just isn't a lot of room to play for the startups right now. Nonoc, maybe that changes. We're keeping an eye on it but right now we haven't seen that space quite play out fully.

07:26
Hannah Dittman
And when you're thinking about like stage focus, check size, you kind of mentioned your aum, where's your sweet spot and where do you guys typically get involved and where do you like to come in?

07:35
Jason Sherman
Yeah, we're an intentionally small fund. You know, we've certainly had the option of raising much bigger funds along the way here, but we'd like to get involved as early as possible. I say that, but what I really mean by that is you've got to be able to show that you have incredible velocity, which in our space means one of two things. Either on the shelves you're on, you are outselling the major competitors in your category. So let's say you're a premium vodka, right vodka brand and you're on 50 different shelves in 50 different stores. Are you outselling Tito's on every shelf you're on? And if you're not, we're probably not that interested. You may only be in 50 stores, but you've got to be able to show that people want to come back and buy it.

08:17
Jason Sherman
And maybe you're not fully at Tito's level, but are you close? You know, if you're an RTD Seltzer, can you get close to High Noons type of rate of sale or velocity? And that just means how many cans per day are you selling off those shelves? And if it's very high, we really are interested because that means people are coming back and ordering. The second thing that we really look for early is great retention online. You know, if you have even $5,000 of sales in one month, are those Same people maybe 80, 90% of them coming back and ordering next month? In the alcohol industry that's really hard to pull off. People are really big one time purchasers.

08:52
Jason Sherman
But the brands that stick around and get Those big hundred, 200, $500 million if not a billion dollar exits are the ones that have consumer stickiness. You know, people that come back again and again, that's the only thing they ever want to drink, at least for, you know, a year or two at a time. And those are the brands we're really looking for. And I've had a lot of success with. So our check sizes at those early stages, if we find you at those stages, usually we're getting in sub 10 million valuations. We're typically investing anywhere from 250 grand to 750 grand initially.

09:21
Jason Sherman
And then our model is that if you are tracking towards your targets or exceeding them and you are one of the standouts in our portfolio, we'd like to follow on usually within 6 to 12 months with a 2 to 3 million check if you'll take it if you need it. But that way the need for capital is much less down the road. You can really continue to grow towards your goals without having to worry about, will I have enough inventory, will have enough working capital? Can I manage this? You know, we're here to be your capital partner. If you're one of those explosive brands, we certainly want you to be unleashed.

09:52
Hannah Dittman
Yeah, that makes a lot of sense. So it seems like kind of like a late seed. You need a proof point, you need to be in distribution, you need a velocity proof point or a data narrative around it at least. And like all cpg, recurring revenue is king in the repeat purchases. So that makes total sense. Do you guys focus on any retail distribution channels specifically? You mentioned E Commerce as well a couple times. But just curious if there's anything that you're kind of focused the most on during your diligence or your process.

10:20
Jason Sherman
No, I mean, I guess there's only really three channels. I'm going to say that I'm going to think of another one. But you know, E Commerce is obviously an easy one for people to understand, but in alcohol, it's very hard to pull off the regulations. I'm going to exclude wine for a second. But certainly in spirits and beer, make it such that you can't just have a warehouse full of beer and ship it around the country like you could if you ran a towel company or a belt company. You really need to have all three tiers taken care of. So you have to sell to a distributor who sells to like a liquor store and that liquor store will then ship it to people at home and actually take the purchase from your website. That's very hard to do.

10:57
Jason Sherman
And you certainly probably won't make any money doing that. So. So E Commerce is really a marketing channel for most alcohol brands. So if you can show that consumers are going to come back and order again, it isn't the way you're probably going to make much money or any money. That really is just a proof for you and for distributors and for retailers as you expand out your on the ground footprint. It's really just a proof point that people love the brand and people are going to come back and order it again and again. And so a lot of brands will lose money doing that.

11:26
Jason Sherman
And so E Commerce is a great one because if you can get people to spend more money, it's very expensive to have a beer or spirits shipped to you, certainly wine shipped to you and come back and do it. That's a huge proof point. It's much easier for people. If you look at the occasions for alcohol, almost 80% of them are within the day. So if you're thinking about drinking, you're not usually thinking what am I going to be drinking next week? That is very few. It's like for parties, for stock up occasions. That is very, very premium product you might do that for. But the vast majority of drinking occasions are I'm heading home from work, I'm going to grab whatever I normally get. I'm having some people over later.

12:02
Jason Sherman
I forgot to grab some alcohol, you know, I'm having a little party later. I didn't think ahead. These are things that are traditionally the way people are consuming. So for, you know, the E commerce, if you can succeed there, you're never going to build a brand that big on it outside of wine. But if you can make that work, it really works. Otherwise we look at both off premise which is liquor stores, the shelves, supermarkets and we look at on premise which is restaurants and bars. And if you can make either of those work on a velocity level, it can be incredibly successful. We'll look at your categories. So you know, we've done investment. Our best Investment from Fund 1 is a brand called Grazzi Premium Box Wine. Grazzi.

