First Stage Investor

14 Reason to Invest in the Startup Disrupting Beer and Liquor Sales

14 Reason to Invest in the Startup Disrupting Beer and Liquor Sales
By Andy Gordon
Date April 15, 2021
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Deal Details
Startup: TapRm
Security type: Crowd SAFE*
Discount: 0%
Valuation (cap): $22 million
Minimum investment: $100.98
Where to invest: Republic
Deadline: May 1, 2021


TapRm has managed to do something no other company has done before. 

That’s a remarkable statement to make about an e-commerce startup. But TapRm is a remarkable startup. 

E-commerce is everywhere. If you can’t buy it online easily, then there’s probably a good reason. Narcotics remain off-limits for obvious reasons. 

And beer, hard seltzer, hard tea or most other alcoholic beverages are way too difficult to buy online. In fact, it’s much easier to buy alcohol in person thanks to out-dated regulatory restrictions. But TapRm has cracked the code — and found a way to create a good shopping (and selling) experience online. 

The regulations governing the sale of alcohol vary from state to state. But generally speaking, the regulations have created a three-tier system that consists of producers or makers, distributors and retailers. 

Beer and other alcoholic beverage makers are forced to sell through specific distributors. The distributors then sell to retailers, bars and restaurants. The retailers, bars and restaurants then sell to the customer.

That’s right. Government regulations require middlemen. But wait, it gets worse! Many states only allow distributors located in the state to sell in that state. It’s why the vast majority of micro-breweries don’t sell beyond the state they’re in. They’d need to sign at least 100 distributors throughout the U.S. to sell nationally. That’s a monumental task for a small brewery with limited cash. 

This system works great for the big brands like Anheuser-Busch and Heineken. It works like crap for everybody else… including you and me. The price you pay at the store is jacked up by the mark-ups of multiple middlemen. Less than half your money goes to the actual breweries. And it’s easy for big brands to game the system by buying up so much shelf space that it’s impossible for newcomers to break in.

There are a few stores and DTC companies that offer pseudo online purchasing convenience. But it’s more expensive than buying in a store, with the local retailers charging well above store prices for home delivery.

This is how it’s been for decades. As a result, big beverage companies and big distribution companies have become the most powerful players in the alcohol industry. Consider this. The top beer, wine and liquor distributor in the country is Southern Glazer’s Wine & Spirits. It generated an estimated $20 billion in revenue in 2019, according to Forbes. That’s almost as much as Heineken’s $26.8 billion in global sales. And more than the global sales of Molson Coors and Constellation Brands combined. 

Disrupting this money train won’t be easy. Thanks to friendly regulations, this market has armor that’s tough to penetrate. 

And until TapRm showed up, there was never a serious threat to disrupt the status quo. But TapRm has cracked the code and is showing everybody how it’s done. 

It begins with buying an existing license at a reasonable price from a local distributor or retailer. Next, TapRm sets up a distribution center to fulfill orders. And then it adds in an easy-to-use platform where customers can order and get delivery the same day. Today TapRm offers a surprisingly wide array of around 350 of the latest and up-and-coming beverages. 

TapRm set up its first fulfillment center in Brooklyn. Serious revenue generation soon followed. From less than $1 million in 2019, TapRm took in nearly $6 million in 2020. This year it’s on its way to making between $16 million and $20 million. It’s expanding into Pennsylvania (starting with Philadelphia), Texas (Dallas first), New Jersey and Connecticut. The Connecticut location plans on distributing to 31 other states across the U.S. 

Challenges surely await. But there can be no doubt about the business model itself. It works amazingly well. The vast majority of new brands targeting the New York market are choosing to do it through TapRm — some on an exclusive basis. 

And revenue generation is exploding. Between 20-to-25 additional states will be added to TapRm’s network over the next 12 months. And 100 more cities will offer TapRm’s direct-to-consumer (DTC) home delivery services. 

