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Napa Valley Distillery

Founded in 2009 and family-owned and -operated, Napa Valley Distillery (NVD) produces over a dozen small-batch and limited-release spirits – including the award-winning Meyer Lemon Liqueur and Napa Vodka – plus barrel-aged craft cocktails. The company’s 12,000-square-foot production facility houses a tasting salon and event center, and a second vintage bar shop and tasting room is located inside the Oxbow Public Market. NVD also operates a Distinguished Bar Club, shipping members spirits, bitters, syrups, mixers, and barware every quarter as well as providing access to discounts and invitations to exclusive events. The company plans to build out a full kitchen and operate a small restaurant in its main location, allowing NVD to serve cocktails, beer, and wine any time of day and enable a new cocktail and food pairing service.

$90,000 raised / 6 investors

$5,000 minimum investment

Investment Terms

The Fund anticipates investing in the Company at the following terms:

Security Type: Series Seed Preferred Units

Price per Unit: ~$1.15

Pre-money Valuation: $11.5 million

Liquidation Preference: 1x

Conversion Provisions: Convertible into Membership Units (subject to proportional adjustments for unit splits, dividends, and the like) at any time at the option of the Series Seed Unitholder.

*Please note: Investment terms, stated above, are subject to change and will be finalized upon closing of the transaction between our Fund and the Company. 


Company Highlights

Napa Valley Limoncello Company LLC (doing business as Napa Valley Distillery) focuses on creating innovative distilled spirits that are primarily sold directly to consumers, which is uncommon in California. Taking a page out of the wine industry playbook, the company has improved upon the direct-to-consumer model by offering ways for consumers to taste, learn about, and purchase craft spirits directly from the distillery as well as tour the facilities. Family owned and operated, Napa Valley Distillery (NVD) was founded on one basic principal: Make it different!

Other Highlights:

  • Through First Democracy VC, a funding portal formed through a joint venture between MicroVentures and Indiegogo, Napa Valley Distillery raised $658,400 from 759 investors during its Regulation Crowdfunding campaign in the summer of 2017
  • Bar Club membership has grown to nearly 2,200, which, at $320 per year for a membership, equates to over $700,000 in annual recurring revenue
  • Plans to build out a full kitchen to qualify as a “bona fide eating place” as categorized under the California Alcoholic Beverage Control Act; this means it will be able to serve cocktails, beer, and wine any time of day and offer a new cocktail and food pairing service
  • Awards include:
    • Platinum Medal (2012 SIP Awards): Distiller's Blend Napa Vodkai
    • Platinum Medal (2009-2010 World Spirits Competition): Meyer Lemon Liqueurii
    • Gold Medal (2011 SIP Awards): Napa Vodka – Distillers Reserve Vintage 2008iii
    • Gold Medal (2010-2011 World Spirits Competition): Napa Vodka – Vintage 2008iv
    • Gold Medal (2010 SIP Awards):  NapaCello Meyer Lemon Liqueur XOv

Perks

*You are investing in equity securities in this offering. Perks are meant to be a thank you from the company for investing. The perks below are NOT inclusive of lower dollar amount perks.Investors outside of the U.S. will have to pay for shipping separately, where applicable. 

$10,000+: One complimentary Bar Club membership for one year. Includes all the Bar Club benefits such as unlimited complimentary tastings and tours for the member and a guest; 25% off spirits during membership; access to members-only Back Lot Lounge; invites to private events; PLUS one (1) ticket to NVD’s special Back Lot launch party.

$15,000+: One complimentary Bar Club membership for one year with double the number of spirits included in each shipment. Includes all the Bar Club benefits such as unlimited complimentary tastings and tours for the member and a guest; 25% off spirits during membership; access to members-only Back Lot Lounge; invites to private events; PLUS two (2) ticket to NVD’s special Back Lot launch party.

$25,000+: Two complimentary Bar Club memberships for one year or one membership for two years! Each membership includes all the Bar Club benefits such as unlimited complimentary tastings and tours for member plus one guest; 25% off spirits during membership; access to members-only Back Lot Lounge; invites to private events; PLUS two (2) ticket to NVD’s special Back Lot launch party.