12:37
Jason Sherman
We met Steven, the founder when you know, they were probably doing just about 40, 50K a month online only. But he had 80% of customers buying these box wines, almost four bottles in a box for $40 shipped to their house. And like 80, 90% of those customers are coming back every month and buying again on subscription time. It was insane. You know, fast forward a couple years. He's now doing, he'll do 50, 60 million. He's in six states and like over a thousand accounts and he's one of the fastest growing wine brands in history. But all in the backbone of that E commerce then we've also done brands like Misguided Spirits which they're a premium well product like you probably don't ask when you ask for like a vodka soda what the vodka is. But the bartenders know and the bartenders care.

13:19
Jason Sherman
And they've built an incredible premium well brand with the bartender community and their velocity on premise. So in bars is off the charts, you know, I mean way off the charts. And that's because they can be the vodka, they can be the gin, they can be the triple sec, they can be the whiskey, they can be the rum in the same bar. So the velocity hits very high. So we'll look at almost any of those proof points. It really doesn't have to be one specific one. It can be any of those three.

13:42
Hannah Dittman
Yeah, no, that Makes a lot of sense. I think the customer archetype that you're laying out and then the different ways to approach a channel make a lot of sense too. You know, I feel like you're either kind of like a set it and forget it person, like my brother in law is a Coors Light guy to the day he dies, or you're situationally planning or you're want to try something new or spice up your life a little bit or something like that. And then getting in through the professional channels, I mean in personal care we have something similar. You know, you go through salons or you go through direct to consumer.

14:07
Hannah Dittman
But yeah, no, that makes a ton of sense and I feel like you clearly have a very good pulse on the metrics you're looking for, the proof points you're looking for to indicate where someone's getting traction and success and how to validate that. Before we keep diving into the kind of investing side and advice for founders, I'd love to briefly touch on what made you want to go from operations and being on the other side of the table to jumping onto the investing side. And you know, if you had advice looking back to yourself as a operator, founder, or you know, any key learnings that you think are worthwhile sharing now that you've had those juxtaposing experiences, I'd love touch on that for a second.

14:44
Jason Sherman
Yeah, it's a great question. While working at AB InBev, there were 40% of the world's beer. We were very powerful when speaking to startups, when proposing partnerships or talking about valuations or protective provisions or rofers. We were very powerful in our investment strategy. And when abmbev came calling, almost everybody responded in want another support for obvious reasons. And you know, I think while being there I realized that the startups themselves, they didn't have a great grasp on how to work with an AB InBev, how to work with these major companies. And in our space, in the alcohol space, eventually you have to, you know, the vast majority of these exits, the best exits happen early. They don't happen, you know, when you're already doing $100 million in revenue. They almost always happen when you're doing 10, 15, 20 million in revenue.

15:35
Jason Sherman
And that's solely because these big companies in alcohol, in order to build out a network, you have to have maybe four or five hundred distributors in the U.S. you know, a massive number of distributors. And for a small startup that's almost impossible to manage and maintain, whereas a big company, they could take you from five six distributors in three states to all 50 states and hundreds of distributors within a few months. And I think the gap was for a lot of these startups was they thought very highly of themselves, which is great, but they also maybe didn't realize the value that AB and Bev could provide all the way through, but really wanted to work with AB and Bev. So there's this weird fighting that sort of occurred and I.

16:12
Jason Sherman
The advice I often give to startups now is be pretty open to discussing in startups in the, in our space being discussing an acquisition offer earlier, you know, and there's two sides to this, which is the earlier you can have those discussions, the more likely those discussions will happen, you know, 12, 24 months later. But do not give up a minority share. Don't give up like some kind of right to these businesses. Either they buy you or they don't. And that's what we tell all of our startups, is these weird strategic partnerships will only kind of hamstring you forever, you know, and there's plenty of examples, even when were looking at brands, if there was a minority investment from Adiageo or Constellation, it's very hard for AB and Bev to acquire that brand.

16:55
Jason Sherman
Almost never would happen because the big question everyone's going to be asking is, why are they not buying you? Which could be a thousand reasons. You know, when you look at these big companies, there's turnover, there's mandate change, there's target changes, there's cash balance issues. There's just generally the wrong people at the wrong time. Internally looking at it's much more bureaucratic than people probably imagine. And you don't want to be in a situation, you have an incredible brand that just can't go anywhere, can't raise, you can't get acquired and you just get stuck. So I often tell, you know, the big learning I think I've had on both sides of this is be very open early acquisition offers.

17:28
Jason Sherman
I think there's no question about it in the alcohol space, that is, you know, having been an operator myself, I think I probably learned maybe don't raise as much as you want to like as you can only raise what you need. The dilution is real. And the problem with raising way too much in the alcohol industry is you're probably going to need more and more and more to sustain that because so many things have to continue working. It's very expensive to grow a brand if you're going to do it inefficiently. So the sooner you can be efficient, the more likely it is you can continue that efficiency long run, or else you get stuck in this trap of thousands of salespeople running around. You're doing tons of tastings, tons of samplings, you're running big marketing campaigns online without actually knowing what's working right.

18:15
Jason Sherman
And the earlier you can hone in on this is the one thing that we know, if we throw 100 grand at it, we're going to get 500 grand of revenue out of it, you know, and that's the clear cut. Therefore, it's almost profitable for us to do it, or even it is profitable. Therefore, if we throw $10 million at it right, it's going to create five times that in revenue. Let's just keep doing that until those growth efficiencies run out. In the alcohol, that is absolutely paramount because you can get totally messed over by distributors who see what you've done with three other distributors and you gave them a ton of money to do all these things, or you invested a lot in that territory, they're going to ask for the same.

