Investor Interview: Top Shelf Ventures

A conversation with Noah Sanborn Friedman, Co-Founder of Top Shelf Ventures

Author

Bubba Smitham
November 22, 2024

I had the pleasure of interviewing Top Shelf Ventures' Co-Founder, Noah Sanborn Friedman. I’ve summarized the key points of the interview in a 5-minute read below, but you can listen to the full 20-minute interview here:

Introduction to Top Shelf Ventures
Top Shelf Ventures is a private equity and venture fund specializing in the underserved and highly regulated alcohol industry. They employ advisory networks and AI systems to monitor the entire alcoholic beverage landscape, with the goal of backing quantitative and qualitative outliers.

“We take aggressive, founder-friendly positions in those companies, help the founders accelerate the businesses and ultimately lead them to either an exit or some sort of liquidity event…It's worked out pretty well for us thus far and we're excited to continue to carve out what we believe is a compelling and valuable niche in a massive and lucrative industry.”

Why Alcohol is Underserved by Venture Capital
Traditional investors often avoid alcohol due to the three-tier system and a complex regulatory framework dating back to Prohibition. While other consumer sectors see substantial institutional activity, Noah highlighted that alcohol’s unique metrics and distribution challenges require focused expertise.

“We’re trying to lead the charge in booze and invite others to follow.”

Noah’s Background and Industry Insights
Noah’s journey began in alcohol analytics, where he helped scale a company analyzing billions in transaction data. This experience revealed a glaring lack of institutional capital despite alcohol’s profitability and prevalence in the economy. He saw an opportunity to fill the gap of focused strategic capital for emerging brands.

How Alcohol Compares to Non-Alcoholic Consumer Goods
Compared to traditional CPG, alcohol acquisition timelines are faster, with brands often purchased at lower revenue milestones. The big players trade on “share of wallet” so they are aggressive with M&A to keep up with shifting consumer demand.

“For me as a venture investor, with some exceptions, it will often mean that it requires less capital to get to a point where you could be looking at an exit”

How Top Shelf Approaches Investments
It is easy to be distracted by beautiful branding, a great-tasting product, and vanity metrics. Top Shelf peels back those layers to find quantitative and qualitative fundamentals that give certain brands disproportionate opportunity to become outliers. Noah finds these brands are often the ones that don’t appear as attractive on the surface.

Why Alcohol Deserves a Place in Portfolios
Noah highlighted alcohol’s resilience and uncorrelated nature compared to tech and other industries. He sees alcohol as a stable yet high-growth opportunity, noting its long history and consistent positive growth, even during downturns like the Great Recession and COVID.

“When times are good, people drink. When times are bad, people drink… this is a multi-trillion dollar industry that just continues to go no matter what's happening in the rest of the world. If you're someone who wants venture exposure, private equity exposure, or private markets exposure, in something that is uncorrelated from the rest of tech, Booze is a pretty darn good way to get it.”

Profitability Challenges in Alcohol
While it’s commonplace for brands to operate at a loss while aiming for acquisition, Noah challenges the notion that cash hemorrhaging is inevitable. A brand with the right metrics and financial discipline is much more efficient with cash.

“We've seen brands doing a couple million a year be profitable because they have the right mix of disciplined managers, good financials, and the most important thing, which goes back to our philosophy, is that they have disproportionately high consumer love, retention, and velocity, which is what creates the lift.”

Responding to Trends Like “Sober Curious”
Noah doesn’t buy into claims that Gen Z’s drinking decline will hurt the industry long-term. The Jane Fonda health movement in the ‘80s compressed the entire industry 25%, before reaching all-time highs again in the ‘90s. If you take COVID out of the equation, we are still seeing incremental growth.

“You're telling me that there's still hundreds of billions of dollars of sales in this industry. Everyone at the top is panicked to figure out where they want to find growth. There's less capital flowing into the system because people think people aren't going to drink anymore.

That is a huge opportunity for me, because I think none of that is true. People are going to drink forever like they always have. People crave escapism. And the alcohol industry is going to continue on like it always has.”

Top Shelf has completed the first close and is actively deploying out of Fund 2. There is some availability in the fund and Noah is happy to chat with anyone interested in learning more about the alcohol industry.

If you are an investor and would like to be introduced to Noah, let me know.

Disclaimer: This interview is for educational purposes and should not be relied on for investment advice. Contact an investment professional and conduct your own due diligence when evaluating any investment. I received no compensation from Top Shelf for this interview. Bourbon Bubba is not affiliated with SP Securities.