$50,000+: Four complimentary Bar Club memberships for one year or one for four years! Each membership all the Bar Club benefits such as unlimited complimentary tastings and tours for member plus one guest; 25% off spirits during membership; access to members-only Back Lot Lounge; invites to private events; PLUS two (2) ticket to NVD’s special Back Lot launch party.

$75,000+: Six complimentary Bar Club memberships for one year or one for six years! Each membership all the Bar Club benefits such as unlimited complimentary tastings and tours for member plus one guest; 25% off spirits during membership; access to members-only Back Lot Lounge; invites to private events; PLUS four (4) ticket to NVD’s special Back Lot launch party.

$100,000+: Eight complimentary Bar Club memberships for one year or one for eight years! Each membership all the Bar Club benefits such as unlimited complimentary tastings and tours for member plus one guest; 25% off spirits during membership; access to members-only Back Lot Lounge; invites to private events; PLUS six (6) ticket to NVD’s special Back Lot launch party; and a case of spirits bottled exclusively for each investor and a mini barrel engraved with their name on it.

Company Summary

Opportunity

Napa Valley Distillery's creativity is driven by two questions: Why and why not ?

  • Why do the same as others?
  • Why not make it different?

Since its founding in 2009, the founders have been instrumental in the California craft spirits industry. Arthur Hartunian, one of the co-founders, was the founding President of the California Artisanal Distillers Guild (CADG). Under his leadership, the guild lobbied for California Bill AB 933, which gave California distilleries the ability to operate tasting rooms. The bill was enacted into law in September 2013. The CADG also successfully lobbied for the passage of the Craft Distillers Act of 2015, which now allows small California artisanal distilleries to host private events, have a restaurant, serve cocktails, and sell directly to consumers on site.

NVD’s first product was a Limoncello-inspired Meyer lemon liqueur that was blended from local Meyer lemon peels. Today, NVD offers a wide range of small-batch and limited-release spirits and cocktails and has two locations in the Napa Valley area: the main 12,000-square-foot production facility with a tasting salon and event center as well as a separate vintage bar shop and tasting room located inside the Oxbow Public Market in downtown Napa.

Product

NVD is probably best known for creating Napa Vodka – a handcrafted vodka made with single vintage Napa Valley Sauvignon Blanc wine grapes that was named as one of the Top 50 Spirits in the World by Wine Enthusiast when it was released in 2011.vi NVD currently makes over a dozen small-batch and limited-release spirits, including brandy, gin, rum, vodka, whiskey, and bourbon, as well as barrel-aged craft cocktails made from premium California brandies and all-natural ingredients.

NVD’s specialties are its oak-infused cocktails that replicate the alcoholic drinks that were made and served in the U.S. as far back as the early 1800s. NVD handcrafts each recipe using its own craft spirits, all-natural ingredients, and handmade bitters. The ingredients are mixed together in small batches and infused with oak. It is this special aging process that allows the ingredients of the cocktail to truly infuse and intensify, allowing the cocktail to take on the complex characteristics of the oak. The end result is a smooth and elegant cocktail reminiscent of an era long gone by.

NVD cocktails include:

  • Mint Julep – The Kentucky Derby classic with California character. Infused with real organic chocolate and pineapple mint leaves.
  • East India – A lost classic from 1850, NVD uses its own California brandy, California curacao, and real organic blackberries.
  • Manhattan – A true American classic, NVD handcrafts each batch using the original Pre-Prohibition era recipe, which calls for American Rye Whiskey instead of Bourbon.
  • Negroni – The perfect pre-supper cocktail from the late 1800s. Created in Florence, Italy, by Count Negroni, NVD puts its own California twist to it by using handcrafted blood orange bitters.
  • Old Hollywood – This one goes back to late suppers at the Brown Derby on Hollywood & Vine. The base is made with gin, but the rest is Hollywood confidential and very hush hush.