18:48
Jason Sherman
And so you end up in this difficult situation where everyone's going to ask for all these things. You have to raise a ton of capital, and maybe the brand fails as a result because you just got really wide, really big. And as a founder, I definitely ran in the trap of raising a little too much capital because you get very excited about things working. You kind of maybe didn't focus enough on why it was working and like those actual triggers, the few things that were working the best, instead of you kind of look at the whole picture, you're like, oh, everything's working. Let's just throw more at everything. And I think that was the big learning that I had between the two pieces.

19:23
Hannah Dittman
Yeah. And I think the fact that you have exits at such a lower revenue threshold in alcohol relative to other CPG categories, I mean, the first I'm. I'm not as familiar with alcohol, and the first I'm hearing of it is from you. And I'm like, wow, that is like so much smaller and earlier in a company's trajectory than personal care or food and Bev, you know, where you're like, way maybe even a hundred million at some point before you're getting into an exit situation. So, yeah, I feel like that kind of also pushes founders or operators, I would imagine, to set themselves up to be rolled out in a very strategic way and really focus on proof of concept more so than trying to eat everything that's on the plate themselves to prove themselves that way.

20:10
Hannah Dittman
It's a very different checklist of what you need to prove out when you're kind of thinking about such a shorter revenue cycle.

20:17
Jason Sherman
That's absolutely right. I mean, the metric you need to focus on is velocity, not your overall revenue. And I think that's probably different than some other CPT categories where you're looking at this, how big are we? It really is, how fast are we selling? No matter how big are we? Because again, these big players, they'll pay 10, 20x revenue multiples for exits if you're outselling them in even a small footprint. Because they believe if they just take your product and they can do this within months, put it side by side with their products everywhere, maybe you all sell their old products and replace the old ones, which is how the industry works. You know, the innovation has really been outsourced to the startup community.

20:56
Jason Sherman
I mean, there's 1,000 new brands every year that launch on alcohol in the US and only a few of those, I think the number was, I'm going to mess it up. But it's in the 90s. 90% or more won't reach a million dollars in total revenue in their entire history. And so most of them will end up just sort of failing. And there's a lot of reasons for that. But the ones that do succeed aren't the ones that just focus on, let's be in all 50 states and, you know, have 10,000 accounts, but only do $2 million in revenue. And we see this all the time. Those are brands that are sitting on shelves and just collecting dust and probably dying. And we'll go visit these accounts and you'll see these bottles of whiskey sitting literally on the bottom shelf.

21:32
Jason Sherman
They've been there for six months. And you ask the account about it, they're like, no one's ever bought it. And that is the death of your brand. You can't have a single account like that. And if you do, you need to go to that account, you need to buy it back, and you apologize and pay them back, you know, and come back to them when you have the ability to market that product correctly for them. Because your job is to help those retailers sell the product.

21:51
Hannah Dittman
Yeah, that's the universal rule in CBG and retail. I feel like getting into retail before you're ready to support it from a marketing standpoint can often be the kiss of death, because from an operating standpoint, you feel like, you know, the first mountain you need to climb is to get into retail. But there's a Mountain, right? It's like a double topped mountain right after that one where you need to be able to support it and do well there. So yeah, that makes a lot of sense. Before we pivot on to kind of your diligence process and getting into a little bit more of the nitty gritty, I'd love to kind of talk a little bit more about your firm.

22:23
Hannah Dittman
And you know, you've mentioned kind of what you guys are looking at, your mandate, but what makes your firm strong fit for the brands you're partnering with? You know, how should people be evaluating investors in return, especially in the alcohol space? And how should they think about choosing the right partner to be working with?

22:41
Jason Sherman
We are sort of the preeminent, if not almost the only independent, not controlled by a distributor or supplier, a big retail chain. We are totally independent. Our LPs are independent LPs from the industry. We are here as you as startup's direct partner where incentives are 100% aligned, which is, we will make all the introductions. You know, we have connections throughout the entire industry. Almost any single person at any major distributor, retailer or supplier you want to speak to, we have those connections. We have all the salespeople you'd ever want to talk to. We have all the finance backend. These are things we can help fix holes for. And we've seen it all.

23:18
Jason Sherman
You know, I think in the end of the day these are difficult businesses to run and you might have an incredible brand with incredible velocity, but if you just even a little bit mess up your accounts receivable, that might be the end of your business. And it's just little things like that can really take brands down, down fast. And we really are here to help them figure out what they're missing and what they're not missing. I think when you look at a lot of the other, I'll call them investors in the alcohol space at early stages. They're either one from big suppliers, which we've kind of just covered, you know, earlier. It's very scary to take early money from suppliers. We highly recommend only offering acquisitions to big suppliers for various reasons, or they're, I'll call them service providers with sort of investment arm.

24:05
Jason Sherman
You know, they'll be your outsourced sales arm. They'll do your marketing for you. If you do digital marketing or you want billboards, or you'll do the marketing, you pay them for that and they'll invest money in return. Those are really the two flavors of other alcohol investors out there. You know, we are the only that are only focused in this vice category. There aren't any others like this and only focus this early. You know, there are quite a few. Like we work very well with a couple of the other players that invest five $10 million checks later stage growth stage projects because obviously they follow on well with the brands that we work with. But at the earliest stage, you really are the only player that does this, an institutional level. And that gives you a lot of credibility.

