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Before bottling beer, brewers need to raise capital


Lauren Ades, attorney with P K Law at Union Craft Brewing in Baltimore. (The Daily Record/Maximilian Franz)

Lauren Ades, attorney with P K Law at Union Craft Brewing in Baltimore. (The Daily Record/Maximilian Franz)

If it seems like another Maryland brewery’s product pops up in the beer fridge at the local liquor store every other week, that’s probably true. But before the neighborhood brewer can begin bottling and selling his own product statewide, he probably needs to raise capital and build infrastructure.

Greg Weiner and Lauren Ades, lawyers at Pessin Katz Law P.A., have been helping startup brewers raise capital in private offerings, letting them maintain their business flexibility without having to rely on commercial loans from banks.

Weiner and Ades got into brewing when Adam Benesch came to Ades, a friend, to ask for help with raising private equity for Union Craft Brewing. From there, word of mouth spread in the collaborative brewing community and Weiner and Ades have handled several more brewing deals, including Monument City Brewing and Baltimore Whiskey.

It was a natural fit for Ades and Weiner, whose practice normally lies in the formation of companies, contracts between companies and vendors, leases, employees and venture capital. But beyond that, they like these companies and what these companies are doing.

 Jon Zerivitz, Founder of Union Craft Brewing, speaking with Lauren Ades, attorney with P K Law in their tap room. (The Daily Record/Maximilian Franz)

Jon Zerivitz, Founder of Union Craft Brewing, speaking with Lauren Ades, attorney with P K Law in their tap room. (The Daily Record/Maximilian Franz)

“This is our juice,” Weiner said. “We love doing this work. … I’m a recovering entrepreneur. I wasn’t hatched a lawyer. … It’s not us just sitting behind a desk and this is the drudgery of practicing law. We look for this work and we love it, and I think people can feel it.”

None of the breweries Ades and Weiner have worked with have failed yet, and they only see the business continuing to grow. But there’s a reason that none have failed. By the time brewers get to Weiner and Ades, they have already formed most of their business. They might even have some investors lined up, but need to get their ducks in a row.

For Benesch, Union had almost a year run up before they even started brewing.

“A lot of it was uncharted territory at that point,” he said. “We did have a need to raise capital. … It all comes down to just doing your diligence and running through all the different scenarios figuring the right amount of capital to raise.”

That due diligence is essential to having a successful equity round, Weiner said. He likes startups to have three different areas of expertise on their team. Not everyone on the team has to be an owner, but they need to cover all of the bases.

The first, probably most important person for the industry is the person who knows the business — probably a master brewer — who really knows the craft beer market. Second, every team has to have a business-minded person who can do things like shop for equipment and negotiate a lease. Finally, every team has to have someone who can help with the regulatory issues and the financial issues.

Greg Weiner. (File)

Greg Weiner. (File)

Once a team has all of those elements, the capital comes in. And capital is pretty important to companies, which need to lease space and buy equipment, or at the very least pay to have existing companies brew their product, an arrangement known as gypsy brewing.

For most of these brewers, securing that startup money through a loan can be difficult, because there is almost nothing they can use as collateral. But luckily, there has not been an absence of investors willing to buy a piece of a craft brewery.

Weiner attributes most of the interest to affinity groups, people who want to invest not because of the money-making opportunity, but because they really like craft beer. It would be like a billionaire buying a basketball team, just a lot cheaper than the $2.2 billion the Houston Rockets sold for this week.

“You have people that want to own a piece of that pie,” Ades said. “For not a huge investment, relative to some other investments, they can own a part of it.”

Typically, these investment rounds look to raise around $1 million, with a minimum investment of between $25,000 and $30,000. And most of the investors tend to be family and friends.

Benesch found his investors at Ravens games.

“A lot of people came from my Ravens tailgate,” he said. “I was always bringing beers for people to try at my tailgate. … When the time came to talk about actually raising money, these people knew that this guy actually knows what he’s talking about.”

After that Union deal, more brewers came to Ades and Weiner, relying on a collaborative community that wants to see more breweries pop up.

“It really is different,” Benesch said. “It’s just how it is and I think that’s part of how the craft beer industry has been able to grow, because it is a community.”

Once these breweries get to Weiner and Ades, they work through a lot of the details they need to raise money. What type of company do they want to form? (Most choose an LLC because of the flexibility it offers.) What type of investments will they take? Will investors get voting shares? What type of return will they get and when will they get it? The answers can vary from brewery to brewery.

Weiner and Ades could probably stay busy working with breweries for a while. They try to work on around two brewery projects at a time. And from what he has seen of the business, Weiner does not see a slowdown happening anytime soon.