NVD also sells over 400 different cocktail bitters, syrups, shrubs, and other cocktail essentials from around the world. Visitors can get a complimentary tasting of any of these cocktail essentials at the NVD shop.

Bar Club Membership

NVD Bar Club members get up to 25% off four quarterly shipments of spirits and cocktail essentials. Each shipment contains over $100 worth of products, including NVD's seasonal craft spirits, unique bitters, exotic cocktail ingredients and garnishes, barware, a newsletter, and recipe cards.

Other benefits include:

  • 15% to 25% off everything sold in the Tasting Salon and Vintage Bar Shop, excluding vintage barware
  • 25% off all online purchases (for both shipping and pick-up orders)
  • Complimentary shipping on most online orders over $125
  • Two complimentary tasting flights per membership when you visit the Tasting Salon in Oxbow Market, Napa
  • Invitations to exclusive Bar Club Member events
  • Invitations and discounts on tickets to Napa Valley Distillery events
  • Invitations for special educational classes, workshops, and seminars hosted by Napa Valley Distillery
  • Access to NVD Cocktail Whisperers and Personal Shoppers for corporate and private events

Distillery & Grand Tasting Salon

The Distillery and Grand Tasting Salon is fully open to the public. Distillery operations are located on one lot with two separate industrial buildings (Building A and Building B) that encompass 12,000 square feet and 35 parking spaces. NVD provides tours and tastings on site, which has helped drive retail sales and Bar Club memberships. Reservations are required, and the location is open Monday, Tuesday, Thursday, Friday, Saturday, and Sunday from 11 a.m. to 7 p.m. (6 p.m. Sunday).

Oxbow Public Market Tasting Room and Bar Shop

NVD operates a satellite distilled spirits tasting room and bar shop in the Oxbow Public Market located in downtown Napa, California. At this facility, visitors can sample and purchase NVD’s locally made craft spirits and artisanal cocktail bitters or browse through other bar essentials and novelties for sale. The Tasting Room is open Monday through Saturday (9 a.m. to 8 p.m.) and Sunday (9 a.m. to 7 p.m.). Reservations are required from Friday to Sunday.

Use of Proceeds and Product Roadmap

Proceeds from this round will go towards increasing production and inventory to be able to properly create and pursue distribution and export opportunities. Additionally, NVD plans on using some of the funds to grow its two smaller revenue streams – online sales and event space rentals.

NVD plans to build out a full kitchen and operate a small restaurant in its main location. By having a kitchen within the distillery, Building A will become a “bona fide eating place” as categorized under the California Alcoholic Beverage Control Act. This means NVD can serve cocktails, beer, and wine any time of day and not just during private events. This kitchen will also enable the company to offer a new cocktail and food pairing experience.

NVD also plans to develop an additional tasting bar, hospitality lounge, and event center in the second building (Building B) within the main location.

Additionally, the company plans to increase production of its current line of products and develop additional craft spirits. NVD intends to increase wholesale sales with distributors in California and New York. It also plans to pursue additional export opportunities. To increase production and distribution, NVD will need to purchase additional equipment and raw materials and hire additional production staff.

Business Model

NVD wholesales its products to bars and distributors and sells them directly to consumers via four separate retail channels: 1) bottle sales out of its two locations (Distillery and Tasting Salon), 2) annual Bar Club memberships, 3) website sales, and 4) private events. NVD also operates consumer distillery tours and instructional tasting experiences out of both locations and operates an event center out of the main facility.

  • Bottle sales: Individual 375 ml bottles generally retail between $20 and $40
  • Bar Club: Members receive four shipments per year and are billed $320 annually or $85 quarterly (does not include tax and shipping)
  • Distillery Tour and Grand Salon Tasting: $30 per person with reservations available for up to 35 people
  • Oxbow Tasting Room Craft Spirits Tasting Flight: $15 per person with reservations available for up to 12 people

User Traction

NVD plans to expand its distribution internationally and already has distribution relationships in China and Canada.

