How do you get VC funding for a "vice" brand?

hey everyone welcome back to fundraising demystified today we have Noah fredman a venture capitalist and general partner at topshelf ventures welcome to the show Noah thanks Jason thanks for having me here no I'm excited to have you on the show and you got a pretty interesting background you connected through mutual friends uh I think it'd be best if you just tell the audience a little bit about your story how you became you know started as an actor and you know now you're a venture capitalist uh great to kind of fill that Gap and hear your story sure the actor thing is a funny one and I guess I'll Circle back to that but the the short version is I uh I started a fund called topshelf B rooms we are generalist private equity and Venture investors in the highly specific and highly regulated alcohol industry so we take an Institutional approach deploying capital in the booze business and adjacent Industries around that highly regulated underserved Industries I also started or co-founded and run an organization called Uncharted which is a media and events business focused on bringing the best Founders and funders to together in extraordinary places and settings um I started that with a very close mentor and friend of mine named Michael L and uh top shelf and Uncharted together have really taken off in the last couple years so that's where I spend most of my time is building those two things and how did you get to that point yeah how did you get uh from kind of early earlier in your career to you know building what you built early on and moving on to to what you do today Michael L has been a big part of that story um I met him when I was undergrad in college he's a very successful sherial entrepreneur and he took me under his wing early on um and both mentored me and brought me into his ecosystem when I was still in school I ended up uh graduating and serving as a a COO of one of his portfolio companies which was in the alcohol space I'd had very little experience in alcohol other than uh having partaken in college let's just say and knowing that intuitively it was a big business and I had to get very deep into the booze World in order to really effectively serve as an executive in that analytics business in the boo space and so I got really deep into the alcohol world and I learned everything and anything about how it work the origins the history and what I found was that you have this multi-trillion dollar Global Market that has historically been quite Recession Proof and uncorrelated tends to grow every single year highly acquisitive often can trade at Tech and software like multiples and punchline is just a super lucrative Market very powerful um and a lot of opportunity and shockingly underserved by traditional Venture right very few people who have institutional Capital allocation experience were looking at the alcohol Market which was shocking to me especially as someone who was really just starting to cut their teeth into what it looks like to build an investment firm an Investment Portfolio and investment thesis and so after a few years of uh running this analytics business and learning the alcohol trade I started to think about what it would look like to invest in the space and I ended up meeting a partner Jason Sherman who had frankly a much more interested background than me having run AB inbev Venture arm and doing the merger when ab inbev and sa Miller merg and running his own alcohol Tech startup and he and I both had I would say complimentary views of the alcohol world and where it was going complimentary skill sets accordingly and after a few years of like flirting on what I used to look like we landed on what it would look like to build the Blue Chip Fund in the trillion dollar alcohol space and that was about three years ago that we decided we're going to do this and about two and a half years ago we did our first so you covered a lot there but I want to kind of unpack some pieces uh of the story specifically like the glaring issue as to why the alcohol industry is under sered by Venture Capital you know can you can you speak to that and kind of why you saw that as an opportunity well I think why it's underserved it sometimes still shocks me honestly that it's this underserved and I have a feeling if we're continue to be successful uh we will see more start to and I welcome this not come after us but come after the space but I think it's good for the market look I think there's a few reasons traditional Venture and traditional private Equity raises money from a lot of large institutions and many of those institutions may have preference or requirement that they don't invest in bites and so there is a path of lease resistance approach to raising large sums of money where you are inherently shrinking your total available Capital pool and total available LP Base by saying I'm going to invest in a vice so the amount of LPS who can do that inherently is going to be smaller because you have churches and you have Pension funds you have all these types of Institutions that may just out of either history or pressence or whatever ethics they believe say we won't invest in this right and so for many of the funds who want to raise gobs and gobs and money consistently it behooves them to just say you know what categorically we're not going to invest in boo right the second part is that many who can invest in booze just don't understand it right alcohol is a very competitive confused veiled and ambiguity market and Industry that has laws and regulations that literally Jason date back to Prohibition and are still many of them are still in place and so it takes certainly having lived in it or being close to someone who's lived in it to understand the nuances of what it takes to win an alcohol um and I think the blend of those two things has just made it easier for most people to say you know what we're just not going to