Investing Beyond Alcohol - Noah Friedman, Top Shelf Ventures

Venture investor Noah Sanborn Friedman has built Top Shelf Ventures into one of the fastest-growing funds focused on alcohol and adjacent vice categories. In this episode, he discusses creator-led RTDs, nicotine pouches, THC regulation, DTC wine strategy, and why consumers are increasingly moving toward new alcohol alternatives and emerging category brands.

Transcript

Andrew Allison 0:04

Welcome to Wine Country Business, the podcast exploring the strategy and trends shaping the global world of wine spirits and luxury hospitality. I'm your host, Andrew Allison, a third generation Napa Valley native and exited startup founder. I'm bringing you inside candid conversations with the business leaders defining our industry today. This show is brought to you by Top Shelf Ventures. Top Shelf finds, funds, and accelerates the premier opportunities in the global alcohol and vice categories, led by industry experts with a track record of major acquisitions. Their team acts as the catalyst for disruptive startups reaching for global scale. They don't just invest, they bring operational horsepower, a huge network, to you, the entrepreneur, to help you dominate your market. That's topshelfventures.com, accelerating the world's most innovative brands. Let's dive in. I am so excited to catch up with this person because I've had an opportunity to interview them before. But let's take it from the top. Who are you and what do you do?

Noah Friedman 1:12

My name's Noah Sanborn Friedman. I am the co-founder and managing partner of Top Shelf Ventures, which I think is the most relevant portion of my career for this podcast. But Top Shelf Ventures is, I'd say, one of the preeminent funds, private equity venture in the broader vice space. So alcohol, nicotine, THC, the whole nine yards. And we also do some tech investing and sort of the adjacencies to the broader booze and consumer markets. So a tech founder, myself, an entrepreneur, or at least an aspiring one, I should say, and the founder of Top Shelf. So super honored and excited and always happy to jam with you, my friend.

Andrew Allison 1:41

It's so great to catch up with you. We've heard a little bit about your background in the past, but for those that don't know, give us the 30-second version and let's talk about what Top Shelf's got going on.

Noah Friedman 1:51

Yeah. So I graduated and started my career working for Michael Loeb, who is a longtime mentor, partner, and friend of mine. He's built multiple unicorns and has an iconic both reputation and track record. And one of the first things I did when I graduated college was helped him build a data company in the alcohol space. So we were processing billions of dollars of receipt-level transaction data from independent retailers across the country. So think the local mom and pop shop. And in building that company, as sort of the founding COO, I got a deeply inside look, not only into how to build tech companies and build data companies, but more importantly for this conversation into the alcohol industry and the entire bowels of it, the processed three-tier system, all the politics, et cetera. And what dawned on me was that this massive multi-trillion dollar market, incredibly lucrative, a very clear and distinct regulatory framework that to most is confusing, but to those who understand is actually fairly approachable if you actually know what you're doing, and a shockingly low, if not any, amount of smart institutional money in the space. And so I met my now partner Jason Sherman, who at the time was running MA for ABNBebev. And we kind of over the course of a few years got to know each other and realized that there was a pretty huge opportunity to be the smart money, if you will, in the broader vice space, originally alcohol and now more broadly vice, tech, and beyond. But we started the fund first vintage was 2022. Our first investment was we're fortunate enough to have a big wine, which is obviously one of the fastest-growing alcohol companies I think of all time. We're now on our second fund and we've made, you know, over 15 investments at this point across the stack in the broader vice space, but mostly in alcohol, some nicotine pouches, so now some technology as well.

Andrew Allison 3:20

But it's been a fun ride. For those that don't know, please share a little bit about the AUM and the fund sizes.

Noah Friedman 3:27

Fund one was about 8 million. Fund two has brought us uh over 30 million at this point and still growing. We've actually had opportunities to raise more and have kept it constrained for the sake of being disciplined. And there's a whole broader conversation about portfolio construction and portfolio math that we don't have to get into at this point, but we've kept it very contained and strategic based on what we thought was the right size for each fund that allowed us to be both disciplined, concentrated, take the right level of risk across a basket of brands and opportunities, double down under the right ones. So we're at about 30 million AUM right now, is of what, December 2025? It's grown quickly and we kind of keep it on a ramp that we feel both comfortable and feels like the right ramp and speed to be growing at.