The company’s Bar Club membership has experienced notable growth; its membership has grown to nearly 2,200, which, at $320 per year for a membership, equates to over $700,000 in annual recurring revenue. Further, membership is increasing by roughly 100 new members per month. New members historically have come from the Distillery tours and tastings, the Oxbow bar shop, or online channels. Club members are located in 45 of the 50 U.S. states but reside predominately in California (64%). Following California, the most significant memberships come from Texas (5%), Florida (3%), and Illinois (2%).

Historical Financials

In 2016, NVD generated over $1.8 million in total sales, up roughly 28% from 2015 sales. The company’s gross profit surpassed $1.2 million in 2016, up 31% from the prior year. In terms of revenue and gross profit, each quarter in 2016 was higher than the corresponding quarterly performance from 2015. Year to date (YTD) as of September 2017, NVD has generated over $1.3 million in total sales, up 11.6% from the same period in 2016. The company’s YTD gross profit through September was over $771,000, down from the same period last year as NVD has allocated more funds to building up its inventory. YTD as of September 2017, Costs of Goods Sold have surpassed $594,000, versus roughly $578,000 for all of 2016.

In 2016, the company generated nearly $800,000 from sales at the Oxbow Tasting Room and Bar Shop, down slightly (~5%) from the prior year. The second highest revenue source in 2016 was the Bar Club, which generated over $673,000 from membership dues, up nearly 48% from the prior year. YTD as of September 2017, NVD has generated over $508,000 from the Oxbow Tasting Room and Bar Shop and over $457,000 from the Bar Club, down 10.6% and 5.1%, respectively, from the same period last year. However, sales from the company’s Tasting Salon, which opened at the Distillery in January 2016, have surged 215% from the same period last year, generating over $220,000 YTD as of September 2017. Other sources of revenue included website sales, over-the-phone sales, private events, marketing partner revenue, and wholesale distribution.

In 2016, operating expenses totaled just over $882,000, up 28% from 2015 operating expenses. Payroll, the largest line item, experienced the largest year-over-year increase, rising roughly 62% to reach $236,331. Costs related to the company’s expansion, which included opening the event center and tasting room at the Distillery, were also notable expenses in at the end of 2016. YTD as of September 2017, operating expenses have totaled over $645,000; payroll (~$229,000) and rent (~$165,000) have been the two largest expenses thus far in 2017.

In 2016, the company generated a net profit of $263,658, up 34% from 2015 net income. NVD was profitable in each quarter last year, though most of its profit came in the fourth quarter, during which it generated over $129,000 in net income. YTD as of September 2017, the company has generated a net profit of roughly $82,000, down 19% from the same period last year. As noted above, the company’s expenses have increased as more money has been put towards building up inventory, resulting in a decreased YTD bottom line.

Industry and Market Analysis

In 2016, U.S. retail sales of distilled spirits were estimated at nearly $78 billion. Supplier (wholesale) sales to retailers increased 2.4% year over year to reach 220 million cases in 2016, worth $25.2 billion. This marked the seventh consecutive year that distilled spirits has gained market share relative to beer.vii Further, the distilled spirits market has been primarily driven by growth in high-end premium and super premium products – bottles that retail for at least $20.

In 2016, vodka accounted for almost one-third of total spirits volume with 69.8 million cases sold. Total vodka sales generated $6 billion in revenue. Revenue from super premium vodka (bottles that retail for over $30) rose 13.1% year over year to reach $1.3 billion (6.3 million cases). There were 48.4 million cases of North American whiskey sold in 2016, worth $5.7 billion. Super premium American whiskey volumes increased 11.8% (to 2.1 million cases), while revenue jumped 13.5% year over year to $467 million. High-end premium American whiskey volumes rose 5% (to 10.4 million cases) and revenue rose 5.7% to $1.8 billion. Rye had the largest sales volume increase in 2016, growing nearly 17% year-over-year to 785,000 cases.viii

