Winning Through Velocity With Jason Sherman Of Top Shelf Ventures

One of the most important business metrics to keep an eye on is the speed at which your products are getting out and being bought by customers. Jason Sherman of Top Shelf Ventures shares how they guide early-stage alcohol and vice brands to success by monitoring their velocity or rate of sale. Joining Scott Kelly, he breaks down how to achieve significant growth in one of the toughest and most competitive industries right now and explores the true impact of getting celebrities as product endorsers. Jason also talks about the rise of THC beverages and why it could become the fourth pillar of the alcohol industry alongside wine, spirits, and beer.

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Winning Through Velocity With Jason Sherman Of Top Shelf Ventures

If you have been listening to this show for a while, you have realized that I have done several interviews with investors in the spirits and vice industries. I have got another one. Jason Sherman is the co-founder of Top Shelf Ventures. He has got extensive background. He worked for Anheuser-Busch, helping launch their global venture arm. He founded and sold his own e-commerce company and distribution company.

He launched Top Shelf Ventures. It is a fund that focuses on early-stage alcohol and vice brands with a velocity thesis. I am going to share more about that in a minute. He is investing in companies that are at high rates of sales. In the interview, you will see that he believes the future of the industry lies in new categories like nicotine pouches and hemp-derived THC beverages, which are seeing significant growth and are poised to become the fourth pillar alongside wine, spirits, and beer. Jason emphasized that while celebrities are good.

They make good the Kickstarter brand, he emphasizes more celebrity involvement in the beginning and getting more customer love. We talked about that strategy during the interview. It was a really interesting take that he had on that. From a founder’s standpoint, the alcohol and spirits and vice industries are tough. It requires founders who have grit, and strong financial management is crucial for the challenging and often aggressive alcohol industry. Investors should seek professional vetting for opportunities in this space. That is exactly what Jason and Top Shelf Ventures provide. Give this great interview a listen. I will be back with some key takeaways.

I am excited to bring in Jason Sherman of Top Shelf Ventures. Jason, welcome.

Thank you for having me.

Jason Sherman’s Personal And Professional Background

Jason, before we jump into the fund, why don’t you share a little bit about your background before launching Top Shelf?

I am Jason Sherman. I am actually a lawyer by background, Harvard Law. I got into the alcohol space while working at a large firm. I got to represent one of the largest beer companies in the world when they were acquired. Following that deal, I was poached over to help Anheuser-Busch InBev start a global venture arm back in 2015.

It ended up becoming the world’s largest alcohol venture arm. We deployed just under a billion dollars in three years. We did about 200 deals. I got to see a lot of what we will call frontier alcohol projects everywhere. We did the first hard kombucha acquisition in the space, the first canned wine acquisition in the space, and the first can cocktail acquisition in Cut Water.

We also did tons of craft beer all around the world. The thing that likely put me on the map there was work in the e-commerce zone. When we started in 2015, less than 0.1% of all beer was sold online. This was well before almost anyone knew Uber Eats could sell this stuff, DoorDash, Drizly. I met these guys in Boston, the Drizly guys.

I helped set them on a path that allowed all 50 state AGs to approve investment from alcohol brands, approve marketing channels. From there, I moved on to start my own venture in the beer, e-commerce and distribution space in TapRm. TapRm ended up being the fastest-growing alcohol company in both 2021 and 2022 on the Inc. 5000 list.

Big venture backing ended up supporting about 400 beer brands and hard sales brands with e-commerce and distribution in New York sold that business. I got together with my partner, Noah Friedman. We launched Top Shelf in 2022, which I can get into. The early journey really set me into a perfect position to start what is now the leading early-stage alcohol venture fund in the world for alcohol brands and vice brands.

Focusing On The Speed Of Your Product Selling

Let us jump to Top Shelf. Talk a little bit about the fund’s thesis, what stage you are investing in, and how you invest in any particular segments within the industry.

It is pretty clear-cut. We are on our second fund now. Top Shelf began with one major thesis, which was that the alcohol industry has very few institutional capital providers, certainly independent capital providers. Almost all the money to get brands off the ground comes from friends and family. Sometimes, a consumer fund will have its token in an alcohol deal. There were no true experts in this space outside of the major alcohol players.

