The MHW Mark Podcast
Welcome to the MHW podcast, bringing you conversations with experts and leaders in the alcoholic beverage industry. Covering topics ranging from selling alcohol online, creating a new brand from scratch, and what you need to know when you start doing business internationally. Hosted by Jimmy Moreland and a rotating cast of cohosts from the folks at MHW.
The MHW Mark Podcast
M&A in Beverage Alcohol Mini-Series Part 2 - Spirits
We are back with part two of our three-part journey into the hot topic of M&A - Mergers and Acquisitions. We continue with spirits, and we're joined by a pair of experts with a truckload of great advice for brands in any category: No Sleep Beverage Founder and CEO Nick Papanicolaou and No Sleep Beverage CFO & CIO David No.
Special guest cohost Brigid McCabe joins host Jimmy Moreland as we continue our M&A mini-series.
More info on No Sleep Beverage: Website
More info about MHW at https://www.mhwltd.com/
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Welcome to the MHW Mark podcast, where we take deep dives into various aspects of the alcohol industry. My name is Jimmy Morland. Mhw is a US and EU beverage alcohol importer, distributor and service provider. On today's show, we are excited to continue our journey into the world of M&A, mergers and acquisitions. And to help us along on our journey, I'm pleased to bring back our guide and guest co-host, bridget McCabe. Welcome back, bridget.
Speaker 2:Thank you, jimmy, pleasure to be here again.
Speaker 1:It's good to have you back here. We took an extra week here for the holiday and I guess there's a lot of industry events happening right now.
Speaker 2:Is it just crazy there at MHW? Well, we have Bar Convent Berlin that just wrapped up and that is the largest international trade show for bartenders and on-premise folks, so that certainly was a large focus for our business development team this week.
Speaker 1:And I know last episode, if listeners remember we talked mergers and acquisitions, specifically in the beer vertical and, because of the guests that we had on, we also took a very narrow focus on the legal side of things. What are we looking at this week?
Speaker 2:Yes, we certainly dove into the legal and the brokering and preparation for sale. In this episode we're covering M&A in the spirit space, looking a little bit more at the finances, at a little bit more of the investment criteria and while many of the same legal concepts hold true as in the beer space, a beer buyer or investor and a spirits buyer and investor can sometimes be very different. The environments are different, so spirits investments are certainly a bit warmer be very different. The environments are different, so Spirits investments are certainly a bit warmer now than beer. The performance, the margin, the financial and supply chain considerations are different and when it comes to Spirits, the sales force and the marketing as well as the consumer base are radically different.
Speaker 2:So we've seen a lot of the strategic large portfolios invest in or acquire spirits brands over the years and the level at which they can invest can vary quite a bit. We've also seen certainly more celebrity and influencer involvement within this vertical. So I'm interested to see where it's going in the years ahead and we're really curious to learn, along with our listeners, from two experts from no Sleep Beverage who have a long list of experience in the mergers and acquisitions space, both in-house at large spirits portfolios, as well as now with their investment company.
Speaker 1:All right, let's get down to business, then. Our first guest today is the founder and CEO of no Sleep Beverage, nick Papanikolaou. Welcome, nick.
Speaker 3:Jimmy, pleasure to be here. Thank you so much for having me.
Speaker 1:We are also lucky to have the CFO and CIO of no Sleep Beverage, David Ngo. David, thanks for joining us. Hi Jimmy, thanks for having us, thanks for being here, both of you, for our listeners. Can each of you give us a quick background on yourself, how you came to the beverage alcohol industry and the eventual launch of no Sleep Beverage? Nick, if you want to start, yeah, absolutely Jimmy.
Speaker 3:So no Sleep. Beverage is really the culmination of my 15, 16 years in the industry. I actually started in beverage alcohol in 2009, 2010,. Really researching the industry, coming into it from the perspective of an entrepreneur, ended up launching a product in 2013 and spent about two years with that product actually live in market before sort of shutting it down and realizing I wasn't going to make it as an entrepreneur.
