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You know, Eric on the show time and time again, founders talk about the importance of hiring great employees.
Eric Hornung 0:07
And they always say it’s so hard and so important early on to hire the right person.
Jay Clouse 0:13
It makes a lot of sense that is difficult because most founders don’t have experience doing high level searches or hiring top level talent.
Eric Hornung 0:20
And they’re also limited to their local talent pool a lot of the times.
Jay Clouse 0:24
That’s why a lot of founders choose to work with SPMB, the one of the fastest growing executive search firms in the country. For over 40 years. SPMB has specialized in recruiting upper management and board members to early stage VC funded startups and larger growth stage companies do.
Eric Hornung 0:38
They bring the knowledge of a large global firm and combine that with the personalized service and attention of a boutique.
Jay Clouse 0:46
They have a dedicated team focusing on the Mountain West and Midwest emerging tech markets. So no matter where you are in the country, if you’re trying to hire top level talent SPMB can help you out.
Eric Hornung 0:56
If that sounds like you, you can go to upside.fm/SPMB to learn how they are closing hundreds of C level searches annually.
Nick Ving 1:10
So as an ultra high net worth individual how these people are investing in wine as you have your, your outdated legacy wine manager who you’ll give $50,000. And it’s similar to a financial advisor relationship, they buy the wines for you. They store it, they charge you 2% to 3% annual fees.
Jay Clouse 1:33
The startup investment landscape is changing. and world class companies are being built outside of Silicon Valley. We find them, talk with them and discuss the upside of investing in them. Welcome to Upside.
Eric Hornung 2:01
Hello, hello. Hello, and welcome to the Upside podcast. The first podcast finding upside outside of Silicon Valley. I’m Eric Hornung, and I’m accompanied by my co host, Mr. red or white himself, Jay Clouse. Jay you’re at a wedding. They come up, they got two bottles. They go red or white. What are you doing?
Jay Clouse 2:19
I’m going white? I don’t know. I think it’s probably mood dependent. Because I don’t have a real go to but I generally like chilled beverages. And you don’t show red wines. Are there ever any chilled red wines?
Eric Hornung 2:32
So actually, you can serve red wine a little chilled, not like cold. But it’s kind of nice. Have you ever heard of like the 20 minute rule.
Jay Clouse 2:41
Eric Hornung 2:41
So for red wine, you’re supposed to chill it for 20 minutes before you drink it in a traditional frigerator. And for white wine, you’re supposed to take it out of the refrigerator and let it sit in room temperature for 20 minutes before you drink it. Now I am not a somm. And I know nothing about what that means. But that’s a rule that someone told me one time,
Jay Clouse 3:03
I think I have heard that. Well, I haven’t heard the red white side of it. I heard the take out the white wine for 20 minutes. It’s an interesting thing. Well, if you’re not a somm I am like, extra not a somm. Because you every time we’re around anybody that’s drinking wine, you pull out all kinds of facts and knowledge. I think back to our conversation with Johann of inKind back at South by Southwest where he showed up with wine what a guy and you guys talked for like 20 minutes about wine, and I drank for about 20 minutes.
Eric Hornung 3:33
That’s the new 20 minute rule. Yeah, when we did this interview, I can’t believe that we didn’t drink wine. Because on today’s podcast, we’re talking wine, Jay.
Jay Clouse 3:42
That we are we are talking with Nick King, the co founder and CEO of Vint. Vint is the first fully transparent platform for anyone to invest in fine wine and spirits. They democratize this high returning asset class with SEC qualified collections. Eric makes me think a little bit of our previous conversation with Rally and what they’re doing with fractionalized ownership of assets. But we’re talking wine specifically stay.
Eric Hornung 3:43
I think that this goes back to a one of those macro trends that we have here on upside. And that trend is that the ability to invest in everything is becoming more and more readily available. You can now invest in the Constitution, you can invest in wine, you can invest in watches, you can invest, essentially, every asset, every thing in the world is becoming a financial asset.
Jay Clouse 4:39
It’s crazy. I’m interested in this. And it makes a lot of intuitive sense to me, but I’m still a little dubious about the liquidity of some of these investments. So I’m going to I’m going to be critical in our interview today.
Eric Hornung 4:52
Did you just use liquidity was that pun?
Jay Clouse 4:55
Oh, it wasn’t but it should have been Wow. I am not dubious about the liquidity of wine, literal liquidity, it’s very liquid. It’s not very viscous. Wow, I should have claimed that. Vint was founded in June 2019. And based in Richmond, Virginia, Eric, new city for us as well, if I’m not mistaken,
Eric Hornung 5:15
Oh, I love that in a new city, we don’t get to do it as much anymore at Jay now that we’ve been to 71, this being 72 cities on the podcast, and throughout the Upside network, it’s not very often we get to go somewhere new, at least hear on the mics.
Jay Clouse 5:30
But when we do go somewhere new, it feels like we are living this one life, we have to live the best way we can, Eric.
Eric Hornung 5:36
That’s true. And if you want to learn more about how to live the one life, you have the best way you can, you can go check out our friends at Ethos Wealth Management, you go to upside.fm/ethos to learn more. And Jay, I’m excited to get into this interview because I got a feeling that like your preference for white wine, you’re going to have some freezing cold thinks, ah,
Jay Clouse 5:56
I don’t like my white wine freezing cold. Well, let’s see if we can keep this pun train going. We’d love to hear your thoughts on this episode. As you listen, you can tweet at us @upsideFM or email us Hello@upside.FM. And we’ll get to that interview with Nick right after this.
Eric Hornung 6:13
I hate that we’ve demonized scheduling links Jay.
Jay Clouse 6:16
Scheduling links are actually one of my favorite things. I love the ease of someone saying here’s where you can book a time with me. And then I can choose when it’s best for me too.
Eric Hornung 6:24
Whenever I get an outreach and someone says what time looks good for you. I asked them, hey, do you have a scheduling tool? And you know what scheduling tool I wish they had?
Jay Clouse 6:32
Which one is that?