24:43
Jason Sherman
You know, when we invest in a brand, the whole industry takes notice of. A brand they probably didn't even know about before. And the reason for that is you were so small and you know, you didn't exist outside the thousand that exist out there every year. You probably didn't pop up on anyone's radar until we got involved. And that's because we've basically become the scanning arm for the alcohol industry for the best of the best that comes about and then we can go into how we do that. But you know, like that comes through just really taking a close look at as many as we can.

25:13
Hannah Dittman
Yeah, no, that's so exciting. And I feel like what a impressive niche that you've kind of been able to hone and craft for yourself on the investment side. Not always the easiest to do either. You know, it's a crowded space with a hard way to differentiate yourself. So that's awesome. When you're putting the kind of first smaller check, maybe like I think you said 500k or so, what is that capital going towards, Is that for rollouts or is that some like marketing muscle maybe? And then when you're thinking about follow on checks, what kind of. Is the biggest use of funds in that cycle of your investment?

25:43
Jason Sherman
Yeah, I mean the best use of funds would be inventory, you know, so if you are growing so quickly, you have so much demand for your product in your existing territories that you're getting orders, let's say from all the total wines in Florida. They ordered once and then they came back and ordered two weeks later. But you don't have enough product to give them, nor do you have enough cash to produce that product quickly enough. That's the best use of funds if you can get there. The second best use of funds is you have a marketing engine that you know, if you pour onto a little more gasoline, it'll work. You know, the quintessential example there is sampling.

26:20
Jason Sherman
If you've done five samplings in New Jersey and every time you did a sampling you sold a thousand dollars of product, you know that if you do a hundred Samplings in New Jersey, you might sell as many in revenue. You can pour money onto that if you had it. And that is something not a lot of people have. So that's the second thing that we would love to help support. You might have the inventory already, but now you can just fuel efficient, profitable fire onto one marketing lever. That would be the second thing. And the last thing you kind of referenced it would be expansion. That would probably be a later stage like those two to $3 million lead rounds that we would do for you.

26:55
Jason Sherman
That would be if we know you have a playbook in a state that works or a couple states has proven to work and you already have distributors lined up that are ready to run that playbook with you and you just need the capital. That has to be a pretty de risk situation. In a perfect world it really is your remaining states, your existing states with the right inventory needs and the right fuel you want to pour on existing marketing levers. Otherwise expansion is always dangerous because like as were referencing earlier, it might hurt your ability to be acquired. The bigger you get. Territory wise, you really want to focus on growing where you are.

27:30
Hannah Dittman
Should brands start, you know, when they're thinking about their regional strategies, should they start with the states that they're located in, even if that may be like second city or not really a prime target? Or do you think that brands should really start focusing on certain metropolitan areas or states first that you think stronger ability to generate traction?

27:51
Jason Sherman
Yeah, brands should focus on where they think they'll sell. The best brands in the alcohol space, they aren't all the same in every place, you know. And I think when you're thinking about your consumer and who's going to want to order it, you may have a brand that only does well in New York City and Miami, Los Angeles. So you should expand to those three states. Right, that's where you should be. Or you could be like a car bliss or a mom water that do terribly in major cities but do exceptionally well in the rural Midwest, you know, and that's a big broad spectrum of different things. But the focus should be launch where you think you're going to win. And that should be one state and one territory.

28:29
Jason Sherman
And by win I mean have the highest velocity, have the easiest time opening accounts and having those accounts come back again and again. Because you're going to use that first state. If you mess that up again, will might be the end of your brand completely. Because that state is going to be the example you use to show future states, future distributors, future Retailers future, you're going to show them, hey, look at this. First, you know, city I launched, here's the rate of stop doing five cases a week per account that I'm in. If I just expand into your state, I'm going to replicate this exact same success. But if you go into that state and it fails, either could be out of your control.

29:02
Jason Sherman
But like if you distributor isn't good, if the retailers don't present it right because you didn't probably help them well enough or it was a wrong territory fit to where your brand was supposed to be, it might collect us and no one buys it and then no one else will ever take your brand. So you got to start again. The number one thing you need to do is I wouldn't always focus on where you are personally because I don't know if that really matters anymore but it really needs to be where your brand's going to win out of the gate.

29:27
Hannah Dittman
You know, it sounds like quite a lot of this is in person driven given that we're talking about like a regional approach versus kind of, you know, it sounds like you either need to hustle and get into mom and pops, get into local retail shops, get into local bars, maybe be at events, sampling whatever it is. It sounds like relative to other CPG categories it makes a lot more sense to focus on boots on the ground starting point versus like you know, if you're an e commerce business where you're kind of, you don't even really geo targeting, you're just kind of like trying to find your core consumer for whatever it might be on TikTok or whatever.

30:02
Hannah Dittman
Is that how you're thinking about it or you know what was kind of like a best in class early life journey of a brand kind of from a tangible tactical things they're doing prior to coming to look for investment or meeting with someone like you.

30:16
Jason Sherman
Yeah, I mean best in class maybe depends on your type of category but let's just say you're. Let's take Su Casa Mezcal. Their Mezcal brand we invested into about two years ago. You know, they started off their journey, they made a $40 a bottle mezcal brand that was extremely palatable. It was a little smokier than other Mezcals. Something that where people could be introduced to Mezcal for the first time if they've never had it and still consume it and enjoy it. But most importantly it mixed extremely well in cocktails and it was at a price point that was less than almost all other Mezcals that the bartenders and bar owners were purchasing for those cocktails, but still extremely good and mixed well. So they ended up being on the Mezcal on the cocktail list when we met them.

