Why I Invested, #1: Deep Eddy Vodka
This is the first in the series of posts that outlines what companies I've invested in, and why I picked them. There will be at least 20 (how many investments I have now); my goal is to reach 100 early stage investments by January 1, 2018. That's about 20 a year (retroactively beginning in 2013).
Some notes on format:
Investment Amount: I don't tell the precise amounts I put in, but divide them up into three categories; 1. under 25k, 2. 25-99k, 3. 100k or more. I would be specific, but some start-ups are weird about that, so instead I give a range so you have an idea of how invested I am.
Investing Decision Rules: Through the course of writing this series, I'm going to explain very specifically about why I invested in each company individually. I do have some overall rules I use that guide my investing decisions, but I'm going to wait to outline all those until I am in at least 40 companies. This is for two reasons; 1. They are still developing because I am still learning about start-up investing, and 2. I don't want to give that sort of general advice until I am highly confident that it's good. I don't mind risking my money on my decisions, but I don't want anyone else making investment decisions based on my advice until I've tested it enough to be confident that it's generally right.
Why I Invested, #1: Deep Eddy Vodka
Company: Deep Eddy Vodka
Product: Flavored vodkas (Sweet Tea, Ruby Red Grapefruit)
Year Invested: Series A in 2010 & Series B in 2012
Amount Invested: Series A (100k or more), Series B (100k or more)
Role: Investor & Advisor
Why I Invested: This was my very first "real" investment in an early stage start-up, and I kinda fell into it by complete accident. I was out one weekend drinking with a buddy of mine in Austin, Taylor Perkins, and I ordered what I always drink, a vodka and club soda.
Taylor "You should try Deep Eddy. It's this new sweet tea flavored vodka."
Tucker "Yeah, thats what I want, another stupid, shitty flavored vodka."
Taylor "No dude, you don't understand, this is amazing. It tastes just like sweet tea, and it's made with all natural ingredients. It's made in Austin, its really good, I know the guy who did it."
Tucker "Dude, I've had Firefly, it's really shitty, I don't want anymore sweet tea vodka. I'm not a fucking little sorority girl who needs flavors in her vodka to hide the taste."
Once Taylor gets an idea in his head, there's basically no way to shut him up about it. He pestered me for 30 minutes about this goddamn drink until I realized the only out was to try the fucking drink. I figured I'd just take a sip, hate it, throw it in his face, and then get a normal adult vodka drink.
He ordered me a Deep Eddy Sweet Tea Vodka, mixed with water and a lemon. I tried it.
I was blown the fuck away.
Tucker "This is incredible."
Taylor "I TOLD YOU!!"
Tucker "Yes, but you're an idiot, you tell me all kinda of nonsensical bullshit. This is actually legit amazing."
I pounded it, ordered another, pounded that...rinse and repeat until I was like 6 in, and I felt AMAZING. It had just enough caffeine in the tea to keep you from getting that tiredness that comes with lots of vodka day-drinking. It was like the first time I ever drank a Red Bull and vodka, except it didn't taste like cough syrup and it didn't make me anxious and crazy.
Tucker "This is legitimately the first new alcohol I've had in 15 years that I've liked. I cannot believe this. How did I not know about this?"
Taylor "It's brand new, it just launched in Austin a few months ago. My buddy Clayton did it."
And then I asked the question that basically led me to this point in my life:
Tucker "Is he taking investors? This is something I'd put money into."
Indeed he was. Two days later, Taylor invited Clayton to a brunch where me, him and about 6 other people were, so I could meet Clatyon. He showed up late, and after a few minutes, Taylor introduced us...sort of:
Taylor "Clayton, you ever heard of a guy named Tucker Max?"
Clayton "Yeah, he's that guy with those books you always see in the airport right? The ones with stories about getting drunk and hooking up or whatever? I read some of those stories. They're funny, but I don't know. Do you think they're real? I think that guy might be full of shit."
The whole table cracked the fuck up. Even I was laughing, and Clayton was utterly baffled about what was so funny.
Taylor "That's Tucker Max."
I was not in the least bit offended by this, and to his credit, Clayton was super gracious about it, apologized (which he did NOT need to do), and we talked about what in the books was so unbelievable to him, and had a great conversation about it. He turned out to be an incredibly intelligent, thoughtul guy, the type of person who inspires confidence with his intellect and abilities, while still displaying real humility. I don't say this lightly: This was a dude I'd work for--and I don't work for other people. I came away from the brunch very impressed with him as a human being.
