Vineyard & Winery Management

8 2 V I N E YA R D & W I N E RY M A N A G E M E N T | M a r - A p r 2 017 w w w. v w m m e d i a . c o m app is a popular way to keep a log of wines consumed by snapping pictures of the labels. The app's optical recognition then deciphers the label and inputs the wine's name, vintage and other details into the user's database, where he or she also can rate the wine on a five-star scale. (There's also a pur- chase option through retail part- ners.) The free app boasts more than 10 million users. So far, all of those eyeballs have helped the company raise more than $37 mil- lion in private equity money. Coravin came in a close sec- ond, raising $22 million this year. The company, formerly known as Wine Mosquito, h a s a p r o d u c t that extracts one glass of wine at a time from a bottle without a c t u a l l y p u l l i n g t h e cork. The device has a syringe-like needle that both pushes in argon gas and sucks o u t t h e w i n e . I t 's gained traction in bars a n d r e s t a u r a n t s s i n c e it's cheaper than many wine preservation systems for by-the-glass pours. Will the $300 product with replacement cartridges that fetch $18 per pair (enough argon for 30 glasses of wine) do well in the consumer m a r k e t ? I n v e s t o r i n t e r e s t h a s been piqued to the tune of $43 million so far. Winc, formerly known as Club W, took third place in the private equity sweepstakes, with a $17.5 million round. The company is a wine-of-the-month club that sourc- es wines from around the world and bottles them in California. Consumers complete a "palate END POST TYLER COLMAN n American child now seven years o l d h a s n e v e r known the federal funds rate to be as high as 1%. Not that kids think about interest rates while playing with Legos, but the point remains: Rates have been very low for a long time. Winery owners love low rates for financing new projects. That's the benefit of low rates on the macro economy: Businesses can borrow and invest in their devel- opment. But cheap money and little fixed return have pushed s p e c u l a t i v e c a p i t a l i n t o r i s k i e r and, theoretically, more rewarding investments. Over the life of that same child, stock val- ues have risen more than 200%. A l o t o f t h i s speculative money has flowed into pri- vate equity. Much o f i t i s d e s e r v e d , of course, fueling America's innova- t i o n i n r i d e s h a r- ing and apps to send photos that vaporize. But t h e r e 's s i m p l y a l o t o f cheap capital sloshing around. For example, Fortune magazine now lists 176 "unicorns," or pri- vate companies, valued at $1 bil- lion or more. WINE INTERESTS Some of that tsunami of money has poured into corners of the wine world. In 2016, investors placed $65 million into three wine-related startups. Vivino raised the most, with a $25 million round. The company's profile," which includes questions about whether they like raspberries or take milk in their coffee. Accord- ing to news reports, it's raised $30 million to date. NOT SO FRUITFUL With all these millions flying around, it's worth bearing in mind the cautionary tale of Lot 18. At the beginning of the low-rate era, back in 2010 and 2011, the wine marketing startup raised more than $45 million. Yet the business model didn't work, and investors ended up laying off most of the 200 staff members (including the founder and executive team). Sometimes money can come just too easily. Time will tell if it applies to 2016's big recipients of private equity windfalls. But one thing's for sure: Rates are going up. The 10-year yield has jumped precipitously since the elec- tion, and Janet Yellen and company at the Fed has suggested three rate hikes may be on tap for 2017. There may not be a bubble in wine private equity right now, but it all seems frothier than a fermenta- tion tank after harvest. With funny money getting more expensive, things may simmer down. And that might not be bad. Tyler Colman is a wine educa- tor and author. He has taught wine classes at NYU for more than a decade and is the author of the Dr. Vino blog and "Wine Politics: How Governments, Environmentalists, Mobsters, and Critics Influence the Wines We Drink" (University of Cal- ifornia Press). Comments? Please e-mail us at feedback@vwmmedia.com. (Opinions expressed in this column do not necessarily reflect those of Vineyard & Winery Management.) Easy Money?

• Cover