Andrew Allison 4:03

So investing out of fund to now, you made your first tech investment, which caught me by surprise. Tell us a little bit about that.

Noah Friedman 4:10

Our first tech investment is a company that I'm involved in personally, professionally, and through the fund called Outer Signal. It's a revolutionary concept that's in the marketing personalization space. I have a history, as does the fun, with the co-founder and CEO, Zach Sellner. We've done deals with him. He's one of my closest friends. And Outer Signal was born out of a notion and concept that originally e-commerce companies, but really any company that sells to consumers have a shockingly low understanding of who their actual customer is. If you're a Shopify business or really any company selling online to customers, when someone checks out and transacts with you, all you know about them is their name and their email and where they live, right? That's all they give you. It's like here's where to ship the product, here's my email, here's my name. That tells you nothing but who they are as people. Personalization has been this buzzword for the last 10 years, and really it's been constrained to personalize based on your name or personalize based on what you bought. But the reality of true personalization, true marketing, the best marketers and salespeoples in the world understand how to contextualize what they're selling and what they're saying based on who you are. Meta is a trillion dollar company because they have a black box of information that means your Instagram feed, Andrew, is going to look very different than my Instagram feed because they know everything about us. We don't know why, we don't know how, but they do. That level of intelligence, we believe, Outer Signal believes, should exist in the post-purchase world as well. And it doesn't simply because these companies have no idea who the heck is actually buying from them. So that's what Outer Signal solves for. It was launched really in earnest in July of this past year, and it has been an absolute rocket ship uh since launch, and we think it's gonna be a big deal.

Andrew Allison 5:35

So now that Top Shelf is invested in a tech company, you've also broadened to message, which has covered a few other categories. What are those categories? You glossed over them right at the top.

Noah Friedman 5:45

We started our first non-alcohol investment was into the nicotine pouch space. I am super, super bullish on that category for a number of reasons we can get into. We've made a couple of small, concentrated investments in the hemp THC space. Obviously, since making those investments, there have been some regulatory changes. I am hopeful and optimistic that those will flip back to a way that I hope is the right way that these things and I believe is the right way that these things should be regulated, which is very similar to alcohol. Unfortunately, the recent regulations and changes have made it currently difficult to see what that path looks like, but I'm hopeful and optimistic that the hemp THC and specifically the THC beverage market can grow and continue to thrive just because I have a ton of conviction and belief and think it should exist and think it should sit on the alcohol industry's rails. And I hope that both the regulators and anyone in the alcohol business who doesn't currently see the world that way comes around to that belief. I think that it's deeply accretive, I think it's deeply complimentary, I think it's deeply synergistic with the booze market. And I think it's a shame that as of this moment, right now, the current trajectory is for it to be outlawed. My hope and belief, and we're working hard to try to change this trajectory, is that it gets back on the rails, if you will. But that's one. And then the nicotine pouch business is just a monster of a category, a monster of an industry. It also has some unique nuance regulations to it, but ones that I think will continue to shake themselves out favorably for the brands that can play smartly within it. So we've made a pretty big bet into a company called Lucy, which I think personally is the best nicotine pouch on the market. And it's a killer team of founders. It's an amazing company, it's an amazing product. They've been growing like a weed. They are deeply embedded into culture. And more importantly, I think that they have a good chance to be one of the most important, if not the most important, Zinn challengers to what Zen has become, obviously just a monster of a business. So super bullish on Lucy and more broadly, the nicotine pouch business.

Andrew Allison 7:22

There was so much in there, but on the THC side of things, what happened recently if somebody is listening that didn't follow the most recent regulatory updates?