31:01
Jason Sherman
About 10 of the most high velocity cocktail bars in New York City when we met them, which is an incredible spot to be. But nobody knows your brand like that. You know, very rarely do people actually know what Mezcal there's in their cocktail. They're ordering the cocktail. It happens, but not that often. But the velocity was so high that means somebody really likes it. So it's the bartenders, the bar owners. So that's what we fell in love with. They really spent a lot of time. I mean, the founder is a big industry veteran. He's been around a long time. He used his connections to build the brand around what his connections wanted, which allowed that velocity to happen in those first 10 accounts. I mean, today they're the fourth largest selling mezcal brand in all their states.

31:39
Jason Sherman
They basically control almost every on premise cocktail menu in both Florida, Georgia, New York, New Jersey. That's where they are. That's where the only drink you're really going to get Mezcal from. And that's all from that baseline, you know, that I'll call it Hustle. The hustle connections and building your brand around it. That's probably a quintessential example. And the other one is probably a little bit more like Grazzi. And if you are a wine brand, if you're a spirit and beer brand, I would highly recommend not bothering with E commerce. If you're really trying to scale to be a billion dollar brand, if you're trying to be a smaller brand, there's things you can do. But if you're a wine brand, you can build a base of people, wine you're allowed to ship around the country willy nilly.

32:16
Jason Sherman
This is an old regulatory exception, which is why when you go to like Napa, every single winery is going to pitch you a wine club. Some of those wineries, you know, 90% of their profit comes from those wine clubs, not from anything else.

32:29
Hannah Dittman
Oh, I can tell by how hard they sell it.

32:32
Jason Sherman
Exactly right. So you get some of that. So wine brands can do this. And I think if you're a wine brand and you're trying to get started, even an RTD wine, if you're a canned wine or something, that's a different world. But if you're trying to be a traditional wine brand or a boxed wine brand, building up a community online that can work but again, the margins are tight, you know, and it's very expensive to buy space and wine. If you try and just, you know, buy the wine, Google search, you're going to be spending hundreds of dollars for that placement. And so it's very hard to get your LTVs to a place where that makes any sense. And so we always say like, if you can start on the ground and do it right, that's the easiest way.

33:06
Jason Sherman
If you can do the E commerce and you have that following, we've seen that work as well. But both are probably good examples. You know, get that strong retention or velocity going as soon as you can.

33:16
Hannah Dittman
Yeah, I feel like, you know, like anything, there's a million ways to skin a cat. It sounds like you just really have to have a deep understanding of your product, your consumer and your focus and your power lane, as a founder of what you're going to try to pursue to make it happen, whether that's going to be social events, the bar scene, whatever it might be that you feel like is going to be the strongest lever for you to pull. When we're thinking about margins for this category, and maybe this varies by either subcategory like spirit type or rtds versus a bigger bottle or something like that. But what do you think ideal gross margin and profitability is by the time that you're getting involved in your first investment?

33:58
Jason Sherman
Yeah, I mean the goal should be 50% gross margins on all alcohol products. Very few early stage brands even get close to that. The vast majority of brands we look at are co packed by, you know, major distilling co packers or wineries or RTD co packers. And so their margins typically fall in the 30s, low 30s even. But you need to be able to show that at even reasonable scale, I mean big scale, by the time you hit a couple million dollars in revenue, that could get closer to 50, if not hit 50 because on acquisition that's the number everyone's probably looking for. If you're in the RTD world. So the beer and the Seltzer based RTDs, you could get lower than that. But you know, the other products, certainly higher than 50.

34:37
Jason Sherman
But again, 50 is probably the number for the gross margins on profitability. If you can show that your brand can be profitable, you know, like a million or two, that is incredible. We just invested in a yogurt based soju brand called Yoju. Do you know the brand?

34:51
Hannah Dittman
No, but I love soju.

34:52
Jason Sherman
Oh, you do? You should try it. It's really good. They did an incredible job in Hawaii. California and the Mid Atlantic. Reasonably small brand, you know, 1.6 million last year, targeting about just over 3 this year if they can get. But doing it all profitably almost from day one. And that is very hard to pull off. Very, very hard. And they did that through just pure efficient growth. But that being said, we see tons of brands. You know, I just spoke to a brand that's going to do 1.4 million this year and they burned through $25 million doing it. And it happens. We're not going to invest in a brand like that, you know, just to make that clear. But you definitely want to be as close to profitable around the 1 to 2 million revenue mark as you can.

35:31
Jason Sherman
That is different than where it was probably four years ago where you could spend whatever you wanted for growth. It was a weird time. That is not the case anymore. There's too many good brands running profitably right now that if you're the kind of brand that is going to make 5 million to burn through 7 or 8, just not going to work anymore. It's just not. Not the world we're looking at.

35:49
Hannah Dittman
Yeah, I feel like operational excellence has been just increasingly across the board in cpg, just the higher and higher watermarks. So it sounds like sub 1 million. You probably won't be hitting 50% gross margins, but that should be your North Star. And you might not be profitable, but you should have a path to profitability around 1 to 2 million. You should be starting to get closer or hitting the 50% gross margin and you should be maybe break even starting to get to profitable.