Diageo had a Venture Arm. Constellation had a Venture Arm where I came from, and Anheuser-Busch InBev’s Venture Arm. There are obviously a lot of scary things that come with taking money that early as an alcohol brand from a major player. We set out being like, we are going to be that source of capital with one major focus, which is what we call it, velocity or rate of sale, which means how fast is your product selling on every shelf you are on? If you are on menus, how fast are you pulling off those menus?

If you are online, how often are your customers coming back to order again? Even if you are only selling $5,000, $10,000 a month or even smaller, are you able to outsell your competitors in every location you are in? The alcohol industry has such major institutional barriers to expansion. The distributors are huge roadblocks. The retailers are all primarily run by major chains and major hospitality groups.

To unlock those pieces, a lot of people think you just have to expand very quickly and get everywhere. That is the wrong answer. We focus heavily on stay small, stay deep, stay focused and make sure the customers that you have really love what you have by scanning the entire market. We look at the thousand alcohol brands every year that launch, and we try and look at close to 500 to 600 of them. By taking a very strong data approach and aggregating more brands than anybody else, you can see the handful of outliers.

Our thesis is, grab the top 5 to 8 high-velocity, high-rated sale alcohol brands of that grouping every year, give them the first institutional money they are going to have. Usually, they are sub $1 million in revenue. We help get them the right playbook and expansion, and the connections and the right inside players to help them get to that next stage or even a few stages there where, in a perfect world, they are well established for an acquisition within a few years of our investment.

Headwinds And Tailwinds Of The Alcohol Industry

Where do you see the industry going? Obviously, there are always these rumours about the youth not consuming as much alcohol. Talk to me about where you see the industry going. Where are the tailwinds, and where are the headwinds?

There is a lot of news out there about how Gen Z does not drink at the same proportion as prior generations. How people are finding healthier alternatives to alcohol that are emerging. At the end of the day, what we are really seeing in the overall data, yes, people are beginning to consume at the same rates later. By the time they are 30 or 35, those prior generations are now drinking at the same rates they used to.

Even more, what you are seeing is that people are finding ways to escape. They are finding the rituals to get together. They are finding ways to build community and friendships outside of the screens that they had. Time and again, people need some sort of lubricant to make that happen. It has traditionally been alcohol. That has been true for the prior thousand years. Where we really have positioned ourselves perfectly, and why we are so bullish on the overall category of vice and alcohol, is that we are seeing a brand new emergence as a result of the pushback against some of the alcohol consumption.

We just made our first investment in a nicotine pouch company that is exploding on the back of Zin’s success. We made our first investment into a Delta 9 THC beverage brand, which is introducing new consumers to hemp-derived THC, which is really just cannabis, just sold through a gray area that Target actually launched this week, in a test pilot in Minnesota. We are going to have conversations with Walmart and Costco might be selling THC beverages on shelves.

You are seeing the emergence of new trends. We are currently in discussions with a leading kratom and kava beverage that is trying to introduce it to a new category of people, doing very well doing but not what the pieces you are hearing in the news and what is being pushed back by HHS. This is newer, lower dose. This is much closer to drinking a beer. We find anything that runs on the alcohol rails; these rails are big and established.

There are going to be holes to be filled. As long as people keep coming back to it, I want to be with other people in person, enjoying and having a good time, and there will be products that they are going to want to consume. Actually, in this environment where people are pushing back against the old brands, we will call them the Jack Daniels and the Miller. These are brands that people are tired of and do not want to drink like they used to.

They are changing the way they consume with their friends. That opens up a huge door for new startups, for new brands, for new customer groups that maybe did not have something that spoke to them before. This is the moment for new brands to get out there. We are seeing this. Our best-performing brand assets are the ones that find communities that feel left behind by the existing alcohol industry. Our best investment out of Fun Wine is a boxed wine brand called Gratsi.