Noah Friedman 7:32

So in the 2018 Farm Bill, the regulation allowed for a certain concentration of hemp THC and beverages to be sold federally legally, right? So you were able to, based on the regulations in the farm bill, sell hemp THC in beverage format and also more broadly legally. Certain states started to govern it themselves and put their own regulations in place. And there was a kind of constant question as to where the federal regulation is going to lie on. And for a while, everybody was pretty optimistic that this was going to shake out that either the states would govern it or it would sit on the alcohol industry's rails, which meant distributed through wholesalers and licensed distributors and age-gated, et cetera, the same way alcohol sold, which keeps people safe and keeps it out of the hands of young people. And then when the government reopened, unfortunately at the 11th hour, a provision was snuck into that bill that essentially gave a one-year clock but outlawed hemp THC on the federal level, which is a shame because it's birthed the multi-billion dollar market. It's been deeply impactful in a positive way for not only business but a lot of people's lives independently. So as it stands right now, there's 340-something or 330-something days that the hemp THC market has to exist before it gets outlawed. And the hope and plan and goal, and a lot of people are working, us included, are working hard to change this, is that in that time frame, the Royal We can put in place a set of laws that allow this industry to continue to thrive and grow in a way that is both safe and sustainable. And these products are most commonly sold where? There's a little bit of e-com, actually, a lot of bit of e-comm. Unclear if that's going to stay, but historically it's been through alcohol retailers, right? You know, I think the place that these do best is where states like Minnesota and Connecticut allow these products to be sold the same way that booze is sold, where you can walk in your local liquor store, total wine, et cetera, and you'll see an entire section dedicated to these hemp THC beverages, where you can go in, you give your ID, you give your card, and you buy it just like you'd buy a bottle of wine.

Andrew Allison 9:10

Let's jump into the nicotine pouch space. How is this landscape taking shape for those that are unfamiliar? You mentioned a few big names, but how has this product come to be?

Noah Friedman 9:21

Well, Zinn was the one that really put it on the map, right? And so Sweden has largely paved the way, both in terms of the regulation and in terms of the consumer behavior. Obviously, smoking is a terrible thing that is objectively very bad for you. Nicotine itself is actually not. It's actually a nootropic, and there's a lot of science that shows that it actually has a ton of tremendous benefits in terms of mental acuity, etc. The issue is that getting nicotine through cigarettes brought with it a whole bunch of other nonsense and crap you didn't want to deal with inhaling smoke, inhaling all these carcinogens. So if you put it purely in a nicotine pouch, you're ingesting or in and consuming nicotine in a way that doesn't have all these other harmful side effects that are all dangerous and all the things that go with cigarettes. So in Sweden, they took the world by storm. This original company, Zen, which was born, I believe, out of Sweden, started to take the US by storm. And I think in 2022, Philip Morris bought Zen for $16 billion at a crazy multiple. And really, since then, post-COVID, the category has taken the world by storm. Zinn has perhaps most importantly switched off a lot of smokers to Nicotine pouches, which are much safer and much better for you. But it's also opened up this entire new category of people who are using nicotine pouches for the mental acuity and mental benefits, myself included. So you've got this world that Zinn is largely trailblazed to prove that this is a multi-multi-billion dollar category that consumers across the country are flocking to because it's safer, healthier. There's all these positive benefits that go with it. And it's also just a good business. As a result of that, you've had all these Challenger brands launch, Lucy, Sesh, the other ones that are owned by the big national conglomerates that are all basically jumping into the same world and trying to provide new opportunities and new options for consumers to enjoy and consume nicotine safely.

Andrew Allison 10:49

With no tobacco involved, where do you see these products bought and sold? Are they convenience store products as well?

Noah Friedman 10:55

Yeah, I mean gas stations, bodegas, liquor stores where that's legal. The same place that you'd buy cigarettes, but I think just a much better, healthier, cleaner alternative.

Andrew Allison 11:04

And you said it also has a direct-to-consumer component, or no?

Noah Friedman 11:06

Yeah, Lucy, Sash, a lot of these companies will sell direct online. And I had Lucy's delivered to my house once a month. It's fantastic. It's a great experience. I enjoy buying it online. It comes and, you know, I think it's clean, it's safe, it helps me focus. I enjoy the experience. So yeah, there's a huge D2C component as well.