touch booze and so when you look at it from the macro it can look complicated and scary for me as someone who both understands the industry and also you know as most VCS will say likes to be contrarian to me that smells like opportunity right I think that where if everybody is zigging in investment it tends to be a good time to zag right would be greedy when others are fearful and feel fearful when others are greedy I think this is an unbelievable time to be investing in booze I think many of the headlines that are trying to either demonize booze or say that it's going the wrong way are I believe them to be incorrect factually and so I I think this in a 10-year window is as good a time as we will ever see can be investing and embedding on this Juggernaut industry of alcohol so for the for clarification purposes for the audience can you define what vices are uh for maybe people that aren't familiar with with that well I think Vice some people may say Vice is subjective right but I you know anything that's the average person in endowment or investment fund that's going to Define vice would probably say it has anything to do with alcohol drugs nicotine pornography Maybe weapons anything that is um in those General ballparks is generally going to be something that would be considered Vice some Define it differently than others um but it's generally in you know booze inebriation drugs pornography those types of things yeah and this is very common in terms of just it wipes out an LP base uh in terms of going out to Market and you know I speak to a lot of funds are doing really interesting stuff on you know psychedelic therapy and you know very different uh treatments out there that have historically been considered drugs but have this you know medicinal benefit uh it's it's so much harder for them to go out and raise money and do whatever they want whether they're a company a fund it just becomes ex you know in inherently restrictive and you gotta kind of know you know a much smaller pool of people to get that across the finish line so yeah yeah um I want I want to get to kind of what it was like raising raising a fund but I think to get there you mentioned your your mentor Michael low uh you know there's a you as a vure f Studio you successful individual how do you go about you know building that relationship with a mentor to create opportunities for for you down the road um like getting involved with the the software company and things of that sort I am a big believer in mentorship and uh the power that it can hold for people who treat it the right way um I think it's often misunderstood and I think the biggest issue is that many people don't either know how to Mentor or more importantly know how to find a mentor um I was fortunate growing up that I was able to find a few and obviously Michael L being on on the Mount Rushmore for me of mentors I think it's important when you're finding a mentor that you have to find some common ground either emotionally or on your interest or on your background to connect on right like you have to remember when you're looking for a mentor and looking for someone to Mentor you the Assumption and I think it's the right one is that that Mentor probably has in theory better things to be doing with their time from a pure return on investment perspective right like if they're someone who is worthy of being a mentor they're probably some combination of busy successful have a lock going on have high demands on their time and a lot of people asking for it so they have to have a reason to want to give it to you and much of that comes down to like you know they were they're going to get emotional remuneration if you will from seeing somebody go through the Journey that they went through and seeing how somebody can grow and they're going to find that rewarding but that's often not enough to transcend just how busy a successful person will be so you have to find some way to connect with them on a real personal emotional or business level and more importantly you have to get them to believe in you right like it's the same way honestly an interesting analog if you think about like investing in a venture or Venture Capital investing you're taking kernels of ideas that you believe will one day be worth something much more than they are now and there's something inherently rewarding about the Journey of seeing them grow if you're a VC obviously you have a an incentive and vested interest in seeing those things grow if you play your cards right but I think mentorship is a similar emotional Journey if you find somebody who either you disproportionately believe in remind you of you you just really like you respect the Curiosity or something along those sorts there will often be very successful people that are willing to give you even just small slivers of your time that from a return on investment perspective for them is going to be more emotional or something that you know in a five 10 year window they see how they could you know this person that they're mentoring could be valuable to them from a business perspective or part two they just are going to find fun and rewarding and cool and like a nice escape from the day-to-day war that they're in with their business and for you as a mentee from a return on investment time pers I mean there is nothing more important and more valuable if you are an aspiring business person or frankly forget business anything that you want to do whether it's the trade whether you're an athlete business person entrepreneur engineer what have you for in my opinion than just spending time around people doing it at the top level I've always learned by doing right the way that I learn you know I can read a textbook I can take a test I could do all that my learning in school and I tell Michael and people in college all the time my learning in school came 85 90% from just trying to jump into the deep end and learn the stuff on the