Background
When the Three-Tier System (TTS) was established in 1933 to separate the alcohol supply chain after the end of Prohibition, it created the unintended consequence of creating siloes in the industry. In today’s age where data drives decision making and ecosystem efficiencies, the alcohol industry is stuck with manual ordering, in-store inventory case counting, and blind trade spend decisioning. As next-generation POS players like Toast, Dutchie and Square built multi-billion-dollar businesses connecting the restaurant, cannabis, and SMB ecosystems, the $75B liquor store industry has been left behind.
Liquor stores represent a classic Levante end-market. 45,000 stores in the US means that with the right distribution strategy, high market share can be achieved quickly. $75B of annual sales means a player with high share of locations is well-positioned to extract value through embedded finance and adjacent products without much competition. High revenue per store, ~$1.7M, means owning the control point of a liquor store can lead to a high ACVs. The opportunity exists to build a monopoly-like business, as Encompass and VIP have done in alcohol distribution, and Davisware did in commercial kitchens.
Founder
By the time I was introduced to Patrick at Toba Capital in July, who led rounds in Scotch founder Jake’s last company Skupos, I had already started to build a thesis in this space after speaking and passing on another entrant, Santé. Patrick and I immediately connected on our shared excitement around the idea that vertical businesses who hit high market share quickly can dominate, expand, and build large, capital efficient outcomes. However, we agreed that it needed an industry-hardened founder who could speak the customer’s language and had some unfair way to get distribution quickly. Patrick told me about a portfolio company, Skupos, that was on its way to doing that in the convenience store space with 15,000 stores, signing nine-figure contracts with CPG brands for data sales.
When I saw Skupos had exited in August, I reached back out to Patrick who introduced me to Jake. Jake educated me on where he thought Skupos could have generated more value, particularly in owning the POS versus integrating, enabling payments and better data control. He also had close industry ties with some of the biggest players in retail, including alcohol distributors and large CPG brands, who were willing to back anything Jake did next as either a customer, channel partner or strategic investor. If he could bring those distributors onboard, who control over 40% of the market, then we might have a shot to build a high market share POS business for liquor stores. As well as exploring alcohol and retail, Jake and I spent a few months going back-and-forth on several of ideas.
Ideating
Although Jake was initially interested in building outside of retail, I pushed him to take these experiences and networks to the next level by doubling down on what he knew and where he could leverage his unfair advantages as a repeat founder. We started a shared research document on Notion. I flew to Denver, and we built a common set of values on how we see a long-term partnership looking, and agreed to lead the Pre-Seed. Finally, I introduced Jake to Anthony Fusco the ex-VP of Hardware at Toast, Emily Bartels the ex-VP of Payments at Mindbody and Angus Davis the founder of UpServe. Anthony signed on to become an official advisor to the company in March.
On the 17th of January Levante signed its term sheet with Scotch to invest $1M through the fund and an SPV at a $9M post-money valuation. Scotch is building the control center for liquor stores that will in turn give alcohol producers and distributors the tools to fully understand their inventory performance, trade spend and predictive ordering. Levante is grateful to collaborate with Toba Capital in this round who are backing Jake again, and Lerer Hippeau who I introduced to Jake to bring into the round. I will be joining the company’s board to focus my time and energy on helping Jake build an exceptional company.
Update: Post-investment, I’ve focussed on sourcing and interviewing early talent for Scotch. I spent time with the team understanding what they look for in an early hire from both skillset and culture fit. We agreed that the early days of company building should focus on what we call “value-creation” hires across engineering, sales, product and marketing as opposed to “value-preservation” like finance, legal and HR. One of the mistakes at Skupos was hiring these profiles too early which slowed down execution.
Kevin from Scotch emphasized the importance of looking for young, hungry sales people that have experience in brick-and-mortar sales across industries like solar, roofing and pool. This is in opposition to sales people that have crushed their targets in ZIRP-companies in software, as Kevin believes it’s difficult to figure out who actually breaks down walls to get the sale done, versus who was carried by the wave of overspending on software with little ROI.
Culture-wise we agreed it’s important for the early hire to mirror the founding team’s background: grew up outside of the coasts, a difficult upbringing that puts chips on shoulders, a history of risk taking illustrated outside of work and intellectual curiosity. I built a database of over 200 early hire profiles with the added criteria of being at least four years into their current job, multiple fast promotions and have five-to-six years of experience. Young, ambitious and likely to have completed their vesting schedule.
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I’ve been reaching out or getting connected to these candidates and saving the Scotch team time by filtering them through 30 minute interviews, sending my call notes and thoughts to the team, and connecting them to the candidates we think is a fit. I introduced Kevin to the first potential sales hire, Chandler Snow, a 28 year old solar panel sales leader who runs a 50 person team of 18-20 year olds for SunRun, and has built his regional division into the leading sales team in California. Chandler came highly referenced from an existing Levante LP.