36:16
Jason Sherman
If you can pull that off, you would be an outlier for sure. Not a huge outlier, but you'd be in the top 5% tile for sure. And that is where you want to be. You know, you definitely don't want to be a middling kind of player on any metric. And you know, if you're doing the 3,4 million revenue in approaching profitability, that's still very good. But if you can get to round two, that's excellent.

36:35
Hannah Dittman
Awesome. That's really helpful. You know, I'd love to kind of do a little exercise where, you know, if I was your cousin or a childhood best friend or something and I was starting a brand or maybe I have one and I'm looking to start talking to investors. What would be the rundown that you would kind of give me of everything to expect in the first. Getting a meeting, the first meeting, what I need to have prepared, how I should position kind of all the different. Check the Boxes that you would be wanting to make sure I hit to be performing well in fundraising process.

37:07
Jason Sherman
Yeah. For fundraising and alcohol, it really runs two different lanes. Right. If you are very well connected, you already have sort of that lineup of people. We've seen a lot of these decks, almost just sort of brands. They're just, you know, nice pictures and colors and the brand looks nice. That is the one subset of fundraising I think. You know, I certainly wouldn't recommend that if you were my cousin, but if you were my cousin and trying to raise from top shelf or really trying to scale in our industry, I would highly recommend doing as much as you can not to do that. So almost take the opposite approach. The best fundraisers in our space are extremely financial and metric driven. There's nothing else to it. That's because there are so many brands and so many look great on paper.

37:54
Jason Sherman
So many are so well presented. The product could taste incredible. Some of these brands, they like to collect all these gold medals and platinum metals and almost all of them have them at this point where it's almost doesn't matter if you have them, in a funny way, might matter to consumers. But this goes in my next point, which is when you're fundraising, do everything you can to show why your brand is better than everybody else on the shelves. Because you have to remember people like us, we probably speak to 100 brands a month. And for you to stand out in that universe of brands is hard just by being pretty for by far. But if you can tell me like were saying before, 90% of the customers that bought in April came back and bought again in May, that would blow me away.

38:41
Jason Sherman
So, like find something like that you can really hone in on. Find those couple stats that show you have an outlier product either from velocity or retention, or maybe you're running so efficiently, right? Like you're in a thousand accounts and they're all selling through every six days. You know they're coming back and order every six days because it just sells through. You can come up with stats. I would really focus on velocity stats, revenue stats and cash management stats to show that you have an incredible brand relative to everybody else. And that's hard for in founders. You don't know what everyone else is doing. But in the end of the day, you have to have that pulse.

39:17
Jason Sherman
You have to think through, go to your stores and literally would sit there and watch what people are buying, ask them why they're buying it, see why they're not buying your product, why are they buying your competitor and start to get a read for is this really working the way I think it is? Because as soon as you have that, you can start explaining that to investors. You know, people are coming and buying my product instead of these other products because of this and this. And you really have to explain that in a way that everyone understands the metrics are good. And then you need to have, like, the reasons it's doing that well. And usually it's not. Everyone always says, oh, the quality is really high, or like, it stands out on shelves.

39:50
Jason Sherman
That might be true, but actually you should ask and go find out because we're going to, once we get into diligence, and if that isn't the case, we're going to think you don't have a great grasp on why your product is selling, which is the scariest thing for an investor, because you're probably going to spend money growing that piece of your marketing arm when you really probably should have focused on something else. And we always say, like, some of the ugliest brands in the world have blown up and I don't want to point to some examples, but, you know, things like a Surfside or Carbilis, they don't look any different than the, you know, hundred other brands that were doing the exact same product.

40:22
Jason Sherman
They probably taste worse if you look at like a white claw or truly, like, no one ever said that's the highest quality product in the history of time, but they did so well. And. And don't focus too much on stuff outside of is my product selling and why is it selling so well?

40:36
Hannah Dittman
Yeah, no, I think that's great advice and I feel like a lot of times the reason fundraising can be so painful is just the ambiguity. You know, as a brand owner and you're so used to marketing to the consumer world and you're trying to tell them why they should buy something, which is very different than why someone should invest in something. And I think having, yeah, your North Star be it sounds like wicked sharp business fundamentals. Pick a couple of your data points that are going to really support a strong business fundamental story and use that to drive the narrative of what you're talking to about investors. Seems like a solid approach.

41:14
Jason Sherman
It's a really good way to think about it. What you referenced here, it's when you're selling an alcoholic beverage, you're selling an experience, right? Like you're selling, I'm going to consume this liquid and have a great time or I'm going to enjoy it with my friends. Whatever it is you're consuming a product. When you're selling your business, you're selling the ability for someone to make money on your business that is has nothing to do with whether or not I'm going to enjoy consuming it and having a good experience. In fact, the opposite. I don't care what the experience is. You know, my partner, like, we'll do it, you know, he'll taste them. Yeah, I will too at the end. But we often say we won't even try it. You know, we won't try the product usually until we're way into diligence.

41:50
Jason Sherman
And that's because we don't care. At the end of the day, we're trying to make some money from the growth of your business. We're here to support you. You should be here to make some money from the growth of your business. You should be here to look for an exit. Talk to investors, sell to your investors, market to your investors, how you're going to get through and exit with them. And that's a very different mindset than hey, K consumer, you're really going to enjoy this product. It's going to change your life because you're going to drink it instead of. You're going to invest and make a lot of money together.