Local distilleries have contributed to the overall growth in the distilled spirits market. In 2015, the craft spirits industry generated roughly $2.4 billion in retail sales, with volume growing at a compound annual growth rate of 27.4% between 2010 and 2015.ix From 2010 to 2015, the number of craft distillers grew at a compound annual growth rate of 41.6%. As of August 2016, there were 1,315 craft distillers active in the U.S., with the largest concentrations in the West (mostly in California, Washington, and Colorado) and the South (mostly in Texas). Based on a compound annual growth rate of 19.6%, the number of craft distillers could surpass 2,800 by 2020.x

Out of those 1,315 craft distillers, 91.7% are defined as small producers. Yet, because small distilleries produce a limited quantity of spirits – usually single batches at a time – they accounted for just 12.1% of the craft spirit cases sold in 2015. For these small distillers, generating revenue on premise (at the distillery) is especially important, as on-site sales make up 25% of their revenue on average. Of small craft producers’ revenue, 67% is generated within the distillery’s state of operation but outside the premise.xi

Thanks to a recent state law, the craft distillers market is poised for additional growth in California. The Craft Distillers Act of 2015 (AB1295), which went into effect January 1, 2016, created a new license (Type-74) specifically for California artisanal distilleries producing less than 100,000 gallons of distillate per year. The law permits these types of distilleries to host private events, have a restaurant on site, and serve cocktails. The new law also allows direct-to-consumer sales; prior to the law, purchasing a bottle at a distillery in California was illegal unless there was an on-site liquor store owned and operated by a third party who was required to deliver from its own supply held in an off-site warehouse.xii

Competitors

The spirits industry is intensely competitive and, with respect to craft spirits, highly fragmented. While thousands of independent craft distilleries remain spread across the U.S., there have been some notable acquisitions by larger spirits producers. Below are some notable acquisitions:

Jim Beam: Founded in 1795, Jim Beam is one of the world’s oldest and largest producers of bourbon whiskey. After seven generations, Jim Beam has become one of the most recognized bourbon whiskeys in the world.xiii The company produces whiskey made from rye, barley malt, corn, and a secret in-house yeast to provide the consistent Jim Beam flavor. The whiskey is then double distilled before being finished in charred oak barrels.xiv In 2014, Japan’s Suntory acquired Jim Beam for $16 billion, naming the division Beam Suntory.xv

Angels Envy: Founded in 2010, Angels Envy is a small batch craft distiller focused on whiskey, with its primary product line being Kentucky Straight Bourbon. The handcrafted bourbon is made in batches of only eight to 10 barrels and finished in port wine casks. Unlike most traditional brewers, Angels Envy is sampled in each step of the finishing process.xvi In 2015, Angels Envy was acquired by Bacardi for about $150 millionxvii but continues to operate in the same fashion before the merger. In 2014, Angels Envy sold 45,000 cases and, around the time of the acquisition, sales were projected to reach 65,000 cases in 2015.xviii

Buffalo Trace: With a history dating back to the late 1700s, Buffalo Trace Distillery is a Kentucky-based bourbon whiskey distillery. In 1992, the Sazerac company purchased the distillery and renamed it Buffalo Trace Distillery (from George T. Stagg Distillery).xix The distillery became the first American distillery to win Whisky Advocate’s “Distillery of the Year” award in 2000. In 2013, the distillery became a National Historic Landmark.xx

High West Distillery: Founded in 2006, High West Distillery produces a core line of whiskey blends, limited-release whiskeys, and barrel-aged cocktails. The four core High West Whiskey products are American Prairie Bourbon, Double Rye!, Rendezvous Rye, and Campfire, a blend of Scotch, bourbon, and rye whiskeys. In October 2016, Constelland Brands, the largest U.S. alcohol maker, agreed to acquire the distillery for $160 million.xxi High West sells approximately 70,000 cases annually.xxii

Smooth Ambler Spirits Co.: Founded in 2009, Smooth Ambler is a distillery based in the Greenbrier Valley of West Virginia that uses local resources to craft spirits, including gin, vodka, rum, and whiskey. In 2016, Pernod Ricard, the maker of Absolut Vodka and Jameson Whiskey, acquired a majority stake in the distillery.xxiii