Eric Hornung 6:33
It’s a new scheduling tool called SavvyCal. SavvyCal makes it easy for both parties to find the best time to meet.
Jay Clouse 6:40
SavvyCal makes the scheduling process even more savvy than any other scheduling tool that I’ve seen. And I mean that it makes it so easy to personalize your link, you can say hey, this is a meeting time for Jay and Eric. And it just looks so professional, so sophisticated.
Eric Hornung 6:56
So much so that we’re going to be using it for Upside going forward. And maybe even rolling it out to the Upside network.
Jay Clouse 7:03
You can use SavvyCal as well. You can sign up for a free account at SavvyCal.com/upside, that’s SavvyCal.com/upside. And when you’re ready to upgrade to a paid plan, you can use the promo code Upside for a free month.
Nick Ving 7:25
I grew up in a suburb outside of Richmond, Virginia, was a public high school kid I attended UVA. Originally, as a pre med student, I quickly learned about opportunity cost through economics classes, I was like a yeah, there’s the cost of med school. But there’s also the the opportunity cost of four to seven years. And I got very interested in finance and economics and ended up going down the finance route. And I worked in the value investment industry. So read a ton of books, which I really think books are the number one way that I’ve learned about both investing and just in general business. And that prompted me to join a Richmond, Virginia based value investment firm called TSW. They manage about $20 billion I was on the domestic equities team, great learning experience really learned just the fundamentals of business and how to think about business in general.
Jay Clouse 8:34
For someone who hasn’t had the economics background, who hasn’t had an opportunity with a firm like TSW. What are some of the concepts that you’ve learned about finance from t SW that you think normal everyday people should know, to better understand the world around them?
Nick Ving 8:49
Yeah. First, I’d say we are in a crazy time right now, looking through the lens of of a value investor. But the main concept that I think gets misconstrued is the sort of diametric opposition between value and growth investing. So everyone’s like, either I’m a growth investor, or people aren’t as loud about this one now or I’m a value investor.
Jay Clouse 9:13
Can you outline both of those for people who may not be familiar with the terms?
Nick Ving 9:17
Yeah, at a high level growth investor, you’re generally thinking about higher multiple businesses. So when you value a business, you generally value it off of some multiple of revenue or cash flow. So if you think a got a high growth company like a zoom, it’s being valued off of a higher multiple off of its revenue versus value is generally lower multiple. So generally, your traditional businesses that aren’t your crazy multiple SAS businesses like say a Kraft Heinz, Warren Buffett is the father of value investing. So that’s kind of how people think about the two, however, my team really got me to think about the two in a different way. So, value investing is really just looking for a business that is mispriced in any way, it doesn’t have to be a cheap multiple, it could be a high multiple business, but people are just under valuing the growth potential of that company. So a Google at 20 times earnings could still be considered value, even though in the traditional sense, it is greater than the the average multiple of the S&P over the history of the the index. So I think that is probably one of the main principles that you don’t have to be a value or growth investor. Second would be look for assets and companies that you can acquire at a margin of safety. And keep in mind all this is based on assumptions. And it’s not black and white. But if you think when you’re valuing a company or an asset, it should be valued at a billion dollars and say the company missed earnings last quarter, and there’s been this noise that you don’t believe should actually impact the intrinsic value of the company and say it’s valued at $750 million. Right now, that could be an interesting investment. So those probably two principles that I’ve taken away, as well as that we’re in a crazy time right now.
Eric Hornung 11:37
Tell me more about this crazy time we’re in?
Nick Ving 11:39
Yeah, well, one, I’m a proponent of everything is an asset. But it seems like there’s a little fundamental analysis being done and it is not really, the market is crazy. So I guess I’ll use an example that I was talking about two days ago with a friend and he’s like, yeah, I’m really interested in Nvidia said, docs up to $700. And he’s like, they’re about to do a four to one, or one to four stock split. And he’s like, Yeah, that makes it a really, really good buy. And I was like, Alright, let’s like, take a step back here, say, I don’t know what the market cap of Nvidia is right now. But changing the stock price of the company should not actually change the value of the company. But you saw Tesla do this where they split their stock, and then all of a sudden it went up, because optically, it’s cheaper, has the value of the company changed? No, I don’t think so. And I think you’ve seen a lot of this movement of asset prices without the underlying value of that asset changing, whether it’s alternative assets or public equities. It’s, I’m young, having lived through a time like this, but even my former employer, they said, this time is crazy. They would always talk about 1999. And kind of draw comparisons and contrast against it as well.
Eric Hornung 13:10
It sounds like you really enjoyed your last job, why did you leave and decide to start something else.
Nick Ving 13:17
Yeah, I did. I really did. Which made it a little bit of a tough conversation when I had it. So I think about things through a very analytical manner. I guess a third principle that I didn’t touch on that TSW introduced me to is risk reward. And right now, at my age and the market environment, I was like, Okay, I have this really interesting concept that Patrick, my co founder, and I had been thinking about for over a year. Let’s lay out the risk reward here.
Jay Clouse 13:53
Yeah. Tell us about this, this concept that you had with a friend of yours that you’ve been thinking about for a while, what was the origin of that concept? And what is the concept?