Speaker 3:But I think the important point for me was as an entrepreneur. I learned sort of the pain points of the entrepreneurial journey, the ups and downs, the obstacles they face, and I think the biggest learning is probably that in this industry you guys know this. You know nobody wants 10,000 Knicks come into their office door asking, as a distributor, asking you to take on a new brand. The same thing probably applies for retailers. So I think the big learning for me was how hard it is to make it as a single brand and as a single entrepreneurial. You know, single person, entrepreneurial company, and so the insight there for me was, in order to improve the chance of success, how can I be part of a portfolio? A portfolio, you probably get a little more scale, you get a little more access to distributors and retailers. So, jimmy, I then went to sort of the other end of the spectrum from smallest spirits company in the world, the second largest spirits company in the world, joint Preneur Card in 2015. And I spent seven years there, always focused on the entrepreneurial side of things, investing in early stage brands, sitting on the boards of these brands Wonderful experience.
Speaker 3:But the learning number two in my career was that in this role in the corporate world, where essentially, I realized that, no matter how big the portfolio, how many resources you have, I think a lot of the large companies struggle to innovate and struggle to nurture and scale these entrepreneurial brands because they're just not set up to. And you know what do I mean by that. I'll give just a quick explanation. You know, plugging a tiny brand into a massive distribution system is not always the best move. Plugging a brand that was doing something very creative with you know two unique, creative founders, and plugging them into a marketing model, you know a corporatized marketing agency not always the best move.
Speaker 3:So, in short, no sleep beverage is really the culmination of those two experiences. How do you create something that sort of maintains the entrepreneurial nature that I first entered the industry with? You know the agility, the creativity, the risk taking, but couple that with resources and capabilities that are actually needed for the appropriate size company, for an early-stage brand, not a large brand, and that's what no Sleep Beverage is. We're a combination of a venture capital fund and a consulting arm. We provide capital and capabilities to early-stage brands.
Speaker 1:And David, some background for you.
Speaker 4:Yeah. So I spent about 14 years in investment banking focusing on M&A and capital markets and, as a great banker, I've always been trying to sell brands or make a need by brands. While I was at Pernod Ricard, he never bought one nor sold one, so I decided to join him into this venture and have better luck this time, really left banking because I fell in love working with entrepreneurs and family-owned businesses. I was really focused on craft beer and craft spirits for about five to seven years in my last time as an investment banker, so left banking, decided to invest into food and beverage brands and also help entrepreneurs from a fractional CFO perspective with strategic building and planning.
Speaker 2:You both covered off on it so nicely, but the fact that there are so many different varying investment levels that can be made. It's not just a merger or an acquisition. There can be partial or minority investment that can happen. So do you mind if I probe into that a little bit? What are the varying investment levels that a portfolio like yours could take and how does your approach differ from you? Know a full on exit that a brand might go through?
Speaker 4:So we our investment approach is more opportunistic, rather than being fixed on a specific size. You know we've done investments to safe notes, convertible notes, series A, b and even series C, investing different type of check sizes right From anywhere from like $350,000 to a million plus. With all that being said, I think our sweet spot is within investing in brands that are generating at least one million in sales and also leading equity rounds, preferably Series A and Series B, and also getting board seats with our investment. The reason why we do like investing in brands that are at least generating one million in sales is because there is some level of proof of concept and product market fit, so that potentially not fully, but potentially lowers the risk of investing in emerging brands.
Speaker 2:Nick, I'm going to punt this question over to you what would make a brand appealing for investment? And since we are talking M&A on a broader scale, when you were in the seat leading M&A at Pernod, what made a brand worthy of that acquisition? I know there were probably hundreds of brands you looked at a year, so what was that sort of final criteria that would get a brand over the finish line?
Speaker 3:Yeah, great question, bridget. Yeah, I think we had a tracker of over a thousand brands, so you're right on looking at probably over 100 a year. Look, I don't think the answer is there are some nuances. I don't think the answer is that different between how we at no Sleep Beverage look at investing versus how we, when I was part of the we at Pernod Ricard would look at investing. I think there are some commonalities and some differences. Pernod Ricard would look at investing. I think there's some commonalities and some differences. You know the commonalities are.
