Top Deal: A Sci-Fi Tour Complete with Booze

Key Stats:

Summary

Lost Spirits Distillery has been selected as a “Top Deal” by KingsCrowd. This distinction is reserved for deals selected into the top 10% of our due diligence funnel. If you have questions regarding our deal diligence and selection methodology, please reach out to hello@kingscrowd.com.

Problem

While not exactly a “problem,” consumers are hungry for more booze and better experiences. 

Sales of alcoholic spirits generated $36 billion dollars in revenue in the United States in 2016, and the spirits segment grew at a 3.3% CAGR between 2006 and 2016. The spirits market is also growing more fragmented over time. For example, rum brands outside of the top 5 held 34% of market share in 2016, up from 24% in 1996. Premium spirits brands are also growing faster than non-premium brands, particularly for segments like whiskey and vodka. 

Harvard Business Review contributors presciently defined the rise of the “experience economy” in 1998, and their predictions have been proven correct tenfold. As more and more millennials and Gen Zers look to participate in fun, Instagram-worthy jaunts, they’re seeking more and more novel concepts that engage and amaze them. 

A brand that could capitalize on the intersection of these trends would be well-positioned to capture consumer interest…

Solution

Lost Spirits Distillery blends a tour, a high-end restaurant, and an award-winning distillery to create a unique, all-in-one experience for guests. Lost Spirits began as a rum and whiskey distillery and has won a number of awards for their alcohol products, including “2019 World Whisky of the Year” from Wizards of Whisky UK and the “2019 Liquid Gold Award” from Jim Murray’s Whisky Bible. 

Lost Spirits’ alcohol is made from proprietary chemical processes for which the company owns multiple patents. For instance, spirits are mixed with wood chips and exposed to bright light to mimic decades of barrel aging in only two days. 

However, Lost Spirits is much more than a distillery. Lost Spirits invites guests to visit its Los Angeles location for a distillery tour that resembles a theme park ride: guests climb aboard a river raft and navigate a dark, artistic jungle to reach the production rooms. Guests are also invited to dine at Fish or Flesh, a high-end restaurant offering a 10-course tasting menu inspired by The Island of Dr. Moreau, an 1896 science fiction novel by H.G. Wells.

Lost Spirits generated $1.8 million in revenue in 2018 and projects $4.5 million in revenue for 2020 based on initial results in Q1. The company reports that it has grown by 1,200% over the last three years, based on year-over-year revenue comparisons from 2017 to 2020. 

Lost Spirits is raising up to $1,070,000 on WeFunder at a $20 million pre-money valuation. Investors will have a $25,000+ pro-rata right threshold. 

Team

Bryan Davis is the Co-Founder and CEO of Lost Spirits Distillery and is responsible for growing the company from $383,000 in revenue in 2017 to $1.8 million in 2019. Beyond managing the business, Davis is named on several of Lost Spirits’ chemical engineering patents. 

Other Lost Spirits officers include Joanne Haruta, CMO, and Wynn Sanders, COO. Haruta graduated from UC Berkeley’s Haas School of Business and worked at Morgan Stanley before co-founding two distilleries. Sanders is a former Lt. Colonel in the US Air Force and holds a ScD in Materials Science and Engineering from MIT. He has published one patent and multiple scientific papers that have been cumulatively cited over 1,600 times. 

Growth Plan

The biggest milestone on Lost Spirits’ roadmap is opening a new distillery in Las Vegas in 2020-2021. The Lost Spirits concept is perfectly suited for Vegas, which thrives on unique experiences just like the tour that Lost Spirits built in their original Los Angeles location. Lost Spirits reports that 80% of the cost of opening their new Vegas distillery is covered by the development deal, for which they have a signed letter of intent, and 20% will come from the current fundraise. Lost Spirits projects that the Vegas location will catapult revenues to over $30 million annually. 

Why We Like it

• Catering to the experience economy: Lost Spirits Distillery is a concept perfectly suited for the 21st century experience economy. Millennials and Gen Zers are increasingly focused on spending money on distinctive experiences rather than material possessions, and Lost Spirits caters directly to those looking for something cool to do on the weekends. The distillery’s Vegas location will only further appeal to consumers with disposable income looking for an exciting experience.

• Impressive year-over-year growth: While Lost Spirits reports only 2018 financials in its fundraise materials, the company reports that revenue growth has been sizable for the last three years. The first two months of 2020 have led Lost Spirits managers to project $4.5 million in revenue for the year, up from just $383,000 in revenue in 2017. The company’s new Vegas expansion will only increase revenue growth.

• Multiple streams of income and intellectual property: Lost Spirits has the unique capability to generate revenue from diversified sources, which reduces risk. The distillery sells spirits direct to consumers online and at their Los Angeles store: these award-winning products alone are a valuable asset. Lost Spirits also holds patents in the chemical engineering processes that produce their spirits, which may be an attractive target for acquisition from larger competitors. Finally, Lost Spirits generates significant revenue from their distillery tours and high-end restaurant. Any of these verticals alone would make a worthy investment, but the fact that Lost Spirits commands all of them only further indicates the company’s potential for success.

The Rating: Top Deal

Lost Spirits Distillery is carving out a niche in high-end rum and whiskey production and experiential tour design. The distinctiveness of the company’s brand and offerings generate useful press and buzz, which will come in handy as the company prepares to open a new Las Vegas location. 

In terms of exit opportunities, Lost Spirits indicates that it plans to pursue an initial public offering in the next two to three years. While this path seems unusual given the size and industry of the business, it may be a viable avenue for investors to gain liquidity. Lost Spirits could also pursue an acquisition by a larger spirits brand (following in the footsteps of High West Distillery, acquired for $160 million) or entertainment conglomerate. 

Investors have a unique opportunity to purchase equity in a unique liquor and entertainment concept experiencing explosive growth. As consumers continue to seek out new and exciting experiences to share with friends and family, Lost Spirits is well positioned to generate revenue in both Los Angeles and Las Vegas in hopes of an IPO or acquisition. That’s what makes Lost Spirits Distillery a Top Deal.