The company’s fast start is impressive and answers the biggest question of “can it work?” — but “will it work?” is another matter. As an investment opportunity, here are 14 reasons why I believe it will…

  1. Outlier margins. I know something about distributor margins. In my previous business in Asia, margins ranged from 5%-to-15%, with the majority falling in the 7-10% bracket. TapRm’s range is an other-worldly 30-60%. 
  2. Nobody else is doing anything like this. TapRm took a big risk by doing something completely new and untried. It won the bet. And it’s now expanding without serious competition. 
  3. Big moat. It should continue to maintain its substantial competitive advantage. Alcohol brands are going to TapRm, not the other way around. TapRm’s array of marketing and services to its brands… its ability to generate meaningful product/customer data… and its presence in major cities form an almost insurmountable head start over wannabe competitors. A new entrant won’t be able to replicate that for at least a couple of years, if not more.
  4. No patience required. Less than a year ago, TapRm was in a single state: New York. Next year it should be in most of the country’s biggest cities and in the majority of states. In addition to geographic expansion, TapRm is doing just as well in product expansion, brand expansion, growing marketing clout and data accumulation. And revenue and profits are also increasing at a rapid pace. 
  5. Brands are generating much of the traffic. Each alcohol brand that goes through TapRm decides how much to put into marketing. And many are spending significant dollars to generate demand on the part of customers who click TapRm’s “buy now” button on the brand’s website. TapRm fulfills the order and takes a generous cut of the sales — without spending a dime.
  6. Big benefits for brands. Believe me, brands are getting a lot out of this arrangement. TapRm makes it possible for smaller brands to think big, go national and scale far beyond what was previously possible. As TapRm expands to dozens of cities, brands will be able to follow it into other parts of the country previously closed to them. 
  7. Bigger benefits for customers. More choice, cheaper prices and the convenience of home delivery. That’s a big win for consumers.
  8. Growth beyond COVID-19. TapRm’s impressive progress is not pandemic-dependent. Long after this pandemic is over, people will still want to buy beer and liquor online.
  9. A data play that should not be overlooked. TapRm is amassing thousands of points of data on alcohol beverage sales… every day. TapRm has even created two brands of its own because its data revealed a gap in the brands being offered. Data is poised to be yet another revenue opportunity for TapRm.
  10. Love those pick-and-shovel plays. I’ve endorsed specific beverage brands here and there (see AsomBroso Tequila). But you have to choose carefully. And the competition can be tough. With TapRm, you don’t have to figure out which brands will win. TapRm is doing that. And they’re much better at it than you or me. Risk is significantly diversified with upside remaining substantial. 
  11. The return of B2B. While TapRm did great in 2020, its business-to-business operations were decimated. Once a significant piece of TapRm’s growth strategy, it should come back and add more dimensionality to TapRm’s future prospects.
  12. Founder advantage. Jason Sherman is a Harvard undergrad and law school alumnus. And he’s acquired a great deal of business experience in the alcohol DTC space. He was also a founder of InBev’s corporate venture group, ZX Ventures. He loves beer. And he keeps on top of the ever-expanding “edge alcohol” drink brands. My conversations with him revealed an entrepreneur with an instinctive knowledge of how hard to push his multiple growth initiatives. His execution has been top notch. 
  13. Profitability in sight. TapRm expects to become profitable this summer. And it will do it without sacrificing rapid growth. Most startups can’t do this.
  14. An investor friendly price. With a super-low valuation, you usually get what you pay for. That’s not TapRm’s story, though. Revenue this year should reach between $16 million-to-$20 million. TapRm’s valuation cap is $22 million. Remember, that’s the highest you’d pay. It’s entirely possible you’ll end up paying a lower number. A lower-than-one multiple is not out of the question here for a rapid-growth, high-margin, soon-to-be-profitable startup. If anyone else were saying this to you, I’d tell you not to believe it! But you can take it from me, these numbers are very real… and attractive as hell.

TapRm has done well to set itself up for a sustained period of rapid growth. You’d be investing at a great point. Risk has significantly receded. And the future is looking incredibly bright. 


How to Invest

TapRm is raising up to $5 million on Republic. If you don’t already have a Republic account, you can sign up for one here.

Once you verify your account and are logged in to Republic, visit the TapRm deal page.

Then click the blue “Invest in TapRm” button. Enter the amount you want to invest, starting as low as $100, and proceed through the required steps. Be sure your investment is confirmed, then you’re good to go.

*NOTE: The security you will be investing in is a Crowd SAFE. A SAFE is a Simple Agreement for Future Equity. An investor makes a cash investment in a company, but gets company stock at a later date, in connection with a specific event. The Crowd SAFE is a modified SAFE that is better suited for crowdfunding.

Risks

This opportunity, like all early-stage investments, is risky. Early-stage investments often fail. TapRm might need to raise another round of funding in a year or two, if not sooner.

If it executes well, this shouldn’t be a problem. But that’s a risk worth considering when investing in early-stage companies. The investment you’re making is NOT liquid. Expect to hold your position for five to 10 years. An earlier exit is always possible but should not be expected.

All that said, I believe TapRm offers an attractive risk-reward ratio.

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