Speaker 3:At Pernod Ricard we had a partnership model and that's similar to what we do at no Sleep Beverage. In other words, we want the founder to stay on. So therefore, the founder and the management team is a big part of it, right? Are they visionaries? Do they have a good track record? Have they done this before, maybe in other industries? Is there a good culture fit with us at Pernod Ricard or with us again now at no Sleep Average? And what's their vision for growth? And I think that's a big one too, because a lot of entrepreneurs I don't say this in a derogatory way, I probably was the same way, you know had sort of delusions of growth and how quickly they could scale. And it is really hard in this industry to actually scale and to do it in the right way. So I think looking at the founders and the management team is definitely one. I'll go a little quicker through the others, but you know, obviously, the product. We're always looking at whether it's solving for is there a need for it in the market? Is it solving a functional pain point or white space? Is it solving an emotional pain point or white space? I think obviously.
Speaker 3:The third is the category. At Pernod Ricard they tended to like large and growing categories. Going after something too small or niche just doesn't really move the needle. I'd say maybe that's a nuance we have. We are a little more interested in the things that are a bit niche-y because, again, we're working with brands and preparing them to get into a portfolio like a Pernod Ricard or Bacardi Diageo at some point. So we're willing to go a little earlier and a little more niche. But in general the same logic applies you want it to be growing or you want the category for there to be some understood catalyst to spark growth in the category, if that makes sense.
Speaker 3:You know, I think back to the sort of differences. I think another major difference is a group like Pernod Ricard or, again, any of the major strategics are probably coming at it with more of a strategic lens than ours, meaning they might be saying can we buy or invest in this company because of capabilities it brings to us, because of a geographic presence? Maybe we're underweight in the state of California and we need brands that have more of a presence there to help grow our other brands in that state. But obviously, and I'd say most importantly, it comes down to the category. Do they have white spaces in that category and in those price points to look at making an acquisition to fill that gap? We do at no Sleep Beverages. We sort of try to think like the strategics and go what are their white spaces, how are they thinking about it and where can we be a potential solve for them? By bringing them brands that fit and fulfill those needs or those gaps that they have.
Speaker 2:That sounds really exciting in terms of the capability to work within different niches as well, and that dovetails a little bit into a question that I have about trend consideration, and I know this is one. When it comes to the category that sometimes we R&D as well as M&A to try and figure out which was going to go farther, the ones that were accelerating on the shelf and had proven performance are the ones that were SKU line extensions or new brands within the big strategics, and then we've also seen the proliferation of the past 15 years of celebrity-backed brands. But down, that category is getting quite crowded and we're seeing that maybe it doesn't have as much resonance as you know, consumers used to once pay attention to it. So, from your perspective, with no Sleep, what amount does trends play into it? And what amount, like you said, with the white space and with trying to figure out you know, what's coming ahead factors into that decision making.
Speaker 3:Yeah, look, I think maybe I'll start with the distinction between trends and fads, not to get too geeky. But fads are probably short lived and I don't think we're interested in that. Trends are long term and can be macro cycles. So I'm thinking on the spot here. But you know, like a fad might be the flavor of the month, you know, watermelon, dingleberry or something, and that's. You know it's trending really well, but it's a short-term thing.
Speaker 2:Right.
Speaker 3:Probably not as exciting to us. Then you talk about and I'm going very broad here, but you know craft beer, craft spirits. Craft beer has been a 40 year macro trend, um, and I think you know spirits has obviously been lagging that. But so we're interested in trends, not fads, that's for sure. I think you know the celebrity thing you mentioned. I don't know if this is trending now. Obviously it's trending more now. I think everybody who's been in the industry for a while knows it's. It's been happening for a while, right, I mean, sammy Hager, kilo was whatever almost 20 years ago.
Speaker 3:I think what's interesting is, when you dissect it a little more, you notice that a celebrity-backed brand or bringing a celebrity into a brand, is definitely not a panacea, it's not a cure-all, it's not the solve to grow and scale and exit the brand. And I think I'm saying this with a little bit of like observational research here, not necessarily science backed, but I think you'd probably find the same failure rates among celebrity backed brands as you would non-celebrity brands. Two or three years ago I had a list of celebrity backed tequilas and I think it was already 50 and counting at that stage. So today I haven't updated it. You know, maybe David and I will do that at some point. It's got to be 75, you know, maybe a hundred.