Andrew Allison 11:20

And do you have to be 18 to buy these? Absolutely. So we heard that the top shelf ventures crew is now brought in into tech, into nicotine pouches or nicotine in general. And we've also heard a little bit about the THC market. What's going on in the alcohol side of the business? Have you made any recent investments there?

Noah Friedman 11:38

Yeah, we have a great portfolio in Fun One and in Fund Two. We have a couple companies in Fun Two. I'm really excited about Grog in particular is on track to be one of, if not the fastest growing RTD of the year. It was launched by a YouTube channel called the Cold Ones. We were their first institutional, I think still their only institutional investor. We invested earlier this year when they had just come to market in the US. It's a wine-based RTD. They have a peach flavor, a grape flavor, a couple other skews, but it tastes like a tastes like a hard grape soda, if you will. And it's wine-based. And these YouTubers, the cold ones, Max and Chad, have a maniacal fan base of people who just line up around the block to pick up this product. But I think more importantly, it's fitting into this world of approachable, sessionable RTDs that are wine-based. So they have a D2C advantage. They're not selling D2C yet, but that's going to change soon. And people just love the product. And they have just been growing like a weed. It's unbelievable to see the velocity and the traction that these guys have, largely just based on the audience that they built online. I think it's certainly going to be have case studies written about it in terms of what a creator-led brand can look like.

Andrew Allison 12:34

Let's hear a little bit about the other influencer-led brand that you've invested in, knowing that you've done a couple of these. I want to hear how you actually pre-qualify the opportunities. But what's the other influencer-led brand that you've invested in?

Noah Friedman 12:48

One of the first deals we did in Fun 2 is Basic Sellers. Started as a single-serve wine brand, but it was founded by a gentleman named Trey Kennedy. And if you're on Instagram, you've probably seen his videos. They're hilarious. He has a whole shtick about, frankly, just basic culture, like being basic. And so his whole shtick is he goes into pumpkin patches and almost like recreates tongue-in-cheek the videos that girls do when they're Instagrammable moments. Instagrammable moments. And Trey's got a pretty maniacal rabbit fan base that frankly fits really nicely with the ICP for a lot of wine brands. And so he had tons of opportunities to work with big wine companies who want to do deals with him and pay him to promote. And like any good entrepreneur, he said, Hey, why don't I just start my own company? So we were approached by uh my good friend Marshall Sandman, who runs Animal Capital. They're a really strong consumer fund with a focus in their roots in the creator and influencer world. And uh they said, What does it look like to launch a wine brand for Trey? So they came up with basic sellers, very on brand, and launched at e-com earlier this year. It's done super well e-comm and now they're looking at a couple national rollouts with some big retailers. So super, super pumped about that one. It's a beautiful product and really good wine.

Andrew Allison 13:48

So, in both cases, what was the litmus test for picking? How did you know you had the right influencers? There's millions of influencers in the world.

Noah Friedman 13:56

I'll tell you with grog, it was not about look, I think Max and Chad are great. My litmus test for celebrity, creator, influencer, any of these things is actually not about who is the celebrity themselves. It's a mix between celebrity product fit. More importantly, has the celebrity proven that their audience is ready, willing, and able to buy from them? I think you've got a lot of big influencers and celebrities that have a certain type of relationship that is not necessarily lend itself to the customer buying and transacting, right? There's certain celebrities who are famous but have not proven that they can actually move product, and there's others that are much smaller that move a ton of product. So I think you number one have to qualify it on that front. Is this influencer, is this creator, is this person? Do they have the type of relationship with their audience that is proven that the audience is ready to buy from them? Because that's the type of relationship that they have. And the second, which is really the ground floor metric that Top Shelf uses to qualify everything, is have they proven that the product that they're selling can generate disproportionately strong velocity compared to its competition? When we looked at Grog, the reason we invested, no disrespect to Max and Chad, was not because of Max and Chad and their channel, it was because of how that was converting to velocity on the stores. They were having people line up around the block, they couldn't keep it in stock. It was very clear that not only did they have a maniacal fan base who loved them, but those maniacal fans were excited to line up and buy the product. And that's really the game here, right? If you're talking about how to translate creator audiences to commerce, it's not only about do the people and the fans love the creator, it's about are they willing to buy and rebuy the product that is being sold, right? Creators are very good at generating trial for the most part. What you really have to look for is the retention. Do they buy it and love it? And does that open the door to being a more efficient marketing channel? But more importantly, can you retain people? Because if they buy it once and never come back, you got a problem. So that's why we look at velocity and retention as the hero metrics that really dictate everything we do.