42:17
Hannah Dittman
Yeah, a thousand percent. It's like opposing views. It's like the consumer. You want to be like, product here. So amazing. And as long as you're not doing anything illegal or crazy, how you're running your business is oftentimes not a deal maker, maybe a deal breaker if it's extreme or like very political or something like that. And same thing for investors. It's like to varying degrees. But how you're running your business in the back office is paramount. And then if the product is horrible, horrible, it might be a deal breaker. But at the end of the day, I think most savvy investors know that they're at n of 1 and what they think about your product might not be what the world thinks about your product or your core customer.

42:52
Hannah Dittman
So their personal taste or their personal experience using your product might not be representative if they're going to focus on the data and say, you know, if you're meeting your customer and they seem pretty happy. And that's all I really care about, is that your customer likes you. So yeah, I think for founders that might be hard pill to swallow. Like what I spent all this time on my product. But it's not that investors don't care about your product. It's that they care that the right person is caring about your product and it might just not be them.

43:19
Jason Sherman
Right. In fact, you don't really want your investors to be your target market. Probably that would be a very small market of people to sell to.

43:26
Hannah Dittman
Yeah, rich older people in big cities.

43:31
Jason Sherman
Yeah, exactly. I think good alcohol investors. I mean, not that there are that many of us out there, we're a very small group of people, but we know that too. We know the vast majority of sales of alcohol don't happen to people like us. It's very rare. Most of us don't even consume that much. We know there are big pockets of this country that consume all kinds of different products for all kinds of different reasons. And, and often that's where the most innovation can come. You know, if you walk into an erewhon, you could probably see a thousand different alcohol brands being pitched, all the, you know, la socialites. But if you go through North Dakota, you probably don't see very many. But if you can go out and dominate North Dakota, we know there's a lot of money be made there.

44:10
Jason Sherman
They consume a lot of alcohol there. So we often say, you know, go find a new home you like and go show us why people are consuming it.

44:17
Hannah Dittman
That's so helpful. Okay, so I've got my mindset right, and I'm getting into a first meeting with you. What's that going to look like? How's that going to go? And kind of again, stripping away some of the ambiguity, like, do I come with a deck? Do I put it up? You know, am I the one talking? Are you interviewing me? Are you asking me questions like from a brass tacks perspective, what's the founder experience supposed to be like?

44:38
Jason Sherman
I like this. I guess if you're coming to a meeting and you have the meeting with me, that means you've probably already gotten through like one gates. We've already, you know, gotten to the point where we think you're a fit of some sort based on what you've sent to us. Usually before you've had the meeting, you've sent a deck, you filled out a very short application just so we know sort of where you fall size wise and what your valuation expectations are, how much you're raising. So if you sit in the meeting, I mean, I would, you know, pitch, but I would really focus at that point in the meeting. There's a few things if you haven't covered.

45:11
Jason Sherman
Velocity, please go into it deeply initially right out of the gate, like, here are the accounts we're in, here's how we're selling through, here's why they're selling through so well. Like we talked about earlier. Second thing, go into yourself. You know, the next thing in our, you know, for us as early stage alcohol investors, it's true for all startups is there's so much risk outside the product itself. And now we have to believe that you're the person that's going to take this thing from where it is to the promised land. So go pitch yourself or if you're a team, go pitch the team. Because that point in the if you're having a call with me, I now need to believe that a you're trustworthy, that you're, you have a big vision for what you're going to do.

45:48
Jason Sherman
You're extremely sharp and you're able to execute. You're able to learn and take feedback and follow a playbook and follow up with connections. And in our industry it is run by old family owned businesses. You know, like these are fourth, fifth generation companies. To get in the door with the distributor, most of them or get in the door with these major liquor store chains, you need to hustle hard. Like I mean sleep on the couch in their front yard. Like you need to be there all night and just wait until they come out their door. It's crazy stuff that you have to get done. And so we need to see that in you.

46:22
Jason Sherman
Like if we don't see that on the first call sometimes that even if you have a great brand, that might be the reason not so I'd say if you haven't covered velocity earlier, which now brands are starting to catch on. We like so they do that a lot. But you haven't done that yet. Do that first and then go right into why you guys are awesome and why you're so energetic about it.

46:39
Hannah Dittman
And you know, should I have slides for you and I've already sent you a deck. Do I assume you've already looked through the deck and I'm doing slides.

46:45
Jason Sherman
I'm a fan of like walking through slides on calls. I find that to be not the point of a call. You know, like maybe I haven't fully. I might have flipped through it, maybe I've seen everything. But if I like the call, I will then go through the deck carefully. If there are things in the deck you want to highlight to say them. That's because I often find when people go into the deck they kind of lose. There isn't really a conversation happening at that point. So a lot of Time is spent on things that I don't care about and a lot of time maybe stuff you don't even care about just because you feel like there's like a sequence of these decks, you know, that you have to go through.

