Deal To Watch: The Golden State’s Golden Brewer

Key Stats:

Summary

At Time Of Publication, February 25, 2019, Seven Stills had raised $808,492 of the $1,066,360 Round.

Seven Stills has been selected as a “Deal To Watch” by KingsCrowd. This distinction is reserved for deals selected into the top 10-20% of our deal diligence funnel. To learn more about our due diligence process, check out our methodology page HERE or reach us at hello@kingscrowd.com.

Seven Stills specializes in brewing craft whiskey from craft beer. Founded in 2013, the company re-imagined the process of making whiskey. Rather than rely upon traditional measures which distill low quality beer into whiskey, Seven Stills recognized that the quality of the distilled beer greatly impacts the flavors of the finished whiskey product.

The San Francisco-based brewery elects to use high quality ingredients and currently sells both craft beer and craft whiskey in its retail locations.

The Industry Opportunity

Seven Stills uniquely operates at the crossroads of the craft beer and whiskey distillery industries. Within these industries, the rise in demand for craft products has helped transform these segments into some of the fastest growing, most popular markets.

These snapshots from IBISWorld Reports demonstrate that there is great opportunity for growth and success for companies. As the first image displays the Craft Beer industry is expected to continue to grow and earn high margins.

The same is true for the second image which presents the statistics for the Whiskey and Bourbon Distilleries industry. It is within the growth phase of its life cycle and looks to grow over the next half decade.

Why We Like it

Superior Differentiated Product — On the IBISWorld Report, it states that consumers have gravitated to craft products for their “attention to detail, range of beer styles, quality ingredients, high degree of expertise and overall freshness that craft brewers offer.”

Seven Stills excels in all these regards for both beer and whiskey. First and foremost, the company chooses high quality ingredients as made evident by their “Quality In, Quality Out” slogan. Its initial ingredients cost more than 10 times the grains in a typical whiskey, and the company also uses a superior yeast.

Next, Seven Stills pays incredibly close attention to detail. At the 1:10 mark of this clip, it showcases that the bottle images are crafted by local street designers to mirror the murals found throughout San Francisco. These labels are intricate and highlight the San Francisco spirit found in the products of Seven Stills.

Finally, the whiskey and craft beers boast robust flavors that vary from a chocolatey tingle to softening sour notes of an IPA. Through its efforts, Seven Stills clearly possesses the ability to create high quality differentiated products that will help the company sustain a competitive advantage into the future.

Strong Track Record — Since its inception in 2013, Seven Stills has grown by more than 100% in each year, been profitable, and sold in over 2500 locations. This is rare for most startups as they typically struggle to gain profitability in the early years.

Even more positive for Seven Stills is that the growth is not projected to flatten out. The company is in the process of expanding to a new facility in the middle of San Francisco. Seven Stills predicts that this new facility, which includes a restaurant, outdoor beer garden, and speakeasy, will help revenues grow to as much as $13.5 million by the end of 2019.

The leadership team has a strong vision for their products and hopes to capture on the growing trend within the liquor industry by utilizing spaces and capacity for ventures that will offer differentiated experiences and processes.

Passionate L eadership Team — Tim Obert and Clinton Potter are the Co-Founders of Seven Stills who are willing to give it their all to ensure that the company thrives while simultaneously producing the best craft beer and whiskey products for their consumers.

The two scrappy founders started with $30,000 and a liquor license, began selling on the streets while relying on contract brewing, and have since transformed the company into a powerhouse brewer in San Francisco. Over the past 5 years, they have won two medals at the World Spirits Competition and were voted Zagat’s Top 30 under 30.

Obert and Potter have grown their team to nearly 40 people and already raised more than $6 million from over 500 investors. This leadership duo is highly capable of expanding Seven Stills and continuing to make an indent on the craft beer and whiskey industries.

Lack of Major Competitors — Recently, Seven Stills made the USA Today Top 10 list for craft whiskey distillery. Although the list highlights the names of other top whiskey threats, it also points out the uniqueness of Seven Stills in that it makes whiskey differently than others on the list.

By solely creating craft whiskeys with the use of craft beers, Seven Stills possesses a certain flexibility that the competitors do not have. There are a select group of craft whiskey brewers in the United States, and there are even fewer that use craft beer as the starting point for the whiskey.

Risks

Due to the nature of the industry there are a variety of risks associated with investing in Seven Stills. First, much of the demand for alcoholic beverages depends on the purchasing power of the consumer and thus is more volatile in response to economic downturns. Next, Seven Stills mainly relies on self-distribution due to the higher margins it receives. If the company wishes to penetrate more diverse markets across the United States, the company will have to invest sufficiently in relationships with distributors.

Rating

Seven Stills stands out as a rapidly growing, creative company that produces premium whiskey and craft beer products, two growing product categories. It has already established itself as a premier brewer in the region, and its combination of leadership expertise, passion, and talents suggest that the company is well positioned to have a leading market position.

The fact that the company sells via direct-to-consumer, wholesale and via its own facilities bodes well for creating a distribution network with scale. However, at the $28.2M pre-money valuation and a desire to have an even split of sales come from regional tasting rooms as to wholesale distribution, suggest that significant scale will be limited based on management’s growth plans.

While we still think there could be an upside opportunity by investing in this company that is quickly growing revenues across multiple channels, the growth strategy suggest that a $200M+ exit could be limited, which would suggest a less than 10X return.

Regardless, this is a healthy business in a two hot product categories that could be pressured to grow even more based on companies own success. Seven Stills has already proven it can succeed; with the promising growth projections for the market opportunity and the company itself, Seven Stills is a Deal To Watch.