Tuthilltown: Founded in 2005, Tuthilltown is New York’s first whiskey distillery since prohibition, based in the Hudson Valley. Using ingredients from local farmers, it produces a vodka line and a Hudson Whiskey line, which are each made by hand one at a time.xxiv In 2010, this craft disillery was acquired by William Grant & Sons.xxv 

Locally (Napa and Sonoma areas), there are several independent craft distilleries that potentially compete with Napa Valley Distillery. These include, but are not limited to:

  • Charbay Distillery & Winery: Located in Helena, California, founded in 1983, and produces whiskey, tequila, vodka, rum, brandy, and other spirits.
  • Hanson Spirits: Located in Sonoma, California, founded in 2013, and produces flavored artisan organic vodka.
  • Prohibition Spirits Distillery: Located in Sonoma, California, founded in 2009, and produces whiskey, rum, gin, brandy, Limoncello-inspired spirits, and other specialty spirits. Also has a distillery tasting room.
  • Spirit Works Distillery: Located in Sebastopol, California (Sonoma County), founded in 2012, and produces vodka, gin, sloe gin, and whiskey. Also has a distillery tasting room.
  • Sonoma Brothers Distilling: Located in Windsor, California (Sonoma County), founded in 2012, and produces gin, vodka, whiskey, rye whiskey, and distiller’s reserve brandies and white whiskey. Also has a tasting room.
  • Sonoma County Distilling Co: Located in Rohnert Park, California (Sonoma County), founded in 2010, and produces rye whiskey, wheat whiskey, and “West of Kentucky” bourbon whiskey. Also has a tasting room.

Executive Team

Arthur Hartunian, Co-Founder, Proprietor, and Master Spirits Maker: Arthur’s introduction to spirits and cocktails started in his teens. As a native Armenian, having wine, brandy, and other spirits around the dinner table was part of the family culture. It wasn’t until at the age of 21 when he took a job as a paralegal in a prominent Hollywood, California, law firm that his love affair for cocktails began. While having cocktails after work with his bosses, Arthur’s interest grew. He became extremely passionate about craft cocktails and began to educate himself through dozens of books and experimentations. Over the next 25 years, his passion eventually grew to an obsession, with a goal to make the best and most unique spirits in the world. Arthur is responsible for creating the company’s entire product portfolio and personally manufactures many of NVD’s spirits to this day. From spirit formulations and label design to production and marketing strategies, Arthur is passionately involved. As a result of his commitment to grow and protect California’s craft spirits industry, Arthur is well-known and respected by his industry peers. He was the founding President of the California Artisanal Distillers Guild. Under his leadership, AB 933 was enacted into law, allowing all California distilleries the ability to operate tasting rooms. This was the first supplier-side spirits law change in California since the repeal of Prohibition.


Lusine Hartunian, Co-founder and Retail Store Manager: Lusine has been passionately involved in just about every aspect of the company since its start in 2009. From peeling lemons with Arthur and their kids for the company’s first batch of Limoncello to now serving as Retail Merchandiser, Lusine’s talents and undying commitment have helped make Napa Valley Distillery one of the most unique places to visit in Napa. An accomplished designer, Lusine has been instrumental in helping create labels, store design, and build the overall company image. She is also a chef and enjoys preparing food and pairing food with NVD spirits and cocktails. Lusine owns and operates Napastak Napa Valley, an epicurean boutique located inside the Oxbow Public Market.



Ian Winget, Director of Consumer Sales: After his two-and-a-half-year stint in Queensland, Australia, where he earned his Masters of International Business, Ian settled in Napa and found employment in direct-to-consumer marketing at a notable sparkling wine house in Yountville, California. There, he honed his skillset as he took on additional responsibility managing the ecommerce and wine club department. In 2013, Ian launched his own locally produced cocktail bitters company ─ Napa Valley Bitters ─ and began his career at Napa Valley Distillery. At NVD, Ian took the reins of the newly launched website, ecommerce channel, and helped launch the Bar Club in the U.S.