Nick Ving 14:01
Yeah, the origin of the concept was was seeing fundrise at a real estate platform. When I had some downtime. After breaking my arm. I was just reading about the company read its filings. And it’s like, oh, this is this is pretty interesting. This reggae plus thing is is interesting. So I dove more into that I was familiar with alternative assets. This was mid 2019. So these current platforms like Rally and Masterworks were still pretty, pretty new. And I looked at the wine market as I seen a chart with its returns and it’s like, Okay, this is a really interesting market thinking about it through the lens of an investor. So, what stood out to me initially and kind of the origin of Vint was the one market has strong returns low volatility, low correlation to traditional financial assets. And it’s a highly in efficient market. So when I say inefficient, yes, it’s operationally inefficient. But I think about the economic inefficiency, where the prices of wines can vary so widely across regions, across sourcing channels. So a bottle of wine could cost $1,000 in the US, $800 in the UK and $1200. In Asia, I was like, Huh, this is, this is interesting thinking about margin of safety, you could really acquire wines at a margin of safety. So, two years ago, we were thinking about this a lot. And that’s when Patrick and I got together, we had just started our day jobs. And we kind of just spent time looking at the market and had as many conversations as possible. As we had more conversations, we started to learn about more and more of the problems in the industry. So current ways to invest in wine are pretty outdated. It’s sort of your legacy, financial advisor type of model. And secondly, there’s this black box element of investing in wind, where you give someone money, you don’t know what you’re getting. And then it’s like, okay, I trust you. That’s not really how people invest in today’s day and age. Third, we’re high fees across the industry, and then just general information asymmetry. And that is driven by lack of transparency. So with all of these problems in mind, we just thought of business models, one resource that we had was time, and we’re like, let’s keep working. We’ve got an interesting concept. But we have some time to think about models. So we had thought about a data driven hedge fund. So take advantage of these these arbitrage opportunities. Patrick has a data background as well as software engineering. Downsides there were scalability, and then we thought about a stock x style marketplace for fine wine. And I think that will exist. However, we did not have the capital to pay the legal fees to get that up and going. Interstate alcohol law is pretty, pretty crazy. It dates back to like, really Prohibition era, this thing called the three tier system, basically, it’s going to exist. And that’s just how it is in terms of how entrenched they are in the government. So we ended up coming full circle back to that fundrise style offering, which is a reggae plus marketplace. And I can pause there before going down that path.
Jay Clouse 17:48
Where does the data for the wine industry come from? Like, what was the chart that you saw to know that there was high returns and low volatility?
Nick Ving 17:56
Yeah, so there’s a few sources. The main data source is this company called Liv-ex. So they’ve been around for 20 years or so. And we’re set up as a trading partner on their marketplace. They’re kind of the stock market for wine, in addition to execution of trades, they are big data player. So they had a chart dating back to 1988, I believe, and it showed that wine had in fact outperformed the s&p with low volatility. So think about it on a Sharpe ratio basis. It’s a really interesting asset in that manner. And really, the the low correlation is what I found to be really the most beneficial to a portfolio in 08, the s&p was down 37%. One was down 1%. It’s like, Okay, this is, this is interesting, and I don’t give investment advice. And I would never recommend someone to put 100% of their portfolio in wine. But there’s a reason that ultra high net worth individuals have five to 6% of their portfolio in these collectible type assets is for that hedge.
Jay Clouse 19:07
Are you saying that Liv-ex is like a curation of the public stocks of wine companies? Or are you talking about like bottles themselves,
Nick Ving 19:16
We’re talking about bottles themselves. They curate data from one their actual marketplace, where there is trading that is happening and to from general wholesalers merchants, so their market value is generally the low price in the market, and then they’ll have bids and offers off of that. So yeah, that’s where we acquired the last 20 years of data. We started to look at this data in comparison to wine scores, vintage quality and thought we could build kind of this large econometric model of wine scoring, weather data and production quantity outstanding supply that is in the works. But that itself is not a business, we needed to get a product out first.
Jay Clouse 20:04
So are you saying high net worth individuals who are putting five plus percent of their net worth into wine, they’re literally going on a marketplace like this buying the bottle and then putting it in a vault somewhere.
Nick Ving 20:16
They could be doing that if they’re a really self directed individual. But Liv-ex is primarily a commercial channel. It’s not really an individual collector channel. Sure, there are some on there, but it’s primarily commercial. So as an ultra high net worth individual how these people are investing in wine is you have your, your outdated legacy wine manager, who you’ll give $50,000. And it’s similar to a financial advisor relationship, they buy the wines for you, they store it, they charge you 2% to 3% annual fees. A second model is you have this wine consultant type of person where you own your own cellar, but you’re going to your local wine guy, or gal and they are going to be telling you Okay, here are some interesting wines that we’ve gotten in, you should think about adding this to your portfolio. But broadly, I would say it’s sort of just an unsophisticated process. It’s very much driven by personal biases, like I like this one, I don’t like that one, which is fine, because a lot of people do this because they’re going to consume the wine. But that is kind of the two ways right now that these ultra high net worth individuals invest in wine through the advisor type relationship, or they’re kind of picking slash working with a consultant and storing it in their own cellar.
Eric Hornung 21:42
Wine is a because it’s consumable. It has a different decision tree at the exit, right? When you’re selling it, you can either consume it, or sell it. And then you have to also have the discipline to actually sell the wine and when to sell it. How does that work in the legacy system today? When do I decide, okay, I’m going to drink this bottle of wine even though it’s worth $100,000? Or I’m going to put it out at auction? How do I even know when’s the right time to do that?
Nick Ving 22:09
Yeah, when you’re going to drink, there are a few variables you’re going to look at. So there are drinking windows posted for wines, those are generally very wide. And I’ve actually heard that wines are still good after the drinking window, we’re talking like 40 year windows. So from the consumption perspective, it’s really just a personal decision. It’s in the drinking window, I have this big event or the event itself is opening up $100,000 bottle of wine, and I’m going to consume it that’s that’s purely a personal decision. From an investment side of things, you’re going to look at the drinking window as well. But I believe that in the legacy system, you’re just kind of looking at the market prices. Wine is highly driven by supply and demand. If you’ve noticed that supply has been dwindling, while there’s been articles written up about a certain wine in this vintage, then it could be an interesting time to sell. But once again, I think it kind of stems to lack of sophistication. It’s not data driven. It’s Hey, I think this is a good time to sell. And this might be one reason why. But why don’t you have three reasons why. And those are supported by data the wine has been, you will get Live-ex data, any wine that gets listed or that’s been on there. It’s generally being traded quickly. Demand would be high, you continue to see decreasing supply. We think there could be a better way to decide when to sell whether you’re looking at rescoring data and say after a rescore the wind pops, and then it kind of returns back to its general trajectory. It could be an interesting time to sell. We think a lot about catalysts. That could be another time to sell. But yeah, those are kind of the different ways.