47:18
Jason Sherman
So I would say if you want to bring a couple slides, maybe it's just like one or two that are like the highlights of which you want to talk around. I wouldn't go more than that. Like do not go page flipping through a 20 page deck on a 30 minute call. I think that, I think most startups, and this isn't just our industry, I think they forget how much this is ultimately if we like the company, how much it is a relationship game. So you should spend the first 30 minutes like you're dating. You wouldn't bring up a slide deck about yourself on a first date. Like you should almost make this like you want to. Yeah, right? I hope not. Right? Maybe people too. I guess that's kind of like hinge these days.

47:49
Jason Sherman
I would say you probably want to spend more time like getting out your personality and the team's personality than you want to spend going through like all your SKU counts and what states you're distributed in. A few highlight account. Like I don't care that much. Like at this point we've gotten there. If we have questions, we'll ask you directly on that front. It's very easy if you don't have answers. I would say come prepared with all your metrics written down somewhere so you have it ready. But otherwise, you know, really focus on building relationship with your investors.

48:17
Hannah Dittman
That's awesome. So it sounds like I'm gonna come, I'm gonna get you jazzed about my momentum and velocity. I'm gonna get, I'm gonna help you see what I've got going and that our engine is running pretty hot. I'm going to make sure that, you know, I'm a hustler, give you some anecdotes and stories to color it and make sure you see that we're really passionate and excited about the brand and the direction. And then I'm going to eventually have to get to the ask. Right. Of why we're even having the meeting in the first place. That I'm probably going to close out with something like that. So how should I approach that portion? You know, what does the structure of the ideal ask look like?

48:51
Hannah Dittman
Or could you model it like I'm looking for X dollars or this is the valuation I have in mind. You know, when you get into the. So what of the conversation. What are you hoping a founder might say? Or do you even expect them touch it in the first conversation?

49:05
Jason Sherman
Definitely have an ask. It should be if you're talking to us on our first call, like, ideally, you know, we don't write like 10 million dollar checks. So if you're trying to raise a ton of money, like, probably, we probably should have said that up front. So like, at least if, you know, it's usually if it's gonna be a huge round, just to make sure we're all like level setting here, you know, we're not wasting the first 30 minutes talking about a business that you're worth a hundred million dollars in your head. Great, I'm all for it. But we're not the investor for you. So at least like, tell us up front and maybe we can save some time. Or maybe we can say, hey, tell us a little more and we'll let you know.

49:38
Jason Sherman
But I would say up front on the ask if it's gonna be big, big. Otherwise, if it's, you don't have to say evaluation if you don't want to. Like, maybe you don't have a lead, you know, evaluation, but say like, look, I think I need 500,000 to a million to achieve this goal. And I think a lot of people, they often just say a number when they're fundraising because they feel like, oh, I'm doing 500 grand revenue this year, I can raise a million. I could use a million somehow better than that. Like, you've got to be like, if I have this much capital, this is how big I'm going to be. If I don't, this is how big I'm going to be. Like, you should have both in your mind.

50:09
Jason Sherman
Not nobody wants to hear like, oh, I'm going to use this money and this is what I'm going to achieve. I think it needs to be. You really got to know what you're going to spend on to be really good at this game. So ideally you come in with the ask being like, you know, I'm trying to raise 2 million. If I only get a million, I'm going to get this much. I already have 800 grand committed. We could use a lead like you guys to set a valuation, run around and like, something like that would be huge. You know, if you can have that much confidence in your ability to execute, it goes a long way for an investor like us.

50:35
Hannah Dittman
And when you're saying kind of the ROI on that investment, are you talking in terms of revenue or how should people be framing that kind of number explanation in their mind.

50:45
Jason Sherman
Revenue is probably the easiest one just to say quickly. But that revenue should also be tied to the number of states you're in, the velocity, and how many accounts you expect to be in at that time. So if it's any different, then you gotta have them all together. Otherwise like we talked about, you'd be in all 50 states, even all global, doing $3 million of revenue. And that is not interesting to anyone.

51:04
Hannah Dittman
So before we wrap up, I want to take a second to make sure our audience can have an actionable next step to apply all this amazing knowledge to for founders that get in touch with you and get to that first meeting, where can they find you or what is the best way for them to get into contact with you?

51:18
Jason Sherman
Best way Reach out to us either Jason Topshelf Ventures or Brands Topshelf Ventures or helloopshelf Ventures. You'll find it all. We're a very small team. It's really my partner and I and we have two people that help us kind of initial screening. So you'll get to us, we'll see it. We're only looking at alcohol brands so we certainly won't miss it. If you think you have something amazing, please send some info, send a deck and we'll reach back out.

51:44
Hannah Dittman
Awesome. Well, thank you so much for your time today. It was so lovely chatting with you and learning more about your personal journey and top shelf ventures as well.

51:50
Jason Sherman
Thanks and I appreciate it.

51:55
Hannah Dittman
Thanks so much for tuning in everyone. If you like this episode, show us some love with a five star review at ratethispodcast.com startup cpg I'm Hannah Ditman, Podcast host and Correspondent here at Startup cpg. I hope you'll join me again as we dig into more juicy topics like ops, finance and all the real talk founders actually need. Come say hi on LinkedIn or ping me on Slack. I'm always eager to hear your questions or brainstorm future episode ideas. If you're a potential sponsor and want to get in on the fun and appear on the podcast, shoot us an email@partnershipstartupcpg.com and last but not least, if you haven't already, don't miss out on our free Slack community. For emerging brands and CPG lovers alike, join us@startupcpg.com we'd love to have you. See you next time.