Paul Martin, Lead Brand Ambassador: Paul has been a beverage alcohol industry professional since 2008 having worked in production, bottling, tasting rooms, and cocktail education. He has been with Napa Valley Distillery since 2013 as tasting room manager and was recently promoted to Lead Brand Ambassador, leading tours, tastings, and events. Prior to joining NVD, Paul was the tour guide and tasting room commander at St. George Spirits in Alameda, California.


Fund Terms

MicroVentures is offering Series 1 Units of DVC Fund I LLC (the “Fund”). The fees associated with your investment in the Fund are briefly highlighted below. A detailed description of each fee can be found in the Private Placement Memorandum.

Minimum Investment: $10,000

Management Fee: 3% of invested amount each year for first two years, then 0.5% of invested amount annually

Carried Interest: 10% of profit after initial capital contribution is returned

Offering Costs: 1.5% of capital contribution paid upon closing

Investment Terms*

The Fund anticipates investing in the Company at the following terms:

Security Type: Series Seed Preferred Units

Price per Unit: ~$1.15

Pre-money Valuation: $11.5 million

Liquidation Preference: 1x

Conversion Provisions: Convertible into Membership Units (subject to proportional adjustments for unit splits, dividends, and the like) at any time at the option of the Series Seed Unitholder.

*Please note: Investment terms, stated above, are subject to change and will be finalized upon closing of the transaction between our Fund and the Company. 

Risks

You should be aware that an investment in Units of the Fund, and the Fund’s investment in Company Securities, involves considerable risks, including the possible loss of all or a material portion of your investment. The abbreviated risks set forth below, as well as the detailed risk factors set forth in the Confidential Offering Memorandum and Supplement, are not the only risks facing investors.

Company Risks

The Company, Napa Valley Distillery, is a craft distiller that makes over a dozen small-batch and limited-release spirits, including brandy, gin, rum, vodka, whiskey, and bourbon, as well as barrel-aged craft cocktails.

The Company is subject to a number of significant risks that could result in a reduction in its value and the value of the Company Securities, potentially including, but not limited to:

  • Inability of the Company to complete an initial public offering of its securities, merger, buyout or other liquidity event,
  • Inability to expand and maintain market acceptance for the Company’s services and products in the United States,
  • Inability to gain access to international markets and comply with all applicable local laws and regulations,
  • Rapidly changing consumer preferences and market trends,
  • Inability to achieve management’s projections for growth, to maintain or increase historical rates of growth, or to achieve growth based on past or current trends,
  • Inability to develop, maintain and expand successful marketing relationships, affiliations, joint ventures and partnerships that may be needed to continue and accelerate the Company’s growth and market penetration,
  • Difficulties in managing rapid growth effectively,
  • Inability to keep pace with rapid industry, technological and market changes that could affect the Company’s services, products and business,
  • Potential costs and business disruption that may result if the Company’s customers complain or assert claims regarding the Company’s technology,
  • Failure to adequately address data security and privacy concerns in compliance with U.S. and international laws, rules and policies,
  • Technological problems, including potentially widespread outages and disruptions in Internet and mobile commerce,
  • Performance issues arising from infrastructure changes, human or software errors, website or third-party hosting disruptions, network disruptions or capacity constraints due to a number of potential causes including technical failures, cyber attacks, security vulnerabilities, natural disasters or fraud,
  • Inability to adequately secure and protect intellectual property rights,
  • Potential claims and litigation against the Company for infringement of intellectual property rights and other alleged violations of law,
  • Difficulties in complying with applicable laws and regulations, and potential costs and business disruption if the Company becomes subject to claims and litigation for legal non-compliance,
  • Changes in laws and regulations materially affecting the Company’s business,
  • Liability risks and labor costs and requirements that may jeopardize the Company’s business,
  • Ongoing need for substantial additional capital to support operations, to finance expansion and/or to maintain competitive position,
  • Issuance of additional Company equity securities at prices dilutive to existing equity holders,
  • Dependence on and inability to hire or retain key members of management and a qualified workforce,
  • Potential significant and unexpected declines in the value of Company equity securities, including prior to, during, and after an initial public offering, and
  • Other risks that are not generally disclosed or known, in part because the Company is privately held and does not provide risk disclosure in publicly available reports.