Jay Clouse 24:11
Eric, you spoke about drinking this as if it’s a financial decision. Do you take a loss when you drink an expensive bottle of wine? Can you like put that on your taxes?
Eric Hornung 24:21
I’m not an accountant or CPA, so I’m not sure but it feels like it.
Jay Clouse 24:25
What do you think Nick is that I think you can do?
Nick Ving 24:27
I don’t know. You know, I’ve actually never been asked that question in two years. So I don’t know.
Jay Clouse 24:35
Well talk to us about Vint today and the vision of the future of wine trading that you’re trying to build.
Nick Ving 24:41
Yeah, so I’ll go back to reggae plus, we started that process. I know you guys have talked about reggae plus in the past, so I’ll spare you the details there. But we started the process eight months ago, and we got qualified. About a month. month and a half. ago. In that time, we recruited a team of wine experts. So we have two masters of wine. There’s about 57 of them. In the US, we have an individual who ran a wine Investment Fund, and then an importer, we built out our product. And we raised a small friends and family round. To complete the SEC qualification phase. Probably most notably, we built out the supply side of the marketplace. And I will touch on what exactly event does. But we currently have access to over a billion dollars of fine wine and spirits, which we’ll be expanding into. But why we did all this is Vint takes and sources wine and files it with the SEC and offers shares to both accredited and non accredited investors, effectively removing any barrier to entry so that people can invest. And we really pride ourselves on being transparent, both from an investment side of things. So for each collection that we put out, so for this first collection, the California collection, we put out our thesis, a one page document outlining here are the key variables here is the the stats, the price chart, and here’s what might be changing, which makes it interesting investments. And on a company level we we try and be as transparent with our users and community as possible. Because when you make an investment, yes, you’re investing in the wine, but you should probably want to know about the company, and also those underlying wines on a go forward basis. So today, we have listed one collection, it was the California collection, market cap of $46,000, 1000 shares, $46 a share. And that was a few weeks ago, it sold out in 15 minutes, which was a fun day. And we currently have four more collections that are lined up in the next few months. So these collections include a super Tuscan collection, which is a narrative driven collection where these winemakers went against the grain of traditional winemaking in Italy. To make wine in a better way. We’re think we think we’re doing that in the wine investment industry. Third is a Saint Emilion upgrade collection. And this is one area where I think we really add value is kind of creating alpha in the in the wine market through catalysts. So looking at the region of Saint Emilion which is on the right bank of Bordeaux, every 10 years, there’s this upgrade conference. So in 2012, this producer fish giac was supposed to get upgraded. So they had been making good wine, but they did not over the past nine years, they’ve continued to make good wine, and in 2022 it’s looking like they could potentially be upgraded. So we bought a lot of that producer diversified it a little bit with another. And we’re taking a bet that they will get upgraded. And that’s catalyst. We have a champagne collection, which is
Jay Clouse 28:18
Wait real quick, whatis what is upgraded mean in this context.
Nick Ving 28:22
Yeah, so there are different classes in different regions of Bordeaux and really across the global wine ecosystem. So in this specific region of Saint Emilon on they’re currently at the second tier. And in this conference, both producers could be upgraded and downgraded so they could be upgraded to that first tier in that region. So after the saints milyon we’ve got a champagne collection, kind of a macro driven bet. And finally a will Laurent Ponsot collection, which is a special situation. We believe we’re the only people in the US with these wines. I haven’t seen any supply on the market. Laurent Ponsot, for anyone who’s seen sour grapes is the French individual who helped crack the Rudy Kurniawan case. He’s coming out with a book in the next few years. So we have this catalyst of limited supply, mixed with the fact that this is his first vintage. So think of it like a rookie card vintage of his new brand. And he’s coming out with a book. So this kind of three pronged investment case. So that’s over the short term long term is whiskey futures, potentially vineyards really diversifying across the the industry.
Jay Clouse 29:47
You’re using the word catalyst a lot here, which if I’m reading context clues, this seems like an investment term to say we believe there’s going to be some sort of event that’s going to cause the value of this to increase And you’re even saying that by having this marketplace, you might be able to act as a catalyst for some of these wines to increase.
Nick Ving 30:07
Yeah, I think about catalysts a lot. It’s another way to add return potentially in the wine market, you have supply and demand, which is driving return, people consume these wines. It ages it gets better over time, and you have that element. But if you can throw a catalyst on top, whether it is potentially change of hands in the vineyard or the estates, an owner is putting greater investment into technologies upon So type of event where it’s his first actual vintage, the Saint Emilon, and I think that is a really interesting way to add return. But I also think we can vent can serve as a catalyst for winemakers. So from a high level, when you’re investing on Vint, there’s kind of a few bets that I think people are making there’s you’re you’re betting on the the underlying wine. Supply and demand all that economics, you’re taking a bet there. The second is, there’s a macro economic bet, where we’ve pumped a bunch of money in the system, through fiscal stimulus, people are concerned about inflation. Investors like tangible goods, in times of inflation, you’re kind of making that bet. And then third, a third way that you could win as an investor as the platform grows. So there’s a finite supply of assets on the Vint platform right now. And demand is outstripping supply at the moment. If that continues, and the user base continues to grow, we continue to scale supply, but we just can’t meet demand, then prices will go up. So we’ll have a secondary trading market. And there’s a fixed amount of supply with more capital flowing into the market, then in theory, prices would go up. So that’s kind of a catalyst of the Vint platform. We’ve also explored emerging winemakers, listing their wines on the platform and then becoming a catalyst to being considered at a top tier wine. Like if you’re listed on this platform with the likes of screaming Eagle Harlan Opus, your first gross then, hey, maybe this emerging winemaker should be considered in this group?
Eric Hornung 32:20
At what point does the quantity of wine on Vint lead to like a decrease in the quality?
