How ‘Angel’ Investors Made NakedWines.com Successful

A winery that acts like a tech startup uses grapes instead of silicon or software to deliver its goods.

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NakedWines.com

One of the joys of living in Northern California’s Silicon Valley is that it’s 90 miles south of the Napa and Sonoma Valleys, California’s premier wine region. This area is known for its wonderful food, charming places to stay and of course, some of the best wineries in the world. This time of the year is its busiest as grapes are being harvested and processed — an activity known as “the crush.”

For years I have trekked up to Napa, sometimes for business, but most of the time to go wine tasting and enjoy the local atmosphere, especially its gourmet restaurants. But last week, after being tipped off about a wine site based in Napa that had a most unusual business model, I gladly made the trip to visit NakedWines.com to find out what made it tick and how it had become so successful.

The company had just raised another $10 million in venture-capital funds for operational expansion, but the bulk of its actual funding followed a well known Silicon Valley model in which angel investors put cash into early startups, getting in at ground-level to be rewarded if the company becomes successful.

However, in this case, anyone can be an angel investor by committing $40 a month to their NakedWines.com account. That money is good toward the purchase of any wines they buy, which are sold to them at basically wholesale prices. I suppose using the term “angels” is a bit of a stretch since these angels are not repaid in stock or ownership, per se, but they still get significant benefit from being angels — especially if they love wine.

While this business model is an interesting twist in its own right, the most unique aspect of NakedWines.com is that the money it gets from the angels is used to literally provide individual wine makers an opportunity to create great wines of their own without having to worry about the financial and distribution aspects of wine-making.

To understand how this works, I spoke with company founder Rowan Gormley, a South African born entrepreneur who started NakedWines.com in the U.K. and has brought it to the U.S. and Australia. The company has about 150,000 angels around the world and is growing 50% per year since it was founded in 2007. About 30% of these angels are in the U.S. and growing. He explained that the vision is to give talented winemakers a chance to create great wines with their angel backing and use the Internet as a vehicle to market and sell their wines.

NakedWines.com seeks out talented winemakers from all over the world and offers them a chance to make wines under their own name or label. The money collected from the angels allows the company to, in most cases, actually buy the grapes for the winemakers, who pick the grape supplier, and then bring the grapes directly to its Sonoma winery. There they are crushed, fermented in huge tanks and aged for approximately one year. During that time, the winemaker can remotely interface with the Sonoma site via the Internet, which constantly updates vital stats on the progress of their wine. Temperature and Brix ratings, (sugar content) are adjusted as necessary as the winemaker directs. The winery has multiple master winemakers on site and is managed by a talented winemaker, Jacqueline Bahue, Director of Winemaking. The individual winemakers are in contact with her and her team, who constantly help them make sure that all of their orders are followed closely, from crush to fermentation and through the aging process. To date, NakedWines.com supports about 130 winemakers from all over the world.

One of its winemakers is Ken Deis. Ken is a 37-year Napa veteran, most recently at Flora Springs, where he was making $85-$100 Napa Cabernets. With a glittering track record (highest-rated wine from highest-ever-rated vintage, 1997, Wine Spectator), and over forty 90+ Parker Points scores, NakedWines.com supported Mr. Deis with funding to set up his own label by financing the grapes, the barrels, and other things necessary to the winemaking process.

I spoke with Mr. Deis last week and he told me that the relationship with NakedWines.com has been excellent. He said, “For a winemaker, unless you are a hired gun, this is a way to do what you like to do and what you want to do but takes out all of the financial headaches, where you are going to put it, etc. It is a great thing for a winemaker.” This year he has multiple harvests in the tanks and one of his Cabernet Sauvignons is barrel-aging.

Another example is Joost Villebois. He was chairman of the Dutch stock exchange and found a beautiful estate in France, hired a great winemaker and made a great wine. But he was shocked to discover that to sell his wine, he had to spend more on marketing than he did on the wine. NakedWines.com supported him by buying all of his stock; he has grown to a 300,000 bottles-per-year supplier for the site. This is an example of NakedWines.com working with a winemaker and becoming a powerful distributor for them, something that is also in its business model. Mr. Gormley said that another winery that had a similar problem now moves about one million bottles of its wines through NakedWines.com each year.

And a most interesting winemaker is Carmen Stevens. She was the first black woman to graduate as a winemaker in South Africa, but she still found it hard to get financing. NakedWines.com got 2,000 customers together to raise around $150,000, and today she is one of the site’s highest rated winemakers.

The site’s rapid growth has not gone unnoticed by the wine establishment. As you can imagine, it has ruffled the feathers of some of the big winemakers, traditional distributors and dealers. And Mr. Gormley says that a valid criticism is that the site’s wines are bottled very young, but this is because of cash flow issues since the company is constantly having to buy grapes and equipment as the demand from winemakers around the world to join has been strong. With its current operation, which has 42 tanks on site today in Sonoma, it can only support a limited amount of winemakers at a time, although the company plans to double the amount of tanks at the Sonoma site in the near future to accommodate growing demand. The company is also expanding its operations in Europe and Australia as well.

So, how are the wines themselves? I am not a wine connoisseur but after living in Europe multiple times in my life, I learned early on that wine tastes vary greatly. While not a qualified judge on this issue, I have developed a pretty good palate and affinity for good wine. All of the 10 wines I tasted were very enjoyable. Like Mr. Gormley said, they are all very young — although the whites I tasted were really good and highly drinkable. The reds were also quite good, but clearly could use more aging. At the wholesale prices for the angels purchasing, they are actually a pretty good buy, though.

In the last 10 years, the majority of the wineries in this area have taken to the Internet and made it a major vehicle for the promotion of their wines. And other sites like Wine.com and Amazon have all become important for the online sale and distribution of wines to the U.S. states where it is legal to sell and ship. But in these examples, they are reselling wines they purchase from existing wineries.

NakedWines.com takes this concept and gives it more of a Silicon Valley twist. I think of its winemakers the same way I think of Silicon Valley garage startups where products are created, backed by angels at first, and then made for a hopefully accepting marketplace. This one just uses grapes instead of silicon or software to deliver its goods. But it embraces technology in every aspect of the process, using the expertise and talents of the winemakers to create really good wines.

Bajarin is the president of Creative Strategies Inc., a technology industry analysis and market-intelligence firm in Silicon Valley. He contributes to Big Picture, an opinion column that appears every Monday on TIME Tech.

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