Fly Like be around people doing it and you know I'm 29 now I still take that approach of like if I want to learn something whether I'm trying to learn a new sport whether I'm trying to learn a new method of doing business or I'm trying to learn a new practice learning the law right as a VC I have to get a lot better with the law the best way to do it is just be around people who are really freaking good at it and so I think mentorship at its core is about aligning those interests and intuitively understanding why a mentor want to give you their time that is incredible in terms of just the accuracy of the recommendation for for mentorship I I completely wholeheartly agree with that and that point that you bring up in terms of the the relatability like the end of the day there's not much value you can provide as a outside of that reward of listening and eating that advice and you know and showing progress over time which yeah I imagine uh has worked out for you in your relationships and kind of parlaying that to the conversation around Uncharted uh you know it sounds like relationships matter to you and you want to add as much value you can so yeah how did you parlay that into Uncharted what's kind of the founding story uh this you know from what I hear the incredible group of you know Founders and you business people coming together yeah here's the founding story of Uncharted it's quite simple as Co was subsiding Michael L called me on the phone late one evening as he tends to do uh with an idea which is not abnormal and his idea at the time was the following very vague uh and in exciting prompt Noah it's been many a year since the best entrepreneurs that I know and you know have gotten together in the same room to just talk about ideas we should change that I wonder what it would look like to either get people together or try to build some Community as we come back in a world where we can now gather can you think on some ideas it was basically a a paraphrase version of that prompt and I agreed with him at the time and it was an exciting prompt um I have or had and with the time obviously has grown since then a pretty good network of younger entrepreneurs building or who had built businesses sort of the next gen of amazing Builders and I called Michael back probably a day or so later and I said here's my idea it's just the way to give us something to action can I use your house to host a dinner Michael has a stunningly beautiful townhouse on the side that is a very great backdrop for uh hosting and I called him and I said look can we use the house for a dinner I'll bring all the people you just have to show up you get to meet them you're obviously going to look good and I think if I can use your place I think theyd come to a dinner if I invited anyway but it's going to be cool if we can like you know they can meet you or we can you can meet them and immediately he said I'll do you one better how about we host a dinner you bring some of your friends all break some of my friends we mix the two generations and let's see what happens and I was like that sounds freaking awesome let's do it and all of a sudden you know he had some people on his team reaching out to the best people in his Network and within like three weeks we had a date we had the venue obviously and we had a guest list of 18 people that in aggregate was several billion dollars in net worth many people that anyone listen to this podcast has heard of um just in terms of their stature in the entrepreneur world and it was a really powerful group and Michael and I were like oh Sho I guess we really doing this now so we spent about an hour in his office brainstorming and War planning out how to make the dinner awesome what format to use how to how to welcome people what we were going to do to moderate and a defining moment for me that I'll never forget was we spent about an hour in his room in his office talking about how we were going to welcome people what the conversation was going to be about how to make it sound interesting what the topics were going to be and at one point he said why don't we hire a journalist to moderate and I think I could get one given how big this room's going to be of the people and at the time I was like you know what Michael let me try it let me moderate this one and if I mess it up or you're not happy with how I did I will never ask again if we ever do another one of these dinners and gred it to him in the spirit of mentorship and betting on people he said game on you got a shot let's see what you can do and so obviously I prepped my ass off um and one of the things I did at that first dinner that has lived on and I think has separated Uncharted from any other dinner series and this is where the acting backro comes in is I basically rehearsed an opener that not only would tee up the intention the vibe the Rhythm the goal of the of the evening as well as the question but also would introduce everybody basically in one Fell Swoop in a way that made everybody not only sit up and straighten their figure of tie but also feel welcomed belonging and really dropped in which if anyone listening has ever been to a dinner the difference between a memorable dinner and a terrible dinner is often not the venue it's often not the food it's not even necessarily who's on your left and your right it's the conversation it's what you talk about it's how welcomed you feel it's how dropped in you feel and if there's anything I've learned since that first dinner of which we've now done dozens and dozens it's that the way you kick it off and the way you hold the space is the difference between good great and terrible in terms of how you execute that so I prepped relentlessly to make sure I nailed that opener and there was a moment when miched his last and said you know welcome thanks for being here I'm gonna buddy pass it to Noah and I basically spent the first you know five minutes of this dinner performing