One of the ways a winery or microbrewery can raise funding is through a private placement. This is where a private investor gives money to the business in exchange for an equity stake in the business. This is not debt financing because there is no obligation to make loan payments or pay interest. The investor puts its money at risk in your business trying to take advantage of a growing company where his investment will gain value over time. The funds received by the company can be used to pay down existing debt, fund expansions or support general operations expenses. The offer made to potential investors is called a private placement memorandum and must comply with state and federal securities regulations or fall within one of the exemptions.
Often, investors will require “preferred stock” for their equity shares, meaning that their dividends are paid first (along with other preference rights). Large investors may also demand a seat on the Board of Directors or other participation in management decisions and oversight. Adding an experienced or networked person to your Board can provide extra advantages to many companies.
Wineries and microbreweries often entice private investors with wine dividends, investor parties, owner privileges and other incentives. Wealthy wine enthusiasts enjoy being part of this artisan industry.
As with any business issue, there are rules and regulations that must be followed. Both federal and state law needs to be consulted when considering a private placement transaction. Consider discussing your situation with a qualified attorney who can help steer you though this maze.