Shareholder crowdfunding at Winery Lane
We talk with the founders of a new wine retailer who have chosen crowdfund investment to reach new heights, and about the benefits it has brought.
When people go wine shopping in the two or three major Australian wine retailers, they are typically shopping by price. There are few indicators in the retail environment that alert them to the quality, flavour profile or story of the wines on the shelves in front of them. They have little choice but to accept the wines chosen by a corporate buyer trying to maximise their return. At the same time, award-winning winemakers miss out on exposure and revenue.
It’s a problem common to numerous industries - the rise and rise of the corporate retailer. In the Australian wine world, entrepreneurs Steve Mobbs and Cameron Harris decided to do something about it.
After a couple of false starts (“As Mike Tyson once said, ‘Everyone has a plan until they get punched in the mouth’,” Steve smiled) the pair settled on a model that saw minimal onboarding costs for winemakers.
“We take the risk on board because we invest heavily in photography and videography right up front,” Steve said. “We create a rich library of video and photos so that we can start telling the story of the winemaker and sharing their brand with wine lovers.”
Buyers then purchase wine from winerylane.com.au knowing more about the product, its origins and the winemaker’s philosophy. Winery Lane takes a cut, and everybody wins. The wineries themselves promote Winery Lane to their contacts and to visitors at their cellar door, meaning the various ‘member’ brands of Winery Lane help to spread the word, supercharging marketing efforts to an audience of people who are very much wine lovers.
A new approach to funding
In order to take on the risk and cost of warehousing pallets of wine, producing promotional videos around various brands, promoting their own brand to wine lovers, distributing cases of wine and, of course, building and maintaining the online system that is the shopfront of the entire business, Steve and Cameron have had to go through various fundraising rounds.
Retail investors become active shareholders and recommend the brand to family, friends and colleagues.
The pair invested $90,000 each as seed capital, then in order to fund growth they initially asked family and friends. The next approach was to high net-worth individuals, one of whom was Trevor O’Hoy, past CEO of Fosters Group, who agreed to buy-in to the business and share his considerable industry knowledge. For their latest funding round, Winery Lane has chosen a very different tactic - crowdfunding.
“We are attracting shareholders who are more than likely going to be wine lovers, because it is about retail investors as opposed to sophisticated investors,” Steve explained. “They become active shareholders and recommend the brand to family, friends and colleagues.
“This business has to be set up so these shareholders can be very proud of it and can put their name to it. That’s where we think we can create a point of difference.”
How does shareholder crowdfunding work?
In 2017 legislation changed to allow retail investors to invest in start-ups and high-growth companies. Such investments were previously only available to sophisticated investors.
“Now, pretty much anybody over the age of 18 can invest anywhere between $50 and $10,000 into a startup business that lists with an intermediary,” Steve said. “There are only seven intermediaries that have such licences in Australia, and we’re using one called Birchal.com.”
For us, it’s about finding wine lovers, all of whom are super-engaged in the category and who want to share stories.
The business seeking funding must provide an offer document - in the same way a business being publicly listed must provide a prospectus - as well as a time frame for the offer. Steve and Cameron have also decided on an ‘expression of interest’ stage before the actual crowdfunding begins, in order to create excitement and test the waters at the same time.
“There was an article written a while ago called ‘1000 True Fans’,” Steve mentioned. “The upshot was that if you found 1000 people and they spent $1000 each with you, then you had a million-dollar business. But first you had to find those people. You had to identify them and then you had to make the experience so good for them that they would go and tell everyone else about you.
“For us, it’s about finding wine lovers, all of whom are super-engaged in the category and who tend to be highly educated and want to share stories. We want to find those people and arm them with the information and the ability to go out and sell Winery Lane as something that they own.”
About the author
Chris Sheedy is one of Australia’s busiest and most successful freelance writers. He has been published regularly in the Sydney Morning Herald, Virgin Australia Voyeur, The Australian Magazine, GQ, In The Black, Cadillac, Management Today, Men’s Fitness and countless other big-brand publications. He is frequently commissioned to carry out copywriting and corporate writing projects for organisations, including banks, universities, television networks, restaurant chains and major charities, through his business The Hard Word.