for this group of people many of whom I'd looked up to my entire career and were now sitting at this table that I was hosting with Michael and uh I nailed it frankly I nailed it because I had practiced and rehearsed and I had experience memorizing stuff and you know at the end of that first dinner the backdrop here being these are the types of entrepreneurs in this room that if you want to get on their calender you're two quarters out for 15 minutes to talk and we had people for three hours uninterrupted with deep deep intellectual stimulation about where the world was going so I'll cut to the chase here because I'm rambling but after after that three-hour dinner um everybody at the table was like number one please connect us all because we're going to do some stuff together and several deals have gotten done out of that first group but every more importantly everyone said I want to nominate someone for your next dinner and Michael and I looked at each other said I guess we're going to do this again um and so we did a down dinner the next month and another the next month and we hosted a summit in the Hamptons and fast forward three years later I'm Tred it's now a you know multi- figure business uh all built around how to bring the best entrepreneurs and investors in the world to talk about interesting things that's going to be pretty powerful having that home run of a success of the first event and uh and having your Mentor trust you to do so and then delivering um I guess what what turned it into a business so you say seven figures what what became the the business behind uh Uncharted to be as successful as it is now yeah look the short answer right now is that the business model is through advertising Partnerships so we are disproportionately good at getting exceptional often hard to reach people with buying power into rooms that they will not only drop their guard but pay attention for many hours at a time that if anybody is in the media and advertising business or more importantly the sales business uh it's really hard to find your target buyer uninterrupted with their guard down for three hours at any one time much less six seven hours so uh we have built both guard rails around what we are and are not willing to sell against to make sure that the people who attend don't the feel um overly commoditized if you will yeah they don't feel overly sold to we're pretty aggressive about who can and can't sponsor and what the rules are uh but I think we've done it and I feel strongly that we've done it in a way where we bring in sponsors that can actually be accelerates to these people's businesses right it's like actually good fit to people they're going to want to hear from so um we are sort of becoming the conduit between entrepreneurs who are either have already made it are very close to making it and the types of companies whether that's luxury software tax you know Consulting anything across the board who need to reach them anding on both sides no that's phenomenal I appreciate you sharing me that um so you now have this successful Network which incredibly powerful um did you leverage that for for top sh F Che in terms of going out and you know building that fund and and having that as a backdrop or were they completely independent I tried to I mean a little bit for sure like Jason who's my current partner was at the first ever Uncharted dinner and has been to many since and you know some of Uncharted people have gotten involved in top shelf and I try to bring you know now at the point when I certainly try to cross-pollinate them because I think it's beneficial for both but I try to be pretty sharp about keeping church and state separate I mean I just I understand I think I want out of necessity these things to stand on their own and I think they very much do so I try to be elegant about how I do that the same way Michael is elegant about how he promotes his own businesses within Uncharted right there's a right and wrong way to do this so of course there is often overlap and frankly the two things complement each other quite nicely you know Uncharted is social alcohol is social the two things Frost pollinate my LPS are often extraordinary Founders and funders who belong in Uncharted and vice versa but it's not it's never explicit or expected in a way that would uh trivialize either one quick plug for Founders looking for an edge raising Capital companies on thunder. BC have gone on to raise over a billion dollars since joining our Network it's absolutely free just go to join. thunder. BC to get started and if you leave a comment on this video down below with your company's name and the problem you're trying to solve you'll be inured to win a free coaching session with me okay that's it just comment down below now let's get back to the show that smart and let's talk about top shelf when it came to raising a fund and you know you you I think nailed the the pitch the opportunity as far as why you chose this uh this path um but as far as like it's one thing to kind of think about it but going out and getting people to actually write you checks and then going out writing checks yourself you what was that experience like way freaking harder than I ever thought it would be um starting your own fund and let's you have an anchor who is willing to just basically push you off the dock himself or herself and give you a large swath of capital to start and even then it's still really hard it's really hard to start a fund um you know raising money flat footage from a cold start unlike for a business refund it's difficult it's a long journey there's a lot of you know you have to be very comfortable hearing no and getting told no it was hard I think I I think I expected a couple thoughts when we started raising for top shelf I expected it to be easier largely because I believed and still believe that our thesis and model was differentiated and unique which I thought would be