Nick Ving 32:27
Yeah, so the fine wine market is valued right around $10 billion. And let’s extend this to whiskey as well because whiskey will become a large portion of the market. The low hanging fruit in the wine market is about $500 million of high quality wine that we could access in the next two to three years while keeping quality high. So there certainly is a diminishing marginal return when you get to a certain point, which is why we want to diversify. I don’t know what that number is. I couldn’t tell you but I would say somewhere around a billion dollars a year. Once you pass that number, then quality may have to drop. But you look at whiskey you have the playbook of secondary market whiskey, such as Casks, or your Macallan bottles, but you can also look at young whiskey. I know private equity has started to look at buying whiskey at time t one, right as it is produced by this big distiller and then just holding it ageing it and then selling its independent bottlers. That’s another big sort of tranche of supply that we can get into. But yeah, there there probably is a risk there. But the numbers are bigger than what people think on the surface.
Eric Hornung 33:55
What other industries you mentioned whiskey, what other industries are interesting whether or not they have a secondary market developed that might fit into this model.
Nick Ving 34:04
Wine and whiskey are the primary two and whiskey is even more opaque than than wine, which I think presents a bit of opportunity as well. I guess a third offering style would be futures. So there’s this really interesting system in Bordeaux that basically winemakers are able to sell their wine in advance through the en premier system. So being able to access that market list those wines make those available for investment for your your retail investor is another interesting avenue that we can go down. And those are really kind of the three primary areas that we’re focused on at the moment. We’ve heard other people mentioned types of luxury goods, but I believe the supply is large enough in these this wine, whiskey, other spirits arena that we should focus here right now,
Jay Clouse 35:04
You know, you had your California collection had a market cap of $46,000. So theoretically, you guys outlaid somewhere near that amount of cash to just acquire the collection. And then shortly thereafter, money comes in probably pays that off, I’m just curious how the model in this world works of acquiring assets that immediately get kind of paid off, if you do your job well is this like a loan does have to come from a bank roll of cash that you guys are on top of.
Nick Ving 35:29
So we did acquire these assets outright, at first, if you think about that business model, that’s a really tough business model. If you are acquiring millions of dollars worth of wine, filing with the SEC, selling shares, there’s like significant inventory risk. And all of a sudden, this, this startup type business becomes pretty capital intensive, if you have to do that. So what we do is, it’s a really interesting model, we set up purchase option agreements. So we work with suppliers. And we say, Hey, here’s the collection of wines we want to acquire. These suppliers have deep supply we’re talking, one has about $500 million of wine in their ecosystem and can source anything that we would need and we say, here is the sentimentally on collection that we’re putting together, at what price? Could you guarantee this for the next two months for us. So we determine a price, we filed that with the SEC, because we now have the right to buy the wine. And effectively we own it as long as we sell out the the collection. So we use these option agreements, file them with the SEC, list the wine on the platform, and then we pay the supplier once the collection is sold out. So for the next four collections, the working capital needed to acquire those wines is $0, which is pretty great.
Jay Clouse 36:57
It’s just the legal fees, I’m assuming, which are probably not insignificant.
Nick Ving 37:00
Yeah, it’s high right now. But we’ve overcome the initial reggae plus hurdle. So that going forward, it will become much more of a plug and play type of model each collection, you just add that to the one a document, which is a living document, you file an amendment, and it does become a quicker process going forward. But yeah, you I mean, you saw Rally Road raised the hanger was like a $50 million debt facility to acquire the assets. So there’s, there’s options that are outside of raise a $5 million dollar seed round and use half of that to buy wine, like I want to run a capital efficient business.
Eric Hornung 37:48
On your guys FAQ, it says that you do buy wine you ally itself with investors and purchase between 0.5% and 10% of each offering, is that going to be a strategy deep into the future? Or is that just a for now thing.
Nick Ving 38:03
So that is in reference to the shares. So with each collection, we so for the California collection on shows that example there were 1000 shares, we bought about 4% of that offering as a company. So we do that, because we believe it is an interesting investment. So we want to tie our incentives with with our investors. So we are buying the shares. And sometimes we may buy the wine upfront, if it’s a Hey, we need to act now this is a really, really good deal. But that is what that is in reference to.
Eric Hornung 38:39
And that’ll be a strategy going forward into the future. So everything that gets listed on then then we’ll have some economic interest in.
Nick Ving 38:47
Yes, we will buy shares in every single collection.
Jay Clouse 38:51
A while ago, you said you have two masters of wine. And a guy who ran a wine investment fund that are on I think you said your advisory board or something close to that. How did those conversations go? You know, young guy living in Richmond, Virginia, probably not like the wine capital of the world coming to these people saying I’m starting a wine business. What was that? Like?
Nick Ving 39:10
Yeah, it’s first I’d say I don’t think this is a wine business. I think it’s a more of a financial business. But I came to it to those individuals with, hey, here’s what we’ve got. Here’s what I found. That’s interesting in the market. I am not a wine expert. I don’t tell anyone I am I need people like yourself, who have been studying the market for 20 plus years and, and really coming from a position of I want to learn as much from you as possible. Those conversations were tough. I mean, in the the early days, we probably had 10 to 15 conversations with people like that and they just kind of like no, not right now. I was like, well, you’re like talking to us like once or twice a month for equity in the company. It’s not that bad of a deal. But as the company progressed, the conversations got easier, I started to learn more. And I could speak a bit more of the wine language with these people while still coming from a position of humility, like, you know, a lot more than me. And actually, there’s a really funny story about one. So the importer, his name is Kevin, he’s got a, an interesting financial background as well as, as wine. So we probably talked maybe nine months ago, and I just got an intro to him. And he’s interesting, he lives in Charlottesville. So the call basically ended with I’m surprised at how little you know about wine. And we laughed, and I said, Yeah, you’re actually the first person who has noticed that and almost a year of calls. So what I did, and what I do with a lot of people is I just continue to send them monthly updates, quarterly letters, and he reached back out, he was like, Wow, you guys seem to know what you’re doing more than I had thought. And about six months later, he actually came on and is a part of the advisory board. So we learn quick, but I also don’t think we try and overplay our hand. Like these are the people who are helping us make those investment Decisions, decisions. We’re running the platform, we’re building the platform, we are acquiring users and applying a bit of the sort of nuance and data driven decision making to the selection process. But those are the experts.
