After winning several awards for its new bourbon products, Cleveland Whiskey is marketing the need to raise $2.5 million for further expansion.
CLEVELAND, Ohio - Cleveland Whiskey, a startup with a proprietary method that hastens the whiskey-making process, is out to raise $2.5 million in the next 90 days.
Launched in March 2013, the company is already getting national and international attention - including a visit from President Obama six months ago. In May, Cleveland Whiskey introduced Cleveland Underground - a 94-proof bourbon finished with black cherry wood. It's already won three gold medals - and a double gold medal at the China Wine & Spirits awards.
Now the company is marketing the need to raise funds for further expansion. Through newly permitted SEC 506(c) general solicitation, Cleveland Whiskey recently launched a new webiste, invest.clevelandwhiskey.com, as a portal for accredited investors.
Basically, the company plans to sell stocks to accredited or sophisticated investors with a special status under financial regulation laws. They include high-net-worth individuals who have access to complex and higher risk investments such as venture capital or angel investments.
"What we can do is essentially advertise for investors online, but I can't take money from them unless they're defined as accredited investors," said Tom Lix, founder and chief executive officer of Cleveland Whiskey.
The minimum investment is $25,000. Lix said he would have preferred to try to raise money with typical online crowdfunding methods that would be available to all of its customers - people who could invest in much smaller amounts.
With crowd-funding sites like Kickstarter however, companies are able to give away products or bonuses. Due to state and federal regulations, you can't give away whiskey.
"I would love to have our customers invest in the company. But they can't right now because of the regulations," he said.
It's a company that makes making whiskey radically different from the rest. With most whiskeys taking six to eight years to age, Lix said Cleveland Whiskey went from taking six months to make the whiskey to about 24 hours.
"We've gotten better," Lix said matter-of-factly.
The goal is to scale technology, continue expanding distribution domestically and internationally, pay off some early loans and provide working capital for overall expansion.
Flashstarts, a Cleveland-based business accelerator, is assisting the company - using its software for the fundraising process.
"Cleveland Whiskey is a local tech company in a multi-billion dollar industry that hasn't changed in generations," said Grace Moenich, a Flashstarts spokeswoman said. "They are now also the first high-profile company to publicly raise funds in Cleveland."
On the fundraising website, Lix is quoted as saying:
"There are people in the industry who call it sacrilege - Disruptive technologies rarely make the existing players happy. We just think it makes good whiskey."
The company has recently won multiple gold medals for blind taste testing. It's making strides in an industry that has grown rapidly. Bourbon and Tennessee Whiskey consumption in the U.S. has grown by 47.7 percent in the past 10 years, according to The Distilled Spirits Council of the United States (DISCUS), the national trade association representing America's leading distillers and nearly 70 percent of all distilled spirits brands sold in this country.
With most whiskeys taking six to eight years to age, many talk of a whiskey shortage. Many people are also talking about Cleveland Whiskey - including drinks writer and Wall Street Journal's bestselling author Fred Minnick.
He wrote a blog following President Obama's visit to Cleveland Whiskey, calling the whiskey-making process "controversial." He included a politically correct comment from the head of the Kentucky Distillers Association, calling on the president to visit Kentucky distillers.
"In Kentucky, we put our money where our mash is. We're proud of the $1.3 billion in capital investment and thousands of high-paying jobs that our signature industry has created and committed," KDA's Executive Director Eric Gregory was quoted as saying.
In the blog, Minnick said Cleveland Whiskey draws criticism for its over-oaked style. It's aged for one week using Lix's technology.
"Since this product hit the market a couple years ago, I've noticed the taste went from licking a broken tree branch to licking an empty barrel that's been sitting in the yard for a couple days. In other words, Cleveland Bourbon has improved, but I still prefer the old-fashioned way of making bourbon. Then again, Cleveland Bourbon gains widespread attention in the media because people consider this whiskey 'innovative' and the market clearly accepts his product."
Lix doesn't mind the critics. It actually encourages him to keep pushing forward. The early success of Cleveland Underground - the new bourbon - has moved the company to consider rolling out a whole line of transformative woods to use in the whiskey-making process. For generations the industry has used only oak.
"I'll accept that we're controversial and know full well that traditionalists consider us heretics," Lix said. "This is an industry that hasn't changed in generations, and we're bringing disruptive technology into a space that simply isn't comfortable with new ideas."