We met the founder, Steven, when they were doing 30K, 40K a month online. He was selling $40 boxes of wine. It is basically like four bottles inside a box, like a Franzia box, but he is selling them for $40 instead of like $8, which we are all used to seeing. We were like, “What are you doing?” We looked at the data. He was selling these $40 boxes of wine, 90% retention rate month over month.

It is because he found that there are these groups of basically females in their forties in the Midwest or in the South that just needed this exact product. They needed a higher quality, no sugar, consistent, good-tasting red blend and white blend box wine that they could open once and have open for 30 days without it going bad, pour when they needed it, both for cooking and for consuming and for sharing at parties.

That little piece got him to the point where people were buying $100, $200 of wine every month in the boxes, having them delivered to their door. We helped him expand. This year, he is going to do close to $60 million this year. Distribution only in five states, mostly online. That is an incredible growth. That is a pocket that was just totally ignored. No one has ever seen that boxed wine growth. There is a lot of room for growth here. Which is why this is the best moment really to be investing in this type of category.

My fiance will be listening to this show. She will be a new customer of Gratsi. I will guarantee you that. They at least got one more customer based on this show. A couple of things out, which you said I want to spend a little more time on. You mentioned cannabis and related drinks. Where do you see that segment of the market going? Obviously, the promise of your rescheduling has been there for a while. It is a promise unkept. Where do you see that going forward?

Cannabis is a fascinating industry. I was actually very early in this industry with AB InBev. I ran the team that was on the back of Constellation, which owns Corona and Modelo in the US. They made a billion-dollar investment in a Canadian cannabis company in 2017 called Canopy. AB InBev felt behind. They said, “Why is there a billion dollars going for our biggest competitor in the US going to this cannabis company, a traditional cannabis company?”

This is ten years ago. This is back when everyone thought it was going to be legalized then. I actually ran the team at AB InBev, where we basically forced it through the board. We convinced the internal group that it made sense to spend $175 million on a competitor to Canopy Privateer in the US, which was Tilray’s US arm. All that money got set on fire two years later. Every single dollar from every major alcohol company that went into cannabis was set on fire.

Most of those companies are effectively defunct. They are running almost on the lean bare bones of what they used to be. That promise of the traditional cannabis industry never really emerged. A lot of that comes down to there is not that much money being made in that space after the many tiers everyone has to go through the testing, the very cheap to make the product. Your margins get squeezed all the way down.

The consumer appeal to going into dispensaries was actually pretty low. What emerged two years ago was some beverage brands and some gummy brands as well, which found an interesting loophole, which is that if you derive the THC from the hemp, which is just a very low concentrate version of a cannabis flower, you might fall under an exception in the farm bill that allows for hemp to be sold indiscriminately. It is not an illegal product.

Hemp is traditionally used for everything from rope to t-shirts to putting in the CBD beverages. There are a lot of uses for hemp that are not cannabis, but if you extract out the little THC and concentrate it and throw it in a can, you end up with the same high as a traditional cannabis plant. This loophole allowed a huge test to happen nationwide. It started in a few states. This huge test was whether we take this beverage and we throw only a few milligrams of THC in there, 5, 10, 2, and we just sell it to people online at home, and we put it on normal shelves.

We will call them bodegas and independent, the liquor stores and beverage spots and gas stations. People consume them at a higher rate than they have been, even in legal states, in the places where you could go buy cannabis legally from dispensaries, would they still? The answer was, absolutely. You put them in the liquor stores, and all of a sudden, people are buying them at extraordinary rates. In the early tests in Minnesota, fifteen percent of liquor store revenue was coming from these THC beverages. When you think about that, you have beer, wine, and spirits.

Now, 15% of these liquor stores’ revenue is THC. In Connecticut, where one of our closest LP advisors runs the BevMax chain. He was selling us 25% of his sales in the BevMax chain in 2023 were from these THC beverages. When we think about THC emerging, we do not care about legalization, if I am being honest. What we really want to see is not the traditional flower or the vapes.

That is not our space. That is not our lane. That is an existing industry that, frankly, is on thin ice right now. There is not a lot of money being made. It is very unclear if there will ever be money made. Where we really see an emerging, actually, the major alcohol distributors and suppliers, and retailers are all really focused on these hemp-derived THC beverages, where this could be the next fourth pillar of the alcohol industry. Wine, spirits, beer, and then THC beverages.