Eric Hornung 41:34
Do you like wine?
Nick Ving 41:36
I do. And I will say it is not a huge personal passion. And why I think that’s good is that I take a completely outsider perspective to the market, this market I’m in we’re only targeting the fine wine segment. But it’s broken in that it’s a very intimidating market to enter. I’ve been laughed at for mispronouncing names of wines. Like they’re, they’re not the easiest things in the world to pronounce. To begin with. But I like the story of this agricultural good, that I just don’t understand why it has been sort of altered and made made so exclusive. So I really like brands that are trying to kind of remove that exclusivity in the market. But it’s funny on the team people kind of we rank our customers wine knowledge or like, love for wine from Billy who’s our head of wine certified, and really, really strong team member, then there’s me who’s kind of mid tier like no different varietals I I like wine. I’ll take pictures of bottles on vivino. And then there’s Patrick, the tech guy who does not know anything about wine doesn’t really care about it at all, has a handlebar mustache. And yeah, that’s that’s how we compare our customers knowledge and love for wine and our customer interviews that we do.
Jay Clouse 43:06
We’ve had Rally on the show. And we’ve been exploring so other financial models like digital art and things on the show. And it seems like we’re in a very nascent time for things, digital assets and fractionalized assets like this. And besides real estate, is there precedent for fractional assets, like showing a return that is realized for people or is this really early?
Nick Ving 43:30
So it is definitely early, we’re in the early innings. But the precedent that I would look to in the alternative market is are the exits on Rally on collectible they I believe collectible, which is the sports card company has has an index that they publish of their their exits and potentially the trading market data as well. So that is a question that I get asked a lot is like what is what is the exit strategy. So within the wine market, we’re kind of an unprecedented platform so I don’t have a data source to point to of here is like a perfect clean return profile of exits like this, but we have multiple channels to exit through. And we have Vin folio which is a network of 7000 collectors that we can exit into our suppliers and merchants that we work with have offices in Asia and Asia is a really interesting market because generally there’s a 10 to 20% Premium applied to wines in the Asian market. So we have options is include those two auction houses of which that we can exit into.
Eric Hornung 44:45
Well Nick, this has been awesome if people want to learn more about you or Vint where should they go?
Nick Ving 44:52
Yeah, Vint.co we have a waitlist that’s up we run everything through a waitlist and for myself I’m not a personal social media user, but you can shoot me an email Nick@Vint.Co.
Eric Hornung 45:09
Jay, what’s your favorite podcast app named after a fruit?
Jay Clouse 45:13
Gotta be apple.
Eric Hornung 45:15
Can you think of any other ones?
Jay Clouse 45:17
I tried really hard. But I didn’t want I didn’t want to wait for too long. I didn’t want too much dead air.
Eric Hornung 45:21
Hey, you know what’s worse than dead air. Not getting reviews on Apple podcasts from your listeners.
Jay Clouse 45:26
Oh, my gosh, it is the worst every day that I wake up and I don’t have a new review on Apple podcasts. I just look up the sky and I go ah.
Eric Hornung 45:34
I like how the first thing you do when you wake up is to look at
Jay Clouse 45:37
Apple reviews. If only I was lying, but I’m not. And I’m looking for new reviews for Upside on Apple podcast, Eric. And if you are listening to this right now, you could be that person that helps get the day started right.
Eric Hornung 45:50
All you have to do is go to Apple on your iOS device or web browser plugin and leave us review. Five stars would be nice, four stars to be great. Let’s do five stars.
Jay Clouse 46:00
Let’s do five stars definitely prefer five stars. Even if you don’t use Apple podcast as your preferred listening app on an iPhone, please take a moment to rate us there. Anyway, it helps us bring on great guests. It helps us climb the charts. Our show will get better if you do this very simple app. So please, please.
All right, Eric, we just spoke with Nick King, the co founder and CEO of Vint, where would you like to start this little debrief?
Eric Hornung 46:31
Well, first, you got to put your nose in the glass, see what you smell, you know, look at the color, really understand it, give it a little swish. And then say that this is a really cool idea. I like what Vint is building.
Jay Clouse 46:46
I looked into my glass of wine, I swish it around. And I said I think this has legs.
Eric Hornung 46:50
Oh, that was awesome. Man what a set up by me didn’t even know that he’s gonna do that.
Jay Clouse 46:56
Eric Hornung 46:58
So when we opened up, we talked about how this is so on trend for what we’re seeing across a lot of the conversations we’re having here on upside from Mainvest to Rally. It’s all about alternative investments. And not just being traditional fund investments, but being able to directly participate in something, whether it’s an NFT, a business or commodity or collectible. And I think that by focusing on one niche, like wine, Vint is going to set itself up to be a thought leader in wine valuations in wine investing, and potentially be able to onboard its platform into other platforms that are focused on alternative investments as their kind of wine offering.
Jay Clouse 47:45
And we already see them expanding into spirits, you know, even Rally, they started with muscle cars. So it does seem like with a lot of things, you start some what you start with something, you do it really well then you can expand out into related industries. But what I would never have guessed was that fine wine has returned 9% annually, and has low volatility over the long term, like I just never would have thought about wine as an investment asset. It’s not just that it can be an investment asset, it’s actually already an investment asset. For some people, the process is just not very accessible, or well known.
Eric Hornung 48:22
I have a weird exposure to this, because when I lived in New York, all of my managing directors were wine collectors. And they did it not purely for investment, it was more mostly to tell each other that they had a certain bottle of wine, but there was a financial aspect to it. And there’s something about being able to know that you can sell this bottle for x 1000s of dollars. So to someone who can’t buy, or doesn’t know how to buy, or can’t get access to a vineyard in the south of France, it’s just a very hard space to get into or to allocate a small percentage of your portfolio too.