Speaker 3:The reality is the average person has probably heard of one or two or three of those. Maybe us in the industry have heard of, I don't know, 10, 15, 20. When you put the list together it's just mind boggling how many are out there. So I think the same failure rates apply and I think back to the point of it being a solve, you still have to have a lot of things right with a celebrity involved. You know you got to make sure and I won't go into all the detail here, but we certainly believe. You know you can't just slap a celebrity on right the celebrity, the DNA of that celebrity has to match and align with the DNA of the brand, otherwise the consumer is too smart and they sniff. You know it just doesn't pass the sniff test. I think you know having the right incentives for the celebrity, having them have a skin in the game. Anyway, again, I don't want to go down a lengthy list here.
Speaker 2:No, I love it. It's kind of making me, it's showing me that the people and the talent behind it is something that no Sleep looks into, from both the founder and the family side, but also, as you're speaking, about the celebrity and how to utilize that and merchandise it and make sure that you know there's actual utility and marketing in that. So I think, you know, I think that's really interesting because sometimes when people think about M&A and spirits, it's all about the evaluation number and you know there's certain things that come to mind. But I really like that You're you're looking at not just a quantitative approach, but also that qualitative, um, intangible what's going to get us there. So that's really interesting.
Speaker 3:I think you nailed it, bridget. Yeah, to be clear, we're not anti-celebrity, it just has to be done in the right way. We've invested in a few brands that have celebrities involved, and they've done it for organic reasons, because they love the brand, that they're not necessarily putting themselves front and center. But if they can add value, then then they will, and I think that's a much truer sort of form of relationship that we'd like.
Speaker 2:Absolutely. And we have on MHW side, I would say, probably over 30 celebrity brands at this point in our portfolio and we're really lucky. We have a great group of brands that you know merchandise and really like hit the road when it comes to on and off premise and they're not just, you know, face on the bottle but they're really living the brand in the day to day and you know bringing it on talk shows and it is a strategic part of their overall brand. So we agree with you on that side. You know, celebrity is certainly something that's going to live on, but it has to be done in the right way.
Speaker 4:Yep, love hearing that. Yeah, another challenge with the celebrity-backed brands could be that, because these are celebrities, well-known, right, so they're trying to go or expand rapidly to 50 markets across the US. But if you don't have the personnel to support it, if you don't have the dollar investment to support it, that becomes an issue and it's almost better to just focus on two, three markets and be successful rather than going across all 50 states in the US. Because it's backed by slavery.
Speaker 2:Yeah, that's a great point, David. That's actually a good dovetail into my next question about what's the environment like of Spirits M&A right now. So you know, we used to see it be a really national approach, I think both in Spirits and craft beer they wanted to see, you know every market and, like you mentioned, david, now it's a little more strategic, like let's own these two to three markets and do it really well and every account you walk in, you know you see it front and center. So what are some other shifts, nick and David, that you've seen spirits emanate go through over the last 10 years?
Speaker 3:I think definitely there's been a lot of talk of you know it's been frothy or the multiple is going to stay as high or strategic is going to keep buying as much as they have been in the past. I think the answer is yes, but it changes. It does change and I think what we're seeing now is there's still quite a bit of M&A activity. Multiples are still pretty high. I think the large strategics have a problem, which I don't say in an insulting way, but back to the point, they have trouble innovating. It's just against sort of the systems, the way they're set up. So in a way they need to buy and often it's cheaper to buy than to actually innovate themselves. So for that reason we think again, the industry will continue to be pretty robust.
Speaker 3:I think the other interesting thing is now we've seen, because spirits tend to be higher price point, better margins and showing more of the growth than wine and beer, we've seen wine and beer players entering the spirits market. So when you've got a market where more buyers are coming in, that probably bodes pretty well for multiples as well. But there is no question, bridget, to your point. I mean, I think the strategics did a lot of M&A activity over 10 years. They filled a lot of the white spaces or the gaps in their portfolio, not to say there aren't more, but that's something we definitely keep in mind too, david. I don't know if you've got any thoughts to add to that or data to support it, but those are certainly my observations.
