Diageo launched its Distill Ventures project last year

Diageo launched its Distill Ventures project last year

Last month, Diageo confirmed that it was upping the intake of its entrepreneur initiative project, Distill Ventures. Ian Buxton speaks to Frank Lampen, the unit's chief tasting officer, to learn how Distill Ventures is working out for the drinks giant.

Frank Lampen is a happy man. As well he might be: Not everyone gets their budget doubled after just one year of operations. And, when you consider that his paymaster is Diageo (more recently noted for budget cuts and redundancies) and the money is going into start-up spirit companies - some of which are little more than at the concept stage - he has good reason to be cheerful.

His business is mentorship in the form of the Diageo-funded Distill Ventures investment fund, which I reported on last August. Put simply, Distill Ventures is an accelerator-style venture capital fund for the spirits industry, with a difference. The difference – as Lampen is keen to stress – is that the unit doesn’t just offer money and take a stake; the package includes expert, bespoke advice tailored to making the recipient company grow big, fast.

There are two programmes: Seed and Growth. Seed is a year old now, and I wanted to know if it had grown.

Four companies were selected for the first round. Each received an investment of GBP175,000 (US$290,677) in return for an unspecified equity stake (Lampen describes the terms as “attractive”, stressing that the entrepreneurs “remain in control and have to do the work”). One was in the UK, one in Spain, one elsewhere in Europe and one in Asia (it’s a big place, but confidentiality is everything for these early-stage investments, so much of our conversation was understandably guarded).

We should be hearing more about them very soon: one is in a soft launch phase in its home market, and the others should come on stream by Christmas. They were the outstanding candidates in what turned out to be a global search.

“More than 250 businesses contacted us,” says Lampen, “and we heard from people on every Continent, bar Antarctica. We were looking for an alignment between an ambition for global scale and a real point of difference, more than just a great liquid, and we needed to be convinced that the people behind the idea could deliver the potential we identified.”

So, what have they been doing, in practical terms? “We’re all about helping the entrepreneurs access great expertise, and providing them the opportunity to get constant ‘real world validation’,” he says. “For example, we’ve provided technical advice to one of our seeds, leading them to change supplier for a mission-critical element of their product. The original supplier simply couldn’t offer the necessary scalability and this would have been a real problem as soon as the product took off.”

“In another case,” he continues, “our mentorship has taken an interesting local brand and challenged the team to come up with the brand positioning, packaging and identity to address a global opportunity. Their product was great, now their marketing [potentially] matches that.”

Other case studies we discussed include a European entrepreneur with a natural target market in the US, but few contacts and little real market knowledge. Distill Ventures was able to expose the entrepreneur to people able to help hone the brand proposition and polish its pitch, potentially saving the entrepreneur time, money and some uncomfortable experiences with buyers.

Of course, not all of the entrepreneurs from the Distill Ventures programme have yet reached the market. But, Diageo is evidently happy. One year, on the company has doubled the budget and Lampen is now looking for eight to ten seed investments in the next round.

As James Ashall, Diageo’s innovation director in the futures team, says: “We’re delighted and excited by the progress of Distill Ventures, which helps maintain the entrepreneurial spirit of the founders of our brands,” adding that it has the potential to “nurture, develop and grow the brands and people that will be the success stories of the future”.

Looking to the future, there will be more seed corn available. “We’re looking to make more investments because we are excited by the breadth and quality of the companies,” he says. 

“Distill Ventures will form part of a long-term innovation pipeline in an incredibly exciting category that will help drive our long-term growth.” 

It strikes me that Distill Ventures is a pretty shrewd piece of business by Diageo. For a relatively modest cost, the firm gets a privileged insight into the fast-growing and dynamic craft-distilling sector worldwide, a unique piece of real-world market research that, as well as alerting them to trends and even possible threats to its existing business, allows them to cherry-pick investment opportunities that just might turn into the next big thing.

Compared to the big-company costs and time-consuming processes that inevitably tend to dampen spirits innovation, this looks like a bargain. The accelerator only needs to produce one global success and the cost will be repaid many times over.

And, happily, the failures that go with this territory won’t be laid at Diageo’s door. As Lampen puts it: “The odds for any new brand launching are long, but this process hopefully gives the entrepreneurs we work with a real edge.”

From a corporate perspective, James Ashall explains: “The small-scale distilling trend is accelerating and is going to create more new brands of stature in the future. We’re committed to remaining agile and at the cutting edge of consumer trends. Distill Ventures helps us do this.”

For further details on Distill Ventures, click here.

Expert analysis

Global Spirits Market: News and Events July 2014

Global Spirits Market: News and Events July 2014

Synopsis The report provides a review of the latest news and key events in the global spirits market during July 2014. Summary Using this report, marketers will effectively gain an insight into the l...read more