enough part two when we started raising and started to think about doing it seriously it was sort of the back half of 20 to 22 which the backlock of 21 everybody was raising a fund you know it was a Zer type of environment GE Rich straight phenomenon type of environment where like LP Capital was easier to come by people's belts were not tight and um at the time it felt like frustratingly and now in hindsight fortuitously as painful as it was right when we started to get serious was when the entire world in terms of willingness to bet on first funds really shut down and so you know the pipeline with the course of the first conversations and it just like shrunk and shrunk and it was like wow this is hard and so I learned a lot about what it takes not only to build LP relationships but also to close LP relationships and more importantly to be a good Steward of capital um it was a lot of fallowing up relentlessy it was and still is a lot of getting on planes to go see people and I think most importantly it was having a very clear defendable and disciplined thesis that we have slab deep conviction is going to make people money and then both on a personal and business level shepher people who are interested and able to put money against those types of opportunities through a process of not only getting comfortable with the space the market and how good the returns can in theory be but also with us right this is a partnership of people betting on us right these are multi-year investments uh in arguably you know it's high- risk Venture Capital private Equity right it's different than putting money in the stock market you have to believe in the GP you have to believe in who you're betting on and those things take time and I don't take it lightly I really don't so I you know the difference between what I know now versus what I knew when we started is night and day truly and it's still hard you know raising anyone who tells you raising money is easy um I mean it can be if you really made it down the path enough but you know it's never specifically on specifically in the times when the Market's not great it's it's never as easy as you think it might be right there's always going to be a little more complication to it fortunately now for top shelf there enough proof and track record that people are coming to us and it's way easier now than it was before but fundraising is a grind ain't no two ways about it yeah and you talk about you know building those relationships and yeah worst timing you know emerging fund managers it's exp more difficult than ever before uh you know to to attract that new capital um you you kind of touched on some good points but when it came to you know from the time you met an LP uh I guess how did did you get in front of that LP like what was the introduction process to you maybe pick a couple of your top LPS or whatever and then how did you how long did it take and how many touch points did it take to actually get them to write a check yeah uh into the fun there's a lot of different examples about that or of that and I'll try to give sort of the mean and median averages um how did we get in touch with people a mix between people that we already knew it was a lot of like meet some somebody who introduced you to someone else who introduced you to a third person and that person invests uh a healthy amount of cold email frankly which is a often a volume and Relentless game with like just get on the first call type of thing and that's that's a that's a longer trust building exercise but we do have some amazing LPS who have now become friends that we did meet over cold email so I encourage whether you're in the fundraising game or just in the sales game never fully bet against gold Emil because there's always something there even if it's a big volume game you know we've scaled back on how much we do that now but that can just silly Val there but a lot of it was you know a friend of a friend heard about what we were doing and wanted to put us in touch with someone else it's just a lot of that the the big difference between raising for a fund versus raising for a company well there's many differences but one of the biggest ones is like Jason if you and I want to start a software business we can Google or chat GPT PC funds to invest in software and they want you to pitch them they are looking to be sold to that is their entire business is to have deal flow of opportunities that they can vet LPS very often don't work like that as a matter of fact they don't want to be found because they don't want GPS hitting them up so there's this Art and Science and there's a lot of gatekeeping that happens in VC honestly of just people want to keep secret how they find these LPS and I'm trying to do the opposite here and be like there's no simple path right there's really not a ton of LP databases if there are they're probably not going to respond to your cold email but a few of them right A lot of it has to be just kind of playing the checkers game of you know who can put you in tou with the right people and just being relentless in your follow-ups not Relentless in salesy in a way that can turn people off because that's dangerous but Relentless in just not quitting until you actually get firm nose there's a lot of LPS who just want to see that you're serious enough to follow up a couple times and have the actual like perseverance and stamina to stick with this long game for a while um how many touch points did it get I don't know if we ever CL I mean we there's probably a couple LPS that it was like one or two touch points got it done who were like already briefed or already had a free disposition to want to bet on us or me or Jason or the or the space but for the average like first meeting to investment it's usually at least three or four touch points preferably a couple of them in person um yeah it's a it's a long game it really is yeah and those are not three or four