Speaker 4:Yeah, and clearly, given the current environment or market conditions, the large strategics are refocusing on their core brands, you know, on their premium brands, and also divesting some of their tail brands. The other key M&A trend that we've seen outside of the wine players entering the spirits market, is also beer companies entering the RTD-based or the spirits-based RTD segment, as well as the soft drink companies like Coca-Cola and Pepsi partnering with spirit strategic companies to launch RTDs right. So a perfect example would be for Coca-Cola partnering with Bacardi, pepsi partnering with Captain Morgan, and we're going to see some of these trends going forward as well, because the spirits industry is more profitable and they need to sell, I guess, less volume to make that amount in sales.
Speaker 2:Absolutely, and I noticed too that they're I mean, they're really merchandising pros, both the soft drink companies and the beers like they know how to do it. So it's nice getting into RTDs. They can kind of bring that resource allocation and that marketing and sales know-how over to it. I know that sometimes they're trying to keep like a division between the two and for compliance reasons they have to, but there is still that sort of knowledge share that happens. So it's very interesting to see.
Speaker 1:Can we go from this broad discussion to a little bit more narrowly focused here? David, I want to ask you, as CFO, one of your titles I imagine that you've spent a lot of time looking at the books of a brand that you're considering investing in Now. This does give me like nightmare flashbacks to financial accounting courses in my MBA to talk about this. But how does financial evaluation, how does that step typically go, if there is a typical way for them to go, and how does a brand best prepare for that? Do they just like hire an army of accountants?
Speaker 4:Yeah, those are very good questions, jimmy. So to start with your first question, we do a detailed analysis on the P&L and balance sheet and the reason why we do that is because looking at the P&L, we understand their sales product margin, gross profit margin, also their spend when it comes to AMP or SG&A, and ultimately gives us a good picture on what their monthly earn rate is. And that kind of leads into the balance sheet because we would like to understand how much cash in hand they have, but also understand what are the receivables and mostly payables as well, because we want to know what the cash outflow is. If they have any debt on their books, that means that they're also paying interest expenses. So the balance sheet gives us a good picture on where they are from a cash perspective, but also what the runway would be in the next 6, 12 months and 24 months. Something that the brands could do better, in our opinion, is one start working with professional bookkeepers sooner than later, because that's going to save a lot of time, effort and also money. If they need to go back and fix the books, that takes more time and money. Professional bookkeepers especially the ones that understand the business very well or the experience industry very well because of the three-tier system, and also on how to set up the chart of accounts that would be appropriate for the brand.
Speaker 4:The other thing that I would say is probably you know founders and entrepreneurs, including the management team. They're so busy in their day-to-day and also more preoccupied to make payments rather than understanding why they're making those payments and whether those payments are necessary or not. So one example would be you know you're working with a marketing agency that you're paying $50,000 a month. They're more focused on how we're going to make that payment this month as opposed to why are we making this payment? Are they actually adding value or $50,000 worth of value? And whether you actually need to adjust the scope of work. Or maybe you don't need that market agency and you hire somebody in-house or part-time. So those are some of the things that I would say from a bookkeeping perspective.
Speaker 2:I might scratch this from the podcast, but just out of my own general curiosity. Do you ever come across a brand where they're absolute sales and marketing geniuses and there's nothing more that you want than to get your hands on the brand? And you look through the books and it's a complete mire to get through absolutely.
Speaker 4:It all starts with mostly personnel. You know, either they have too many people in-house from both sales and marketing perspective, and not so much marketing, although it does have a lot of weight. But sales, it's one of the biggest problems because smaller brands, they don't necessarily need a VP of sales, for instance. Right, I mean, you might as well just hire two key account managers or a sales director to be selling more in that specific market, because you want to be in two to three markets. Really focus on those markets, increase your retention rate, your velocities and the reorder rates. Right, when you have a VP of sales and you're paying, you know, $250,000 and above on a yearly basis, that really starts eating your cash. We've also seen companies hiring way too many salespeople in all the markets that they're in. But again, this is a problem because if Nebraska is only doing $50,000 a year and you have somebody there to be selling and you're paying that person $80,000 a year, then the return investment on that person is negligible.