This could be sitting on a shelf. It is currently sitting on a shelf next to alcohol. This could be, we believe, as much as 15% to 25% of the entire alcohol industry could be that in the next five years. That is an incredible amount of growth. Where do I see it going? This is how we have consumed our vice products before. It is in a beverage format. The smoking and the vaping, and the gummies. That is a unique way of doing this. This is a much more social. We feel very strongly, both from the data but also from an overall thesis, that the direction the overall TAC industry will be tying itself to is this massive emergence of this beverage category.

The True Impact Of Celebrity Endorsement And Involvement

The other thing I wanted to talk about, as you mentioned, is the brand and the acceleration. It is a two-part question. First of all, obviously, I link the thesis to these brands that are growing quickly and gaining traction. Talk about the attributes of the entrepreneurs that you invest in. As a subset of that, we have had a couple of interviews where celebrity involvement they are involved in spirits. Obviously, George Clooney is famous for what he did in the tequila space. Maybe talk a little bit about it first, where the entrepreneurs weigh in on your decision. Two, where celebrity endorsement or involvement makes a difference, if at all.

The short end of the founders are a lot of this industry, but when we say our first stage gate is velocity and your rate of sale, like how fast is your brand moving? Consumers do not know who the founder is. That is a totally foreign concept, more or less, in the alcohol industry. To have a 200 million to billion dollar exit, you need consumers to love the brand, not to care who the founder is. That is tried and true. This just goes back to the celebrity piece.

I guess we will tie in the conversation a little bit. We did a study. We actually spoke to 2,000 consumers. Only fifteen percent of them knew the celebrity tied to an alcohol brand that they were consuming. That is not a lot. You think about it like High Noon blew up. Less than five percent of people knew that Dave Portnoy and Barstool were involved in any way. There are some exceptions to this. Casamigos had a much larger knowledge base of people than you would expect George Clooney to have.

There are groups where that is true, or Teremana on the Rock, by and large, the hundreds of celebrity brands, most people have no clue. The reality is that means your brand has to be that strong. The celebrity can be a little bit of a jumpstart or a kick to your growth. At the end of the day, those consumers have to want that product again and again, whether or not the celebrity is around. I think that the key data to pull out is when it’s just this splash.

I ran this project for AB InBev, where we launched a Seltzer brand with Travis Scott. Cacti that blew up out of the gate, $5 million in the first month. The next month, almost none of those people came back. It was like a 95% dropout, where the stores could not sell it. The distributors were so stocked up on that gate. That is solely because the product frankly just tasted bad. It was a bad-tasting product at 7% alcohol, wrong brand, wrong thing. Everyone wanted to try it because Travis Scott is cool.

This happens a lot. We really stay away from the celebrity stuff. We tend to tell people that we will do it. We have done it. In fact, one of our best performing brands right now, a Japanese heart shelter and fun too, called Grog. They were founded by some YouTubers in the Mr. Beast universe called the Cold Ones, Max, and Chad, who are incredible YouTubers. They have an incredible following of young people around the world.

They actually launched in California in a hundred BevMos. Those Bevmos sold over 70 cases a month per store in the first three months they launched. We look back at the data six months after that, when we invested. Every single one of those stores that ordered at least four times, which means whoever these consumers are for these products, they are coming back again and again. That has held since our investment.

They are actually launching a big round soon because they are probably going to do close to $8 million this year in their first full year, which is in four states in the alcohol industry. That is unheard of. They might be one of the fastest-growing R2Ds of all time. It seems to be very sticky because those consumers are sharing that product. They are bringing them to parties. It transcends who the Cold Ones are. They are not that famous.

They are famous enough to get people out the door to consume it, but they are not going to be so famous to drive this thing all the way to the promised land on their own. That is a long way of saying, some of these are not that important, but can be a nice kick start if the brand works. Where is founder involvement? Where we look for founders is one it is the gruelling industries. The quintessential example is, are you the type of founder that will sleep overnight in front of a distributor’s mansion and wait for him to wake up to convince him to take your product on?