conversations that happen in two weeks you know those are getting in their calendar and you know building that relationship in trust and documents and everything with um I gotta ask like what was your cold email secret what was the secret sauce like what what was the performance of that I used a a friend of mine as a company that helped me out with it and for those of you who are listening and are interested uh message me now at top show ventur and I'll introduce you to the team that did it um you know we we ran it um but with their support of helping make sure that there's some you know really good deliverability but uh deliv ability is important understanding where you Source your leads from and how to qualify and just writing good copy you know it's there's nothing that proprietary about any of this stuff all right let was hop for some like you know Secret Sauce bomb drop but I'll take it um I wish there was just hard work persistence um unfortunately reality yeah where where did you Source your like yeah how did you compile a volume of LPS when you say that they one be invisible and they don't want to be found how did you find them and how did you get in front of them that's how I get in front of about how did you actually find them um there you know so the cold email thing is kind of just using intuition and knowledge of like where would LPS gather right a looking at firms that have any history of investing in VC funds or that might invest in VC funds and finding the either finding or guessing the email addresses of the VPS or cios of those like so that's that's one angle from the cold email um and on the other half but it's it's literally just like imagine like feeling around in the dark of your network of like who do I know that is in a financial position to invest in a fund which is you know you have to you have to be pretty liquid to do that uh and or two who do I know who could get to people that's one so like that's the first feeling in the dark and then the second feeling in the dark is like who would they know and what's in the right sequence and you kind of do that for long enough you'll at least get in front of the right people the real secret though and this is the this is the part where it's like there is no secret is that you have to have a good pitch and be good at what you do like you know you can get I guarantee anyone listening probably can find somebody who knows somebody who's rich enough to invest in a fund right getting a meeting you know if you beg plead and you may be able to get it but like actually in that meeting making a good enough impression to get a second meeting that's the game that the game is like having a good product that is actually defensible like you know we felt even though we were first fund with no institutional fund level track record Jason and I had deep conviction experience credibility and a good pitch and thesis and model that was like worth hearing and so we heard a lot of freaking Nos and of course in the fun game just continue hear a lot of NOS but the yeses or the Mayes we heard tended to lead to morb yeah it's it is refreshing to hear that you had this Uncharted Network you were building it at the time and growing it whatnot but the the fact that you still leverage like called you know email like you still had to go out there and hustle and grind and put out there totally uh it's good for for you know people to hear that because I feel like people are like oh oh he got a you know silver spit he's got you know this or you know everyone makes an excuse why that other person must have so easy the reality still sucks it's still really hard yeah it's it's freaking hard and like you know you meet certain people who accelerate your career and trajectory because they believe in you were to relate to bed and we certainly had many of those in fun one but at a certain point you got to prove it to them right and so you know look I think for us kind of what I said like there are certain people who launch a fund because either their mom or dad or someone they worked for or someone else is will like to Anchor them and like I both envy and admire people who have that as their starting point that sounds lovely um and I hope that in fun two or fun three I'll be at a point when um we can continue to have those type of relationships because we've earned our way to those and it's to diminish people who have that but like there are certain instances where Wasing fund is easier because you know for XYZ will just anchor it or be a single LP fund it's a different Dynamic but that is out there um but yeah man joining a fund is very different than starting your own very different it's a it's a completely different game that I think a lot of people I talk to five managers all the time yeah and it's yeah they yeah want to raise a p I'm like and like yeah you're like sit down grab a cocktail and listen to me for a second so you'll understand what you're about to sign up for yeah I think I walked a few people off the ledge that were like yeah I'm is like do you know what's involved it's like I got deal that's that's all you got get in line bro else all right so I poked at you quite a bit on the the fundraising experience let's talk about how you're applicating C Capital uh so you know you kind of say alcohol and alcohol adjacent you know categories you know what what are you ultimately looking for what makes a company stand out uh when it comes to these categories so our focus at Top Shelf is pretty quantitative as a starting point in our diligence qual quantitative first with a qualitative layer um the core metrics we're looking for to start are always going to be some combination of velocity and retention what do I mean by that if you're looking at a product that is selling to a customer base a sign of strength of that product is generally certainly in alcohol but generally how quickly does it sell and how much do people come back to buy