Speaker 3:And I think just to build on that one thing maybe I'm going to toot our own horn a little bit here, but one thing we like about our model is we're not a cookie-cutter approach. So what we've definitely learned is entrepreneurs come in all shapes and sizes. They might have some similarities, bridget, like you said, around hustle, and you know getting after it and getting out there and being the face of the brand. But you know, back to the point about I think your original question was like creative geniuses but don't have the finance side. And then we've seen the other right where they've created a great liquid on the production side. Maybe they are financial geniuses, but they don't know how to market it or brand it or sell it Right.
Speaker 3:So our approach allows us to look at each brand and go here's where we ABC You're knocking it out of the park X, y, z, maybe you need a little help. What do you guys think? And usually, hopefully, there's good overlap Eighty, 90 percent of the time where they say you're exactly right, we need you for X Y Z, and so that's where we can come in and say that's what works for brand A, but for brand B it might be the complete opposite or inverse of that.
Speaker 4:And to that point, nick, in one of your first questions, jimmy, in terms of the different types of investments that we make in different brands in different scales, so to speak, right Another reason why we prefer investing in brands that are doing 1 million in sales and above is because those are the brands that we can really come in with our value added capabilities and help them to scale. If they are too big let's say 10 million plus in sales they already have a team, an in-house team, right. So they might not need all of our services, although they still need some services from us, whether it is across sales, marketing, distribution, finance, whichever that may be. And when the brands are too small and you're only in one market, we can help you with the KPIs, kp analysis and how to be successful in that one market. But they're also not going to take advantage of all our value added capabilities because of the suns. So I think that's where the sweet spot is for us.
Speaker 2:That makes sense and can I ask, what is the breakdown between maybe in your portfolio, but also in consideration of brands that approach you for investment, versus brands that you seek out, that you've identified in the market as filling that white space?
Speaker 3:That is a good question because I don't think we know the answer off the top of our heads, david. My guess is it's probably about 50-50. I mean, we've invested in six brands. Yeah, I'd probably say three came to us and three were sort of our own outreach. So pretty mixed. I think we do try to. We love investment bankers. We're former investment bankers, david and I had an earlier career as an investment banker. But usually our opinion is if it's gone to an investment banker, we're not doing our jobs very well and we should be out in the market finding these brands before they're teaming up with a professional group like an investment banker to find us right. So that's sort of one of our or at least how we think through the process of sourcing incoming versus sourcing our own outreach.
Speaker 4:Yeah, and I think, as we continue to build our portfolio of brands, we've been having more inbounds, whether it is to websites or cold emails, only because they're quite interested in the portfolio of brands that we are building and it resonates very well with their own brands, so we've been having a lot more inbound in that perspective. Another just side comment here is that most of these brands putting aside the ones that they came to us, these are relationships that we've been building throughout our careers. You know seven, eight years, some you know more than ten years. And there are other brands where we started conversations even two years ago without making any investment to get to know each other better and see if there's fit, and that's how we made investments into a couple of our brands.
Speaker 2:That's very similar to MHW actually. I mean, we do get them clients that come to us and they're ready to go tomorrow and, you know, sign, but a lot of times they need consulting, they need to understand how to set up their budget for the next few years, so not just to enter into the US market but to succeed and to get to the next level. And so I see similarities to you in that way, because it's a relationship and it's ongoing and you know we want to make sure that there's two-way feedback, that there's value add being given on both sides. So I think that's a great tip for the audiences If you're going to, you know, pitch an investor or VC in this space, make sure that you're working your relationships and that you're having a two-way dialogue there as well.