So far, I absolutely loved the product and was very impressed with the CEO. Great signs for investing. But not all you need to know. I know plenty of people who are amazing humans, but I'd never give them my money for a company.
After that, I did my research on him and Deep Eddy. In addition to my personal impressions, I found out that Clayton was extremely experienced at the beverage business. He'd started Sweet Leaf Tea, and recently sold it to Nestle, and this was his next project. The early story of Deep Eddy is here, but what was so attractive to me about this company--aside from the product itself being amazing, which is the MOST important thing--was that Clayton was a serial entrepreneur, with successes and failures under his belt. This guy had done it before.
This is a hugely important trait to look for in a management team: Real experience. He knew the beverage industry, and even better, he had hired some amazingly talented and experienced people to work with him who really knew the LIQUOR industry, and had been working in it for years. His company didn't just have him, it had an incredible management team backing him.
I was scheduled to meet with him over coffee about a week later to discuss me investing in Deep Eddy. Now, I've done well financially, but cutting a 100k+ check is no fucking joke. That's A LOT of books I worked my ass off to sell. During that week, I went to every single bar in Austin that had Deep Eddy--at that time, there were only like 15 places serving it, max--and I talked to every bartender and bar owner and customer I could about it. I knew what I thought, but I wanted to know what other drinkers and servers thought.
Pretty much unanimously, they loved it, recommended it to other people, and told me about near universal love for it from people they referred it to. Not everyone likes sweet tea of course, but for those who do, this was the most amazing thing you'd ever had; it was so much better than Firefly as to be almost a different product, and the cost was not much more.
I was 90% sure I was going to invest anyway, but this anecdotal research confirmed my personal opinion of the product, and my personal opinion of Clayton: Deep Eddy had real potential to be a major winner, and I wanted in.
We met for coffee, and Clayton started selling me on the company. I stopped him.
Tucker "Dude, I'm already sold. I'm in, I even brought my check. I just want to know how I can help make this company big."
We talked this through, and he agreed that I could and should write about Deep Eddy in my next two books (Assholes Finish First and Hilarity Ensues) if there were any organic, honest places to put a mention (and there were, mainly because by blind chance I knocked a EuroTrash out on Claytons boat dock a fews months after that, a story which is in Hilarity Ensues). We also talked about who I knew in various markets, what influencers and celebs I could get this into the hands of, etc.
I actually didn't realize it at the time, but he was interviewing me as much as I was interviewing him. Deep Eddy was raising a set amount in their Series A round, and they had allocated 20 slots at specific amounts. They were in such high demand that they could pick their investors. I made the cut without even knowing I was competing.
This was my first investment, and so far, it's turned out really well. Since 2010, Deep Eddy has completely exploded. It is now in something like 25 states, it's sales are now in mid-8 figure range, and it's growing at an incredible month-over-month rate. They raised a Series B in 2012 (that I participated in, fully) to speed up expansion and get them past the regional vs. national liquor brand inflection point, and since then, they have done even better than they predicted. Sales are over a YEAR ahead of the projections they used to raise the Series B money. They've introduced a new flavor, Ruby Red Grapefruit, that is so good I have friends who make me send them CASES of it every month because they live in states where its not sold yet.
I'm not sure what the market value of my investment is now, but it's grown quite a bit. I won't really know until the company either exits or starts paying profits out to investors instead of reinvesting everything in growth. As to what happens next, Clayton isn't sure whether they will exit to a large international liquor conglomerate (large buyout offers have already been made), or whether he'll keep growing it himself and turn it into a big company. I'm on board either way, because almost every decision he's made has been right, and I'm proud to be an investor.
I know, I sound like a fucking corporate cheerleader, but in this case, I think it's justified: I genuinely love the product, respect the team behind it, and am making great money on my investment.
Lessons I Learned:
1. Product first: One of the reasons I was so in on this company is because I LOVED the product, and it was in a field that I really knew--alcohol. I can't really imagine, at least at this point in my investing life, putting money into something I don't like, use and believe in. It's hard to evaluate companies that make things for an audience you aren't a part of. Not impossible, just hard to do.
2. Management matters: Great products are great, but if the people running the business suck, it can all go to shit. Clayton is a fucking star, and he put together a team of stars at Deep Eddy. If I wasn't so impressed with him and his team, I'm honestly not sure if I would have put money in, and definitely not as much as I did.
3. Investing Is A Two Way Street: The best companies can pick their investors; you have to also bring something to the table. I brought quite a bit for Deep Eddy.