it again assuming it's a consumable right you know you Bank High ticket purchases something different but like even in high ticket purchases like cars right you know someone who's been a customer of Mercedes for years that's a good sign of strength of Mercedes brand is the retention right and in alcohol specifically velocity and retention certainly with how we look at the world are the hero metrics that you should generally be aligning every part of your business to so our model in top shelf about three quarters of our focus goes to hyper growth stage Brands we usually invest at the seeds so brands that have the chance to be the nest C Amigos or Aviation gen what have you 25% goes to special situations to stress unique opportunities like that um but the core Focus even in both of those camps is finding opportunities that can be extremely high velocity and extremely high retention so what do I mean by that in the context of let's just say a seed stage alcohol Grant right right we're looking for a brand that in whatever Market or markets they are in is disproportionately selling quicker and more consistently on a returned customer basis than competitors in the set right so we always use the example of there's a big difference in alcohol or any cpg between doing a million dollars in one state and a million dollars in 13 states right 13 states you're probably collecting dust you're probably unaware of how quick it's moving you probably don't have great relationships with the store managers or wherever your store is pulling through million in one state million dollars is a proxy number for the record it's not the number but if you're doing a million dollar in one state it implies that the product is moving really darn quickly through your points of distribution right and so I use velocity and retention as the most abstracted versions of indicating that the product you have introduced to the market is loved by customers that are receiving right and if that is the case everything else generally can be solved for right it's the Leaky bucket thing if you don't have good velocity and good retention you probably can't can't scale your way out of the problem right if you have good velocity R good retention but your margins aren't great or you need help on cash flow you need help on operations those are generally solvable problems right you can fix your margin you can do bigger production words you can get a better CFO or coo or like operator in the business you can get bigger distribution you can improve your cast conversion cycle but if people don't love the freaking thing it's a different problem right it's a fundamental systemic issue with the business so we generally start when we diligence anything by saying we want to look at the entire Market everything out there at once and only look deeply at the ones that are showing disproportionately High customer love as measured by velocity and retention and that even applies to the distress C situations opportunities as well right there's obviously more Nuance to those because it's not a oneid stel approach but even those where you're looking at something that maybe it's a great brand that's come on bad times or maybe it's a great asset that just had bad management or maybe they took on bad debt or something like that where there's really a core asset there that's worth something and you can just Arbitrage the value of it it always comes down to is it something that is actually valuable I think you have a very convincing argument on the the core foundation of the quantitative approach I I don't hear that often especially seed stage because it's kind of hard but yeah given the background that you had running a alcohol analytics software company I imagine you have some you know Alpha Edge there um when it comes to you know the these these Brands uh how do you value you kind of mentioned multiples are roughly the same which I'm you know kind of struck me as usual like to a SAS company can you walk me through how you value these companies at these early stages yeah it can be I mean the short answer is we often look at U low single- digigit multiples on Revenue to price things that's generally where we look to Anchor our pricing as lead investors um but there can it varies right it varies on the strength of the brand and it varies based on what they're doing how group are growing Etc um the acquisition multiples in alcohol depending on the category I your want have tended to range from like a 3 4X Revenue multiple to as high as 20 30 40x in big growth years Etc that's kind of the range um 34x being lowend and you know 40x being high-end with examples of it to substantiate that so we're generally on the more conservative and aggressive end of that um with an eye towards you know these are riskier investments so there needs to be enough risk reward profile but there can be examples and we can be created with we structure but we tend to be pretty fundamental investors who like simple approaches with you know good protective Provisions try to be founder friendly and supportive and just really the key here is like we structure these deals in a way where if things work how they should everybody makes money right specifically the founders yeah I guess that's my my curiosity there it's like okay valuing the company at the investment stage so say their seed stage doing a million maybe two or something in High Velocity uh selling up the shelves in one particular area uh so you're valuing them at you know call it three to six million or so which I would say is a great entry point and uh for for that kind of thing but what do what do the exit values look like you know I that's something I've always been curious exits that depend we we did some digging and some analysis and you know the the median acquisition price in booze tends to range you know in the like low nine figures right that's kind of the median you know you have examples of the cost