Speaker 1:I think we have a lot of brands who listen to the podcast, a lot of people involved in one way or another with a brand and Nick, I guess. To sort of get back to the advice portion of this podcast, can you tell us some things that you wish brands seeking investment or to be inquired some things that you wish that they knew when they were entering the process for the first time, something that you witness every founder learn for the first time as they're going through one of these processes?
Speaker 3:Yeah, definitely, jimmy. I think I've joked on another podcast, you know somebody asked a similar question. You know what advice would you give? And I said don't enter the industry as an entrepreneur, which is obviously a bit harsh, but it does bring up the point that I should make here, which is I think it's incredibly hard. Right, I mentioned this earlier and I think you know I came into the industry I hope I would, and nobody would describe me as arrogant. I think it was ignorance, right, I don't think that I thought I would have this huge success, but I think I was ignorant with how difficult it would be and I think you know that was when I entered. That was, you know, 10, whatever, almost 15 years ago, I think.
Speaker 3:As we know, the industry's probably consolidated more with distributor consolidation and in many ways you could argue it's harder for entrepreneurs to break through today. So that's not necessarily advice, but it is something. I would just caution every entrepreneur Know what you're getting into. This is a long journey. It's very rare that a brand scales overnight. All these successes people talk about are not overnight. They're 20-year, overnight successes and it is very challenging.
Speaker 3:I think the other two points that are a little more practical advice is don't scale too quickly. By the way, I think this advice applies across industries. I mean, I see the venture capital world has been for years sort of pumping money into these brands and I think it goes against our ethos. I think they've been pumping money in for growth, for growth's sake, right, get high growth, then you exit. That's not always the case, and it's particularly not the case in environments like this where people are pulling back inflationary pressures, macroeconomic issues, and so I think that our big advice to entrepreneurs in the way we like to scale is grow slow and steady, very disciplined geographic approach. You can do a lot of damage in one state, california, even in Nebraska that David mentioned earlier, you can do a lot before you expand and go to North Dakota, south Dakota, wherever it is Right. So really scale with that in mind. Spend your dollars wisely and show David talked a lot about KPIs Show that you're hitting the right KPIs before you start to say it's time to open the next market in the US let alone international, by the way, which we won't get into.
Speaker 3:And maybe this is just the last third piece of advice I'd give is you know, particularly from our perspective, know your potential investor or partner. This can apply to us as potentially a group that invests in a brand, but it also should apply to a Bacardi, pernod Ricard, an exit partner right who you might eventually sell to. I think too often we get entrepreneurs that say you know I'm killing it in the UK or in Spain, why don't you want to invest in me? And it's a little bit like you know. You really should do your research and understand that.
Speaker 3:As David said and we've said on many podcasts, you know we focus on US brands that do at least a million in sales, so that might be a bad example, but you can take that logic and apply it to many other aspects. If we have already made three tequila investments, it's probably unlikely that we're going to make another tequila investment. So be aware of our current portfolio, be aware of our geographic presence, be aware of our investment criteria and same applies for the buyer. Make sure you understand why they would actually want to partner with your brand, what need you're filling for them, whether it's geographic, category, price point, etc. And I just think. I hope I'm not sounding too negative to entrepreneurs, because we are entrepreneurs and we love them, but too often I think they come without having thought that through, and it's just like I've got dynamite. Help me unlock this, and that's not the approach you should have. Do your research.
Speaker 4:Yeah and to that point. I also think distributors are looking at it through the same lenses, right? Any given distributor could have 70 different tequila brands and what they don't want to see is the brand being in 23 states but just generating, you know, 1 million in sales, for instance. What they really want to see is what's your retention rate from the existing accounts that you guys have? You know what's the retain account velocity, is it increasing? And what is also the reorder rate and the frequency of the reorder rate. Once you start building in that market, I think it's easier to ask the distributor hey, you want to take our brand and, by the way, here are all the KPIs to back and support the performance. That makes an easier conversation with the distributors to also expand into new markets.
Speaker 2:I've noticed, Nick, that you sign off with eyes open in your email signature and that your logo has the eye for no sleep beverage. You have a larger goal for the brands in your portfolio to really transcend the glass. And so what are some personal things you've learned throughout your career in M&A investments that has carried this philosophy over to your company?