Jay Clouse 49:00
What do you think about the difference here, though, of let’s take those people that you were around in New York who had the bottles of wine was literally in their possession. So part of the thing was to be able to show like, Hey, I have this, then you can also drink the wine if you want it to. In this world. It seems like it’s more, it’s more purely a financial asset, because you can’t have the same enjoyment of holding it, showing it off drinking it if you wanted to. Do you think that’s a problem?
Eric Hornung 49:28
I don’t know that it’s a problem. It’s something that you came up against with Rally as well, which is the tactel ability to feel something to say I have ownership over it versus just having exposure to it financially is yes, it’s going to bring in a different crowd. And it’s going to make something less likely to maybe go viral. But I don’t know that it I don’t know that it hurts. wine, per se here as as a financial asset because one thing that the ability to invest in wine does that the ability to buy doesn’t is say I am on the same level as these people a smaller amounts, probably, but I am able to invest in wine. And I know that it’s a good investment because rich people do it. When I look at Vint, one thing that I’m curious about is how they launch. So right now they source, they get the offering together, and then they do a first come first serve, you get in, you get one of the shares, it’s yours. That creates almost a, I don’t know if Supreme still does this, but Supreme used to do drops, that creates some virality around people showing up. But it also creates people who want to be investors not being able to get shares if they’re too good at what they do. You know, I’m saying,
Jay Clouse 50:45
No, I don’t know you’re saying.
Eric Hornung 50:46
So there’s only 100 chairs out there of a certain collection of wine. And I’m really into buying that, let’s say it’s a super Tuscan collection. And I know this from experience. Then, if I don’t get in, in the first six hours, because I’m busy or working or whatever, and it sells out, I now cannot because there are no secondaries. There’s no secondary offerings, there’s no platform for me buying and selling that there’s no way for me to get exposure to that collection that I was really excited about just because of timing.
Jay Clouse 51:17
And so what’s what’s the next step to that? Do you think that makes it less attractive to investors? Or do you think that creates even more scarcity to make it more attractive for people to move quickly?
Eric Hornung 51:27
I think that it creates virality, it creates the ability for people to be like I got in and you didn’t. It creates hype, for sure. But in the long term, I think that a secondary market for liquidity for those for that ownership is going to be necessary for people to continuously be interested and be able to see the value go up and down. Because in the long term, yes, it might return 9% on historicals. But people don’t really care about the long term people like the dopamine hits, especially as you’re looking at as you start going down the chain.
Jay Clouse 52:00
When you look at Vint, or if you want to extrapolate into some other fractionalized asset marketplace, that’s specialized. Would your excitement around investing in a company like this be tied to your expectation that they would grow into other verticals? Or would you be excited about something that just specifically stays Wine and Spirits?
Eric Hornung 52:25
For me? No, I think that staying focused and staying verticalized is actually probably a better bet. I look at Hodinkee. Are you familiar with them?
Jay Clouse 52:33
Eric Hornung 52:34
Watches. So they started a watch. A digital watch magazine essentially created a bunch of content around watches, and they rolled out other products, but everything centered around watches and fine men’s living but really watches they sold for or they raise $100 million, or sold for $100 million, or something like that. I think by being the go to expert in your field, you become much more valuable to someone who wants to be that expansion mechanism. And you still have the optionality to do it into the future. But I think being number one in wine, because they’re not the only people out there doing fractionalized wine or investing in wine or democratize the democratization of investing in wine, there’s wine clubs, there’s wine groups, there’s a lot of stuff out there. But if you can be the best if you can be the biggest if you can be the place that everybody goes to check their data to check the pricing to check whatever, then that I think is a much more valuable asset than someone can do a lot of different types of investing semi well via a platform that’s regulatorily compliant.
Jay Clouse 53:36
Yeah, I think I agree with that take. The other critical part of me, you know, thinks about the stat of fine wine has returned over 9% annually, and has low volatility over the long term, which you might look at and just say like, Alright, let’s just invest in wine all day. But I’m sure that stat is rooted in the limited scope of what wines have been traded as assets. So there’s there’s some like theoretical threshold or limit to how much wine can be used as a financial asset, right?
Eric Hornung 54:09
There’s a theoretical limit. But once you find that limit, the likelihood is that the value grows, once it becomes a finite resource or a finite amount, then you get value accretions. Because once supply becomes fixed, if demand continues to grow, value rises, price rises. So maybe yes, you can’t do as much from a quantity perspective, but you can do as much or more from a price perspective.
Jay Clouse 54:38
Interesting and thought about this is inherently increasing the demand for an already valuable asset which makes that asset more valuable.
Eric Hornung 54:48
Which comes back to our our idea of the more access and liquidity you can give to assets that historically have not been accessible or liquid Likely increases both the price and volatility of them over time, though it’s not guaranteed. And that’s just our hypothesis.
Jay Clouse 55:08
Let’s take a slight right turn here and talk about Nick, as a founder, what stuck out to you about Nick, as a founder of this company.
Eric Hornung 55:17
I think he’s a hustler. He really got after this new regulation went through all of the hoops and hurdles to get it done. And he doesn’t have a big team to do it. He is going through and understanding all of the regulatory pieces of the puzzle he’s studying, Rally, and understand how they did that did it and taking that as a playbook. As someone who used to work in regulatory consulting, it is not fun to do any of that. And to do it on your own as a startup with an idea. I can’t imagine, many people would spend the time to do it and do it. Right.
Jay Clouse 55:54
Yeah, seems like a lot of hurdles and a lot of hoops to jump through. And that’s a good, that’s a good mark on Nick’s pedigree to me as well. What stood out most to me about Nick was his awareness of his weaknesses, and his willingness and not even just willingness, but his sort of aggressive pursuit of finding people who could augment his knowledge and experience people who have been in the wine world from different angles for a very long time. And even though he wasn’t always successful in getting those people on board, he stuck with it and found what seems to be a really strong team. He said he has two masters of wine, there, only 57 of which are in the US. He has someone who runs a wine Investment Fund, an importer. These seem like really smart parts of the wine ecosystem to bring onboard the team.
