When Are Spirits Brands Ready for VC Investment?

Thank you all for having me today. I’m Connor McKenna, and I run investments for Pronghorn. We are a venture capital fund dedicated to spirits brands. Over the last five years, we’ve invested in and supported companies all the way from concept phase up through Series A.

Our goal today is to walk through early fundraising realities, the financial mechanics of your P&L, and how to navigate the first three years of your journey.

The question we hear most often from founders is: “How can I get a VC to underwrite my business?”

I understand the impulse, and I’m certainly not here to talk myself out of a job. But in reality, the vast majority of brands entering this industry are self-funded or bootstrapped. That is followed by about a third backed by friends, family, and angel investors. Only a tiny fraction of spirits brands are funded by venture capital—and there is good reason for that.

There is a myth around landing that headline and securing the big check. But in your first three years, your greatest asset is maintaining operational control and flexibility to refine your business model and identify repeatable growth drivers.

Being under-resourced is actually a focusing mechanism. It forces you to target the right accounts at the right time and understand how consumers and trade interact with your liquid.

The Realities of Venture Capital

While venture capital provides networks, strategic know-how, and industry credibility, institutional capital brings strict trade-offs:

• Compressed Timelines: Most VC funds look to monetize their investments within a 5-to-7-year window. That requires board seats, formal governance, rigorous financial reporting, and aggressive short-term growth milestones to prove you remain on trajectory.

• Loss of Agility: A Sotol founder told me recently: “Transparently, I want nothing to do with you for the next three years.” In your early stages, your priority is to stay nimble and learn. An institutional check can limit that freedom when you need it most.

• Compounding Dilution: Data from Carta shows founders surrender roughly 20% equity during each priced funding round. Raising continuously through Series C leaves founders with an average of just 37% ownership.

┌─────────────────────────────────────────────────────────────────────────────┐
│                       THE MATHEMATICS OF DILUTION                           │
├─────────────────────────────────────────────────────────────────────────────┤
│ • Scenario A (Heavy VC):  $50M Exit  ×  37% Founder Equity  =  $18.5M       │
│ • Scenario B (Bootstrapped): $28M Exit  ×  66% Founder Equity  =  $18.5M    │
└─────────────────────────────────────────────────────────────────────────────┘

Selling equity before you know how that capital will drive scalable velocity is giving away value prematurely. Preserving your equity early on is not anti-investor—it is pro-proof. Disciplined founders delay pricing risk until they can explain precisely what moves bottles off the retail shelf.

┌─────────────────────────────────────────────────────────────────────────────┐
│                      THE CAPITAL STAGES OF A SPIRITS BRAND                  │
├─────────────────────────────────────────────────────────────────────────────┤
│ 1. YEARS 1–3  ➔ Bootstrapping, Friends & Family, Angels.                    │
│                 Obsess over POS, messaging, and proof of concept.           │
│                                                                             │
│ 2. SCALING    ➔ Codified growth drivers; proven local velocity.             │
│                                                                             │
│ 3. INSTITUTIONAL➔ Venture Capital & Strategic Growth Equity.                │
│                 Pouring gas on an existing fire.                            │
└─────────────────────────────────────────────────────────────────────────────┘

Founders frequently attempt to sprint to institutional funding with less than 12 months of sales data, only to burn capital on unproven routes to market.

Isolating the “Signal in the Noise”: The Jägermeister Example

Do not invest in a program, market, or channel unless you have the infrastructure to measure the results and extract learnings.

Look at Jägermeister: decades ago, before their custom tap machines and frozen shot rituals were ubiquitous, the brand was distributed nationally with steady sales. However, depletion data revealed an anomaly—one retail store was outselling the rest of the country by nearly 50 to 1.

The owners investigated and discovered a simple operational tweak: the retailer was putting the bottle directly into a chest freezer and serving it ice-cold. It created a distinct consumption ritual that consumers adopted immediately.

Consider the difference in an investor pitch before and after discovering that data point:

• Before: “We’re in bars all over the country and we think we’re doing well in dive bars, but we aren’t completely sure what’s driving reorders.”

• After: “I need $1 million to deploy 500 branded freezers into high-volume target accounts. When an account gets a freezer, our velocity jumps from 1 case per month to 10 cases per month. That generates an ROI of X. Would you like to fund that growth?”

Account-level data transforms your narrative from speculative marketing into a clear commercial proposition.

Financial Benchmarks Across the Lifecycle

The investment demands of an early-stage spirits brand put significant pressure on a P&L:

• Cost of Goods Sold (COGS): Early on, you lack purchasing leverage with glassmakers, raw material suppliers, and bottlers, resulting in high unit costs.

• Advertising & Promotion (A&P): Initial trials and awareness are expensive, often consuming over 50% of top-line revenue.

• SG&A Overhead: Fixed selling, general, and administrative expenses sit against a small initial revenue base.

┌───────────────────────┬───────────────────────┬─────────────────────────────┐
│ LIFECYCLE PHASE       │ A&P (% OF SALES)      │ TARGET GROSS MARGIN         │
├───────────────────────┼───────────────────────┼─────────────────────────────┤
│ Startup (Years 1–3)   │ 40% – 50%+            │ 35% – 45% (compressed)      │
├───────────────────────┼───────────────────────┼─────────────────────────────┤
│ Growth (Years 4–6)    │ 25% – 35%             │ 45% – 55%                   │
├───────────────────────┼───────────────────────┼─────────────────────────────┤
│ Mature / Exit Ready   │ ~20%                  │ 50%+                        │
└───────────────────────┴───────────────────────┴─────────────────────────────┘

As your account footprint expands, average velocity per door often declines mathematically, but an 80/20 dynamic emerges. By Year 6 or 7, your bottom-line volume is anchored by roughly 10% of your accounts (the “whale” accounts) moving 30, 40, or 50 cases a month. Those are the accounts to dissect and replicate.

What Gets You the Institutional Meeting

Evidence beats elegance nine times out of ten. When you sit down with an institutional investor, pitch decks matter less than demonstrated commercial traction:

• Clear Route-to-Market (RTM): Signed wholesaler agreements and a clear pipeline of targeted retail and on-premise doors.

• Account-Level Velocity: Exact rate of sale by channel, account, shelf, and week.

• Use of Proceeds: Clear financial and distribution milestones mapped directly to the capital requested.

Every institutional investor evaluates three core questions:

1. How much capital do you actually need?

2. What specific levers are you spending it on?

3. What does the business look like once that capital is deployed?

Final Takeaways for Early Founders

• Plan on Bootstrapping Early: Use initial capital constraints to develop discipline around product-market fit.

• Track Account Velocity: Know your exact rate of sale across every account tier.

• Align with Distributors: Distributors and institutional investors evaluate brands through the same lens—both look for predictable, repeatable pull-through.

• Manage Margin Evolution: Monitor your P&L to ensure each incremental marketing dollar yields higher gross margins and improved efficiency over time.

• Protect Your Equity: Avoid selling significant ownership for short-term liquidity. Raise patient capital from partners aligned with your long-term growth plan.