Andrew Allison 15:40

In both cases, they were wine bases. Does that make it a higher level of interest because it can get picked up by convenience stores and other retailers? It's a little bit of the buzzball model, but buzzball will change the alcohol base base on the store.

Noah Friedman 15:54

I like wine because it gives you some advantages in D2C. It's easier to test and learn based on actual direct to consumer sales. If you can get the winery direct licenses and sell to consumers, you can do some earlier testing to validate demand and validate pull-through and validate um velocity retention that's different than having to go through retail. I think it's just a coincidence that those both of those are wine-based, frankly. You know, we weren't like we want to do celebrity-led wine brands. It just so happened that those are the two that we've done so far. But I think there's a good advantage in wine because you can go direct to consumer, right? It opens up this channel that, you know, selling beer and selling spirits D to C is not impossible, but it's a lot harder. Wine has advantages. It's one of the many reasons Gratzi has been able to grow so quickly, is because they mastered D2C in a moment when no one else in wine could figure it out, right? Which is how they grow so unbelievably quickly. Now they're crushing in retail as well, but they were able to both prove demand, which is what got us excited, by selling direct consumer through these channels that weren't available at the same efficiency, if you will, to spirits and beer companies.

Andrew Allison 16:46

That's interesting that you brought up Kratzy. What are the top trends that you're paying attention to in 2026? You spoke about new categories, but where do you think you're gonna source your next deals if you're willing to share?

Noah Friedman 16:59

What are the big trends I'm looking at in 2026 across broader booze and vice? I think there's a lot of noise in the market that substantiates or at least indicates that alcohol sales are gonna continue to decline. I don't buy it. I have been kind of preaching for a while that the notion that alcohol is dead is mostly nonsense. I think you've seen a compression in the last few years, which I continue to believe is coming off of all-time highs from COVID and it's just a reset. So I'm really closely watching to see does 2026 start to show the volume and the revenues and the kind of the rebound that we've expected. But more importantly, even if you're starting to continue to see modest declines in the big categories, it's still such a massive industry. There's still so much revenue, so much volume, so much consumption that you're still gonna see other pockets. So I think most of the big brands in the US, the nationally owned conglomerates, are pretty tired. And I think consumers are excited and ready to look for new alternatives, even if those new alternatives play within the better for you trend. So I think wine, low sugar, new types of spirit categories. I think there's probably room for new beers in the space. RT, I think is super, super crowded and competitive, but I think you're gonna start to see some winners. I like the iced tea, I like the lemonade category, super bullish on nicotine. I am hopeful and optimistic that the THC regulations will work themselves out to allow for hemp THC drinks and THC beverages to continue to proliferate. Um, I don't think we've seen a good new rum in a while, but people have been asking for that for a while. So we'll see. You know, the truth in this game, man, is that you're always just looking to see who's gonna pop up and do something new and different. I think we've seen some good innovations in the past few years, but I think we're due in 2026 for a couple new, really big launches that catch the world by storm.

Andrew Allison 18:30

Noah, always great to see you. Thank you so very much for spending a little bit of time with us today. Honor and a pleasure, my friend. Always happy to do it. Thanks for listening to Wine Country Business. For more insights and video clips, make sure to follow the show on Instagram at WineCountry. If you found value in today's conversation, please follow us on Spotify, Apple Podcasts, or wherever you get your pods. A brief thank you to our publisher, Wine Country Media, and a special thanks to Napa Valley Car Club for letting us record at the Barn, their members only club in downtown Napa. I'm Andrew Allison, thanks for joining me, and we'll see you in the next episode.