Speaker 3:Yes, really happy you asked the question, because eyes open is important and it's not just me, david, charlie, everyone on our team. We all sign it or emails. That way, it's sort of an internal mantra. Look, this comes down to, you know, the cultural element. I'll call it of no sleep beverage.
Speaker 3:One of the purposes we were founded is sort of to let people we're targeting culture seekers right, we talk a lot about Anthony Bourdain, you know, unfortunately he's not here anymore, but as a great sort of icon for us, we want to bring brands to people that actually allow them to experience a new cultural element, or cultural experience. That doesn't necessarily just mean like national culture, right, you know we talked Spain earlier or the UK. It could mean, you know, subculture, right, solento, with one of the brands in our portfolio, was founded by surfers and people who were involved actually making surf film, documentary films, you know, 20, 30 years ago. The brand is not about surfing, but that mindset, that mentality. Even the name Solento means slow sun. It's about slowing down. So that's sort of this beach, this surf, this vibe, this mentality, that's culture to us.
Speaker 3:We could go through our list of brands and tell you the cultural component of each one, but I won't bore you with that now. But that's the point. So Eyes Open to Us is not about working 24 hours around the clock, and the name no Sleep Ever is not about that. It's about keeping your eyes open for the next great cultural experience, the next great flavor, the ability for you to step out of your own skin for a minute, or your own shoes and into somebody else's shoes. That's what it's really about. What we found is that it serves a dual purpose as well. I talked about the internal mantra as well. You know. Eyes open, I think, for us as a way to challenge ourselves right, to know our weaknesses and to say what don't we know here. Let's keep our eyes open, you know. Let's go do the research, let's go ask people smarter than us, let's go find out our own blind spots. So keeping our eyes open internally as well as externally with brands, is key for what we do.
Speaker 1:Moving on to our final fun question that we like to ask all of our guests what is your favorite alcoholic beverage cocktail, beer, whatever you got, what are you liking right now?
Speaker 3:I'm glad you're not asking what is our favorite brand, because we can't pick among our children, but I will say the category.
Speaker 3:I mean I've been a fan of like I guess you'd call it the Oaxacan old fashioned or a Mescal old fashioned for a long time. It's probably, has been and will continue to be a favorite of mine, so that probably isn't going anywhere, I think. The other one I'd say that I'm getting more into is Sotol, which is sort of a cousin to the agave plant, and I really like Sotol Paloma, so you'd probably find me drinking one of those too if you catch me on the weekend somewhere.
Speaker 4:Yeah, for me, I've been drinking tequila mezcal consistently over the past 10 years. I think my preference is to drink it in a shot, and the reason to that is because one I do, the more that I drink tequila mezcal, I appreciate the flavors and also how they make it, and it lets me at least know how many drinks I'm having or how many servings I'm having, so that as a control, it helps a lot as well.
Speaker 3:We do love all the products in our portfolio and we can tell you many cocktails we drink, with our whiskey and our gin as well, just to be clear. But you put us on the spot so we'll answer honestly.
Speaker 1:You love all your children Exactly.
Speaker 3:Thank you, Jimmy. Yes, we do.
Speaker 1:Well, I want to say huge thanks to our guests Nick Papanikolaou and David Ngo for stopping by. Listeners can find out more at nosleepbeveragecom. We'll have links to that in the show notes. Thanks, nick and David.
Speaker 3:Jimmy. Thank you so much, bridget. Really nice to connect with both of you and appreciate the time. Guys, thank you guys.
Speaker 1:And thank you listeners for joining us on the MHW Mark podcast and thanks again to Bridget McCabe for joining me in hosting.
Speaker 2:Thank you, jimmy, for your work. Always we appreciate it. Bye, bye.
Speaker 1:This podcast is produced by me, Jimmy Moreland, with booking and planning support by Cassidy Poe. It's presented by MHW. Find out more at mhwltdcom or connect with MHW on LinkedIn. Lend us a hand by subscribing, rating and reviewing this podcast wherever you listen. We'll be back in your feed in two weeks. We'll see you then. Cheers.