If you are not that founder, if you are not ready for that, you are probably not going to be able to cut it. That is an extreme example, but it is a very hard industry to really work in. A lot of this is mafia-run. You might have someone pat their gun next to you. Tell you not to take my tap handle over again. This is an industry where things are aggressive. Things move quickly. People will not pay you. They will make you sue them for it.

You just have to be ready for a real grind. We tend to look for a lot of grit in founders. People who want to go through that ride because the ups and downs are hard. The margins tend to be much thinner than you think they will be after paying for marketing. You end up spending a lot on sales and distribution. Your cash conversion cycles are extremely difficult. You pay for the product up front. You hand them to a distributor.

They pay you maybe in 30 days, maybe in 45. The retailer pays them in 45 days. You can end up running out of money successfully. You can be doing very well and run out of money. We say grit and financial management are some of the most important attributes in the alcohol industry. The last part of this is fundraising. Because of those cash conversion cycles, you have to be well-connected. You have to be able to grind out a fundraising around either that be through debt or equity, or partnerships with your vendors.

You need to find ways to keep the business flowing. That is true all the way from the top to the bottom. The AB InBevs of the world have the same issues. As far as founders go, very important. There are a lot of new founders in the alcohol industry who are like tourist founders, I would say. It seems cool for a minute. Like, “Let us have a whiskey brand.” 3 or 4 months later, they raised a little money. They are like, “This is not what I signed up for. This is much harder than I thought it would be.”

The Very Broad Makeup Of Top Shelf Ventures

Let us talk to potential investors in the fund. First, let us talk about the makeup of who are the types of people that are in fund one and fund two.

We are a very broad makeup. By and large, it is family offices. It is high net wealth. It is some strategic individuals from the industry across the chain. We have had the most success. You have to remember that most people, if you do invest at all, have been approached by some alcohol brand. Usually, it is your friend’s cousin who started a rum brand. You have been asked to throw $20,000 at it. In some cases, my friend started a tequila brand and needed a million dollars.

I would say 99.9% of those people that we talked to lost all that money, which is funny that they are coming to talk to us. What they realized was, why did they throw that money at that project? They would not do that if it were a deep-tech AI business. They would not just throw money. They know better. They give it to funds that specialize because ultimately they always look good on the deck. I always say that every alcohol brand looks great. It looks pretty.

You are going to highlight cool retailers you are in, maybe some cool bars. You are going to have photos of bars and restaurants. The LPs that look at us are like, “We lost all this money. We realized that having a professional vet, good ones, we can even send them to you. You tell us if it is any good.” Compare them against. Show us the ones that are better than that is clearly the best way to go. We have a lot of success with high net wealth who are looking for exposure to the alcohol space.

Still want the fun and the engagement and the tangible consumption. You want to actually engage with these products and be a part of it, but also want to make money. At the end of the day, a lot of money is made in this space. People know that. The exits are, there is about 60, 70 exits a year on average. We did a public median of those exit prices around $200 million. This is a highly liquid, acquisitive industry. The major players outsource their R&D to the startup community.

They acquire very early stages at very high multiples. If you can get the right ones and invest in the right ones, you can make a fortune doing it, especially in a good basket. The average is going to be very high. We have shown success in fund one and are coming up on two, but you can easily make some massive mistakes because so many do not ever get out of the gate. It is like 90% of them never reach a million dollars in overall revenue over their lifetime.

You do not want to be anywhere near those. You really want to try and stay awake so you can lose. We have talked to brands that have raised $25 million and have $70,000 in revenue this year to show for it. It is very easy to get into that trap. If they do not have the velocity, you do not know what you are looking for. You can get into some trouble. Our LPs are really made up of people who want to make money, but still really enjoy the alcohol industry and want to be a part of the next big thing.

Why Choose Top Shelf Ventures Right Now

Potential investors, LPs, wealth managers, investing in alts. You have touched on this before, but I always need to ask this question. Why your fund? Why Top Shelf Ventures? Why now?