Amigos and DOW which sold this year you know you have billion dollar deals that happen a couple times a year in Boo and you often have kind of a bunch of these like mid to low eight figure exits you know the 10 20 30 40 50 6080 million doll type of exits that happen along the way as well and then you got everything in between right so our general intention with top shelf is to see these Brands grow from you know low six figures in revenue or low seven figures to sort of an order magnitude bigger to that at which point they should generally be in the ballpark if they're doing their jobs right of being a very valuable and intriguing asset to a strategic because chances are it's filling some sort of either growth or portfolio void for a strategic that they don't have exposure to or maybe it's eating into a share of their current brand so it's it's generally at that time a very financially strategic and good decision for these big players to look at acquire any of the growth Brands whether or not we sell is dependent on how quick the brand is growing and how big of a ceing we see for but that's generally the model yeah that's awful Sharon I appreciate you kind of diving into those examples because it's it's more of an opaque market for me and I you know I've seen a lot of alcohol Brands reach out and it's one of the things like in my line of work I want to help but like the opportunity is just so so small and you kind of have to be in your shoes to have the visibility on the industry and Market to kind of know what's a good bet what's a Bad Bet um so be before we we part ways here what would you say would be some of your kind of parting advice to emerging fund managers out there that would be you know looking at raising a fun one I think um my strategic and philosophical advice is that perseverance is critical here um it's going to be really hard it's going to be harder than you think you're going to get told no no more than you want and more than you expect and a lot of this game is just about staying in the game um like any entrepreneurship my tactical advice would be lean into understanding real portfolio math earlier than you think you need to I think a lot of emerging fund managers think that just their deal flow is enough to Warrant them being a farm manager and I learned this and I give a lot of credit to the people I have around me and specifically my business partner Jason Sherman who has done this uh for longer than I have um understanding portfolio math early is really important right it is often not just as simple is get into the great companies full stop right entry points matter protective Provisions matter when you exit matters how many companies you're in matters you have to understand the Dynamics of giv your fund size what is it going to take to three four five extra fund because that is what people are expecting of you and I think that there's probably a lot of fund managers who in a 2020 2021 environment you'll load a bunch of capital into companies without understanding what the safe terms looked like or the valuation looked like that may have been great businesses and they have no shot of making money on them and it's tough because um a little more discipline or a little bit of a different Thro more institutional knowledge might have been the difference between a you know neutral return versus a great one so it's something that we take very seriously it's Happ that institutional end and I think it's something that a lot of emerging fund managers would be better off really understanding or if they don't understand a partner with someone who does that is refreshing to hear is it's it's usually the last thing I hear from a lot of emerging F managers when I ask like and I always ask like what's what's portfolio strategy and they like yeah I think look it's very easy in VC to focus on the wrong stuff it can be sexy it can be cool it can be easy to be you know on your high horse about getting to look at all these companies it's a cool job there's no two ways around it but at the end of the day you are a manager of other people's money whose job is to make other people might and there is tactical ways to do that and not to do that and understanding what that looks like is very important and I think a shocking amount of VCS don't actually understand um yeah well no it's been as absolutely awesome to have you on the show sharing your story uh what's the best we way for people to learn more about you or to to reach out to you if they're interested in talking to you probably Twitter I'm I'm trying to be bigger on Twitter these days and take it more seriously so Twitter or LinkedIn um Twitter is Noah Freedman or just search Noah Freedman or no Freedman on Twitter and I should pop up and same on LinkedIn um and I'm pretty responsive there so shoot me a note love to hear from everyone awesome I appreciate that know it's been great on the show make sure to add those links in show notes below and uh you appreciate you joining thanks brother thank you for watching today's episode as a reminder I'm your host Jason Kirby I have built and sold multiple companies with over 135 million in transactions as either a Founder operator investor across multiple Industries I'm currently the managing director and founder of thunder. BC where we help companies and Founders at all stages navigate what capital to raise and who to raise it from and help improve company's odds of raising Capital if you need help reach out to us at help. under. BC if you like Today's Show please share with your friends give us a like or comment down below and as a reminder this show is published weekly and to get notified new episodes and our newsletter be sure to go to our website at join. thunder. BC and if you sign up today I'll send you a few freebies on how to G she a term sheet how to get a free list of relevant VCS and much more that's it no more Shameless plugs thank you and see you next week