Eric Hornung 56:46
Who do you think he needs as his next full time hire, maybe not advisors, but full time hire,
Jay Clouse 56:52
maybe it’s the product guy in me. But looking at the the page itself, the product itself, it seems like there are some strides to be made in building out the product to make it more user friendly, more accessible, something that’s ready for higher load.
Eric Hornung 57:11
In the world of Robin Hood, and the user interface they created study developed over time. That’s now the expectation. It’s very similar to podcasting. Jay, when we started off, you could launch a podcast to guys, no mics, using your phone and get something that was maybe in the top couple 100 on the apple charts. Today, the expectation by consumers and users and listeners is so high that you have to have you have to clear a different bar to even be in the conversation. And I think that what Robin Hood did for investing, the way that they created user interfaces that made it simple to invest is probably I think you’re spot on that something like Vint has to feel like Robin Hood, or better.
Jay Clouse 58:00
And maybe that’s a little bit of a ways out. Depending on how much supply they can even bring onto the platform in a given amount of time. It sounds like you know, he had a really smart strategy for how to acquire wine or get it on the platform and be ready to purchase that wasn’t incredibly capital intensive. So it seems like he could scale up quickly in terms of supply. But if he is going to increase demand, I do think that the platform needs to grow a little bit and get ready for primetime.
Eric Hornung 58:30
Are you are you a fan of strawberries?
Jay Clouse 58:32
Eric Hornung 58:33
So I’m not but I have eaten them before. It’s and we’ll talk about that later.
Jay Clouse 58:38
Of course you’ve eaten them before who hasn’t eaten strong.
Eric Hornung 58:41
Dear listener, if you haven’t eaten strawberries before, I’d love for you to tweet @JayClouse on Twitter and let him know that you’ve never had a strawberry because he’s looking for somebody. Anyway, that’s my analogy real quick. You know, when you get like, a new thing is strawberries. And there’s like some really, really good ones. They’re ripe. They’re juicy. They’re not like demented at all. They’re not too big. They’re not too similar. Well, sometimes,
Jay Clouse 59:03
Sometimes strawberries not demented?
Eric Hornung 59:05
Yeah, sometimes you get like the double strawberry, you know, I’m saying like, you get the one that like has like the little double hump down there kind of freaks me out. Then you got the ones that are too small, you get the ones that are like a little rotted, whatever my biggest shadow about Vint is that right now they are in the I just opened a new box of strawberries, carton of strawberries phase, and they’re picking out all the best collections. And eventually there’s going to be some collections that aren’t as interesting. And this might be a five year 10 year 20 year problem. I don’t know when it is. But once they start getting there does demand for those keep up with the supply that they are going to have to continuously be increasing on the on the site.
Jay Clouse 59:47
I that’s a good, that’s a good shadow. And I would imagine and hope that by that time, they do have a secondary marketplace as well, so that the existing collections can continue to appreciate in value and people can realize gain on that.
Eric Hornung 1:00:00
So let’s jump to what we want to see in the next 6 to 18 months. Jay, what are you thinking, besides revenue.
Jay Clouse 1:00:06
Besides revenue? Well, I’ll let you talk about the collections because I know you’re gonna talk about the collections, I want to see evolution of the product, I do really want to see that products when you land on the website, making it a lot easier to create an account, making it easy from the time that you do create an account to begin to invest in wine. It seems like right now, even if you do create a vendor account, it’s kind of up in the air as to when you will be able to use that because it’s dependent on collections, new collections, since there is no secondary market for the existing collections.
Eric Hornung 1:00:39
I’m pretty bullish on Vint and what they’re building, what I’m looking at 6 to 18 months from now, I want to see some data, first and foremost, around how quickly things are selling out what is the average investment size? I think that’s a big one. And just anything else that can pull about the collections they’re doing? Specifically, if there’s any that don’t sell out, I want to know why on those, that’d be particularly interesting. And then from that, the kind of next step is, can you underwrite your wine supply selection, part of this equation better, within the next six to 18 months, can you create some sort of vent preferred where I don’t have to show up within six hours, I can just commit pre commit to the next X amount of raises for $500 on a commitment letter on each one because I know that I want to do this much per year and wine investing. And by having that Vint is able to better underwrite better ensure that they don’t have any sales that aren’t completed. So I don’t know if that’s the sixth 18 months might be closer to 18 plus months. But those are two things that I’m I’m interested in seeing from Vint, and I’m very excited about what they’re building.
Jay Clouse 1:01:51
I feel like we didn’t talk much about their expansion into spirits. How does that play into your shadow of, you know, running, running thin on good collections, there’s all kinds of spirits out there any type of which has lots of rare and valuable bottles in it.
Eric Hornung 1:02:09
It feels to me like you got to nail wine first before you really focus on spirits. So while I think it’s a huge opportunity, it’s more of a shadow to me of getting too much focus right now. versus a potential opportunity into the future. I want wine to go really, really well for the next 6 to 18 months, and have some structure built out there before spirits becomes the next frontier.
Jay Clouse 1:02:33
All right, dear listener, we’d love to hear your thoughts on this episode and your thoughts on our takes. Are we drunk with power? Let us know tweet at us @upsideFM or email us Hello@upside.fm. And we will talk to you next week. That’s all for this week. Thanks for listening. We’d love to hear what you think about this episode. So tweet at us @upsideFM or email us Hello@upside.FM and let us know. You can learn more about us and browse our entire back catalogue of email@example.com and if you love our show, please leave a review on Apple podcast that goes a long way in helping us bring high quality guests to the show.
Debrief Begins: 46:24
- Value vs. Growth Investing 8:49
- Vint’s Concept 13:53
- Wine Industry 17:51
- Wine Investment 21:42
- Future of Wine Trading 24:35
- Catalysts 29:47
- Whiskey Market 33:55
- Approach on Getting Experts 38:52