We are looking at every brand in the vice and alcohol category for the absolute highest velocity winners at the earliest stages. We get in extremely good valuations. We get all the protective revisions. The deals in Fund Two. We are on 90% of the boards. I think of the eight deals, we are on seven of the boards. We sit there. We have a seat at the table. We make sure the value is being created. We push them to exit in a couple of years.

We get them in a good position to exit so that the returns are very high. Why this fund? The returns should be very strong. Why us? It’s because we are the permanent lead for these brands. Time and time again, we get VCs. We have traditional angels. We have strategists who say, “We are not going to touch an alcohol brand unless Top Shelf gets involved.” We often even say this to brands. We say, “We go into diligence.”

You may not want us to go into diligence because if we say no, you might actually have a really hard time raising. We are at that stage where if we get involved in a brand, even if we only throw 250K, 500K, there are millions of other dollars available to them. All of a sudden, some distributors get opened up. Every distributor wants to talk to you. At least know who you are. Every retailer, all of a sudden, you are on their radar to at least pay attention to and look at. All the potential acquirers see that we are involved.

Now they know this is somebody we at least need to see what is going on with. That is a lot of leverage in an industry that we have built over a few years, but where there is no one else doing that type of work, it becomes natural that we fit a need that exists in this space. We continue to execute at a high level. As long as we are seeing as many things as we can see. We are benchmarking them against everything else we have seen previously. We are doing everything we can to help them succeed. It is a formula for success overall as a fund.

Any final thoughts you want to share with the audience?

No. I welcome any of the audience, if you have alcohol brands. Not that you know we’re raising it, I often say, “Do not tell me my friend is raising.” Tell me what you are drinking. If you like it, I would love to hear the new thing that you are actually consuming on a daily, if not weekly basis, or if you are into nicotine pouches, or if you are into THC. Please send me what you are actually consuming, whether or not you know them or not. Those are the things we would love to hear the most is what is the new thing that you are addicted to? Not an immune way, but addicted to in a fun way, please. In a way that you just cannot put down. That is the type of product we would love to get behind.

Get In Touch With Jason And Top Shelf Ventures

Where can people learn more about Top Shelf Ventures and get in contact with you?

Please reach out to me directly, Jason@TopShelf.ventures, or go to our website, TopShelfVentures.com. Just send me a note there. I would love to engage with whoever about anything. Our line is always open. We are a lean team. We take all calls directly.

For our audience, make sure you like, comment, and share this show. Jason, thanks again for being on the show.

Thanks, Scott. Appreciate it.

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Welcome back. I had some great things that we went over with Jason at Top Shelf Ventures. I mentioned in the beginning about Velocity. That is his key metric. They prioritize brands with high rates of sales, strong consumer demand, and growth potential. In these emerging vice categories, he talked about these THC Ventures and these other opportunities in his fourth pillar. Velocity is key.

At the end of the day, there has to be acquisition potential. The alcohol industry sees numerous acquisitions every year, with a median public expiry of over $200 million, meaning strong liquidity for the successful brands. The thing to keep in mind is that in order to be successful, these entrepreneurs have to have grit, as I mentioned before. It is gruelling. They have to have the acumen financially and how to run a business.

How to handle the ups and downs of a very competitive industry. Something interesting he mentioned during the interview is that a lot of these entrepreneurs in the alcohol and vice space want to go national. They are always attracted to the shiny nickel of going public around the country. He focused on brands staying small, staying deep, and staying focused. Instead of rapid widespread expansion, he focused on deep penetration in specific markets and building a loyal customer base, which is a more effective growth strategy, which is something I completely agree with it.

I have had experiences in several industries where people try to go national. They do not even take care of their own backyard. Jason really has the right insight on how to help these brands and these companies succeed. For investors who invest along with him, he has the expertise to not only get into the investment but also get out. We’ve got some more great interviews coming on the show. I encourage you to like, comment, share, and listen next time. Thanks for joining us.

Important Links

• Jason Sherman on LinkedIn
• Top Shelf Ventures
• Anheuser-Busch InBev
• Jason@TopShelf.ventures