In conjunction with ‘business accelerator’ Independents United, Diageo has launched a new service called Distill Ventures. The company will invest in young spirits businesses to help them grow. Their two programmes are called Seed and Growth, depending an the stage the business currently is in. Investments are said to range from £150k for startups up to £2 million for buisinesses that are already up and running.
So far so good. But anyone interested in this opportunity should also read the fine print, because a deal “will include a right for Diageo to buy your whole business at a defined point in the future“. In addition, participants are required to pay for the benefits they receive by joining one of the programmes which include office space in London (yes, you are required to run your business from London for at least six months) and general support from Diageo like masterclasses and mentoring.
“Why would I agree to give Diageo an option to buy out the whole company?
Many startup drinks brands plan on one day selling to a bigger drinks company who can then take the brand global. Diageo is the world’s biggest premium spirits company, and have successfully acquired and then grown brands like Bulleit Bourbon and Bushmills. The option provides you with an exit, priced to reward you for growing a profitable brand.
Diageo include this option to give them protection over their investment – they wouldn’t want to back your company and then see one of their competitors benefit by acquiring it a few years later. Whether this is the right route for you depends on your own circumstances, and you must take your own professional advice on whether this opportunity is right for you and your company.”
From Diageo’s point of view this is perfectly understandable. But new businesses in search of venture capital should think this over very thorougly. They need to decide now if and when to sell. And even if they really want to, they may not even be considered worthy when the time has come, because Diageo is not required to buy. On the other hand, should the business be doing fine they might prefer to stick with it after all but would be forced to sell anway. And if you are genuinely passionate about your idea, would you really consider to sell it before it has even properly started?
Doesn’t this remind a bit of Faust’s pact with the devil who offers to serve Faust with his magic until finally Faust’s soul belongs to him? Diageo is honest about their objectives at least and it is good that they do warn you not to take this step easily. The Team page shows that the Diageo people in Distilled Ventures work in the “Futures Team at Diageo – the team tasked with identifying and developing new and discontinuous growth opportunities for the company“. This clearly is an indication that this venture appears to be more about growing Diageo than about helping others. The programmes are named Seed and Growth. Then comes harvest time.
Bushmills and Bulleit Bourbon are cited as examples for brands acquired and grown by Diageo. I beg your pardon? Bushmills was bought from Pernod Ricard for £200 million and was hardly a budding startup venture with its centuries of history. And while Bulleit indeed is a young brand, it had already been part of the Seagram conglomerate for several years before Diageo acquired it. Naming these well-known brands in such a context is nothing more than a lousy trick with the intention to make the programmes look more attractive.
What is it with companies like Diageo or also Dalmore that time and time again attract “bad press”? Is it really just because they are big and the public loves to team up with the underdogs? Of course there is a notion among whisky geeks that any company bigger than Benriach is evil by definition. But this is just romantic nonsense. It may be more about corporate …erhem.. culture, actually.
While in some respects Diageo is quite conservative, there is a certain aggressivity that often can be noticed in their business decisions, and this is why people jump at them. Take a look at Pernod Ricard for example who don’t exactly qualify as a “craft distiller” either. Hardly ever you hear news from them worthy of a commentary. At least their whisky business appears to run smoothly and mostly quietly which, honestly, I prefer.
One further thought picking up a discussion in the comment section: If this project simply was about helping small business to turn their ideas into a profitable brand, I would be all in favour. But the buy-out option also allows “serial entrepreneurs” to cash in on their ideas and then to move on to a new venture. This is definitely not a concept that I am comfortable with.