French finance company WineFunding is, ostensibly, an online crowdfunding platform for projects in the wine industry. Browse its web page and you will find projects which have successfully attracted investment in French vineyards. But it is actually the company’s private finance deals, made offline, which generate the vast majority of its business.
WineFunding says it secured private wine finance deals worth more than €33m ($36.5m) from investors in 2018. In contrast, it has more than 20 crowdfunded online wine projects which are currently worth €3.5m. “Our crowdfunding business is just the tip of the iceberg,” says Maxime Debure, founder, CEO and majority shareholder of WineFunding. “Ninety per cent of our business is under the water.”
Debure’s business partner is Marc-Antoine Seris, who also runs the Canovia investment banking company.
Even though crowdfunding generates only 10% of WineFunding’s business, Debure says the company is effectively spearheading a revolution in wine crowdfunding.
“When I started WineFunding in 2015, I asked existing crowdfunding platforms why they were not offering more investment opportunities in the wine sector,” he says. “They told me they were not competent enough to assess and accompany a wine business.”
Traditionally, wine businesses (especially wine estates) have mainly relied on bank debt. Only a fraction of the most sought-after brands or well-connected owners were able to attract investors through alternative means of financing, namely equity, says Debure, adding that wine businesses requires a high level of expertise in order to add value, which most crowdfunding platforms, being generalist in nature, cannot offer.
Since its launch in 2015, WineFunding has successfully met crowdfunding targets for numerous projects, raising millions of euros online, and is now looking into blockchain technology to grow its business. Debure reckons he can use blockchain technology through initial coin offerings (ICO) and security token offerings (STO) to reach more investors on a global scale and raise larger amounts of money.
For now, WineFunding, says it’s helping selected wine businesses to attract investors by structuring investment opportunities in a professional and compelling way and by presenting them to its network of prospective investors, who can invest online from anywhere in the world.
Debure says that WineFunding allows wine companies to communicate about their project when they raise funds and to increase customer loyalty for many years. “This communication and community management is not at all provided by traditional financial institutions like banks,” he says. WineFunding can combine funds from large investors with funds from many crowdfunders. The crowdfunding platform is also a great marketing tool for wine producers and companies, he says.
The financial model
WineFunding uses three crowdfunding models. Equity deals raise the most money and they can provide the company with a share of up to 20% of any capital gains made on investments if and when wine investors sell off their shares in wine companies.
The company’s second model is the innovative wine bond, in which a loan is generally paid back over four years, along with wine that represents about 8% annual interest. In some projects, more than 50 investors have paid between €2 and €5,000 for equity shares in wine companies. WineFunding says the interest cost for wine estates using the wine bond model is usually below 2% per year as costs are limited to wine production and shipping costs. On its website, WineFunding warns of the potential risk for crowdfunder investors, including the possibility that they may not have their investment returned.
Its third funding model is called wine pay-back, a vehicle for smaller projects totalling less than €30,000. This allows producers to pay back investors in wine only.
“It is not an investment per se, but rather a pre-sale, similar to what Kickstarter is offering,” Debure says. “The main difference is that the rewards [wine] with WineFunding projects are seen over a three- to five-year period, instead of the single reward you get with Kickstarter. This factor allows us to increase the average individual contribution as well as to build customer loyalty for several years.”
Debure says WineFunding uses strict eligibility criteria which go beyond standard due diligence. The criteria include quality wine production, a compelling story distinguishing the project from others and a willingness from vineyard owners to allow new shareholders into the company ownership.
WineFunding has offices in Bordeaux and Burgundy and is now expanding internationally. In the northern autumn of 2019, it arranged a private equity deal for Palate Club, a new digital wine club based in California. The €700,000 deal included WineFunding’s own contribution; it did not disclose the amount it invested in the Palate Club.
It says that having invested in several French wine regions, wine lovers in its community and beyond have become interested in investing in Italy and South Africa. Debure says he is not put off by regulatory hurdles on alcohol businesses in the EU. Local regulatory approval is required in each EU country to offer investment in financial securities, such as shares and bonds.
But he says expansion prospects have been lifted by moves in Europe to homogenise legislation governing crowdfunding, which will allow WineFunding to offer and advertise investments opportunities in most jurisdictions.
WineFunding is looking into obtaining regulatory approval in the US. In the case of the Palate Club in California, he says the investment project was only offered to French investors. Without regulatory approval in the US, WineFunding could not target local investors or advertise its services in the country.
Types of deals
WineFunding’s private deals are usually kept offline and confidential. The only one which has been put on the company’s website is a new equity investment in Domaine de Bellene. Three French entrepreneurs invested €750,000 in the Burgundy wine estate in the northern autumn of 2019. The deal allows the estate’s winemaker, Nicolas Potel, to restructure and expand his vineyards, with paying the investment for six years.
WineFunding’s private deals include financial arrangements involving famous wine estates immersed in family disputes over ownership and strategic management. The company has also arranged deals for large French wine négociant companies which want to buy a wine estate to secure grape supplies or to build a brand and increase their credibility as wine producers.
“Instead of investing €5m in a single acquisition, négociant companies invest €1m and ask us to find the remaining €4m from our network of investors,” Debure says.
This, he says, allows companies to retain investment capacity for other acquisitions.
To entice wealthy equity investors who have a penchant for wine, WineFunding says it presents a clear exit strategy for them. “Investors want to make sure they can exit projects and recoup money within six to eight years,” Debure says.
WineFunding has a number of partnerships with legal, financial and marketing companies, including PricewaterhouseCoopers and CertEurope; as well, potential projects are assessed by an expert panel, which includes names such as Michel Bettane and Stéphane Derenoncourt.
The company says French banks initially saw it as a potential competitor – now, however, Debure says wealth managers at France’s four largest banks, as well as independent wealth managers, have become key client providers to WineFunding.
WineFunding advises clients on the strategic, financial and legal structure of deals. It negotiates bank debt and obtains public subsidies, and boasts that it can raise several million euros in capital at short notice from a network of investors.
“We completely complement what banks offer,” says Debure. “When a bank has a client seeking €1m in finance, the bank says it will provide 50% of the funds in a loan if WineFunding can arrange financing for the other half. In this way, banks are now much happier to be involved in wine company funding.”
WineFunding says an essential part of its success is its combination of expertise in both wine and finance. Debure, who holds an MBA from INSEAD business school, previously worked in consulting and investment fund management. He also studied oenology and agricultural engineering in Montpellier before taking on roles as a winemaker and director of wine companies in France.
Debure, who has made wine in numerous locations outside of France including Australia, South Africa, California and Chile, says wine producers can be “very suspicious” of finance companies. But many, he says, have become convinced of the merits of WineFunding because of the company’s wine knowledge.
“We bring much more than financial resources to wine producers. We’re unique because we know about wine,” he says.
This article first appeared in Issue 6, 2019 of Meininger's Wine Business International magazine, available by subscription in print or online.