In addition, the craft spirits industry is highly competitive, and the Company may not be able to compete effectively against the other businesses in its industry. The Company faces competition from a large number of competitors, the owners of Jim Beam, Angels Envy, Buffalo Trace, High West Distillery, Smooth Ambler Spirits, and Tuthilltown, some of which have longer operating histories, significantly greater financial, technical, marketing, distribution and other resources and greater name recognition than the Company does. These and other companies may develop new services and products and marketing and distribution channels in advance of the Company or establish business models or technologies disruptive to the Company’s business. Moreover, current and future competitors of the Company may also make strategic acquisitions or establish cooperative relationships among themselves or with others. By doing so, they may increase their ability to meet the needs of customers and potential customers. To the extent that the Company is not able to compete successfully against current and future competitors, the Company’s business, results of operations and financial condition may suffer. It is impossible for anyone to know with any certainty which of the companies will be more successful than the others, and an investment will be subject to all of the risks inherent in any investment in a nascent business and industry with a number of different competitors.

The business of the Company and investment in the Company Securities may also be jeopardized by stagnant economic conditions and by political, geopolitical, regulatory, financial and other developments in the United States, Europe, China, the Middle East and elsewhere around the world, including incidents of war and terrorism, outbreaks and pandemics of serious communicable diseases such as Ebola, and natural and man- made disasters that are beyond the Company’s control and could disrupt its business and adversely affect its performance and financial condition.

Investors must understand that by purchasing Units they are voluntarily assuming all of the risks of the investment, including any and all risks relating to the Company and Company Securities, whether disclosed in this Fund Summary, Offering Memorandum and Supplement or not.

Endnotes

i. https://sipawards.com/content/results/sipawards2012results.pdf

ii. http://www.prweb.com/releases/2010/12/prweb4137494.htm

iii. https://sipawards.com/content/results/sipawards2011results.pdf

iv. http://www.prweb.com/releases/2010/12/prweb4137494.htm

v. https://sipawards.com/content/results/sipawards2010results.pdf

vi. http://www.winemag.com/wp-content/uploads/PDFs/Top50_Spirts.pdf

vii. http://www.discus.org/2016AnnualEconomicReport/

viii. http://www.discus.org/assets/1/7/Distilled_Spirits_Industry_Briefing_Final.pdf

ix. http://www.prnewswire.com/news-releases/study-finds-more-than-1300-active-craft-spirits-producers-in-us-300346618.html

x. http://www.americancraftspirits.org/wp-content/uploads/2016/10/CSDP-10182016FINAL.pdf

xi. Ibid.

xii. http://www.sfchronicle.com/food/article/New-law-could-spark-golden-era-of-California-6807615.php 

xiii. http://www.jimbeam.com/en-us/make-history

xiv. http://www.jimbeam.com/en-us/behind-the-bourbon/process

xv. http://www.bbc.com/news/business-27233882

xvi. https://www.angelsenvy.com/whiskey/

xvii. http://www.chicagotribune.com/business/ct-changing-spirits-industry-0911-biz-20160908-story.html

xviii. http://www.kentucky.com/news/business/bourbon-industry/article44565777.html

xix. http://www.sazerac.com/BuffaloTrace.aspx

xx. http://www.buffalotracedistillery.com/unmatched-history?start_year=1900#

xxi. http://fortune.com/2016/10/05/constellation-brands-craft-whiskey-high-west/

xxii.http://www.cbrands.com/news-media/award-winning-high-west-distillery-joins-constellation-brands

xxiii. http://fortune.com/2016/12/08/pernod-ricard-smooth-ambler-deal/

xxiv. http://www.tuthilltown.com/history/

xxv. https://www.eater.com/2016/9/12/12716090/craft-spirits-conglomeration

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