Chris Hollod wants to be known as one of the most active angel investors in the alcohol space.

After about a decade of making investments with billionaire Ron Burkle and actor Ashton Kutcher, Hollod, a Los Angeles-based venture capitalist, struck out on his own in 2019 and has shifted his focus from investing in tech companies such as Airbnb, Uber, Spotify and Warby Parker, to investing in consumer packaged good companies, specifically alternative alcohol companies.

Anything at the convergence of culture and wellness piques my interest, he told Brewbound. What Ive found Im most passionate about without question by order of magnitude is alternative alcohol, functional alcoholic beverages, clean spirits, near beer, non-alcoholic beverages, and all of these sober curious trends.

Hollods strategy is to make strategic bets in a handful of companies with complementary portfolios that arent competing in the same segments. His list of investments thus far includes San Diego-based hard kombucha company JuneShine, CBD brand Recess and botanical spirits brand AMASS. He is also acting as an advisor to up-and-coming mezcal maker Rosaluna and wine spritzer brand Hoxie.

In addition to his existing portfolio of companies and advisory roles, Hollod said he is in ongoing discussions with the founders of hard pressed juice brand 101 Cider, canned cocktail producer Vervet, and hard tea brand Loverboy.

Not that Hollod hasnt made investments in the beer space. Along with Kutcher, he was an early investor in Los Angeles-based House Beer, and he remains an investor and advisor in the lager brand.

However, as Hollod explains in the following conversation with Brewbound, investments in the beer space no longer align with his focus, passion and consumption habits. Within the beyond beer space, Hollod said he plans to invest around a couple million dollars annually, with investments of between $25,000 and $75,000 on the small end and $100,000 to $250,000 on the higher end.

Theres no set figure, he explained of how much hes willing to invest overall. Its my own money. I dont report to anyone. I dont have any outside investors.

Read on for excerpts from his conversation with Brewbound on his strategy, the types of companies hes looking to invest in and more.

What type of companies are you currently interested in investing in?

My investment thesis tag-line for Hollod Holdings is companies at the convergence of culture and wellness. So Im generally interested in new, culturally relevant, innovative health and wellness brands ranging from food to beverage to self-care to even pet-care. But Im most passionate about the alternative alcohol sector. Within that sector, I like start-ups that have already generated a bit of traction with at least one product and need to raise some capital to fuel exponential growth. I also have a bias toward LA-based companies, because its not only my home, but I think its the epicenter of cultural wellness trends at the moment.

Given your interest in the alcohol industry, are beer companies on your radar?

Unfortunately, not any more. Ive tracked the beer sector for a while, especially during the craft beer boom, but at this stage of the industry life cycle, I think the risk-reward profile of beer companies is too unbalanced. I just dont see much inspiration and innovation in the sector at this point.

Why not?

As an early-stage investor, Im attracted to budding subsectors with relatively minimal competition and endless growth potential, and that definitely doesnt characterize the beer industry at the moment. Overall, the beer space is just so crowded. By the end of 2018, there were roughly 7,000 breweries operating in the U.S.

The industry will always be a firm duopoly because its dominated by the two biggest players, Anheuser-Busch InBev and Molson Coors, which together comprise roughly 70% of all U.S. beer production. Growth rates are on the decline, and consumers are actively searching for more aspirational alternatives to beer.

Look at Boston Beer for example. Good thing they own Truly. I personally cant remember the last time I saw a Sam Adams beer, but I can definitely remember the last time I saw a Truly. Thats clearly anecdotal evidence, but as an investor, I have to rely on my own inferences, experiences, and gut instinct.

When it comes to beer, aside from maybe a super unique formulation, innovation really lies within marketing and branding, which is extremely expensive and fickle. I admit that the craft beer boom was absolutely epic, but its now time for the alternative alcohol movement to explode, which I think will inevitably cannibalize the beer industry.

So why are you so attracted to the alternative alcohol sector?

Its my job to follow and facilitate innovation, and I think there is a ton of innovation occurring in alcohol. When I started investing in consumer tech in 2010, both the App Store and iPhone were relatively new, so there was an unprecedented amount of innovation around those platforms. Im now seeing a confluence of so many different trends and drivers in the overall wellness industry, which is consequently sparking amazing innovation in the alcohol sector. Alcohol used to be relatively immune to health trends, but thats clearly no longer the case. Whereas the wellbeing movement was once confined to the coasts, its now unquestionably permeating the rest of the country. In addition to the health trends, theres a fundamental shift in consumer shopping behavior primarily driven by social media, mobile technology, and the immense influence of millennials, who are now the largest generation in U.S. history. Millennials are now calling the shots when it comes to alcohol, and they are demanding a greater and more authentic customer experience and product, which will continue to drive incremental innovation. I dont think the big alcohol brands will be able to sufficiently innovate in-house, so they will be forced to buy the cool new start-up brands as they begin to scale.

What do you look for in the companies in which you invest?

First and foremost, the company needs to have a compelling and innovative product that has the potential to actually scale across the country. It cant just be an interesting niche product that only appeals to Angelenos or New Yorkers, for example.

Beyond the product, the storytelling, branding, and narrative need to be impeccable. Our attention spans are so damn short right now, so new brands need to be expert storytellers in order to entice new customers and create a sustainable relationship with them.

I also like to understand the financials, especially gross profit margins. Investors always talk about TAM, which is the total addressable market. The companys TAM needs to be large enough to fuel massive initial growth. Otherwise, the start-up will hit a ceiling and be forced to spend tons of money on marketing, where there is very little margin for error.

Lastly, the entrepreneur needs to be an absolute beast. I love founders that are borderline monomaniacal. No matter how amazing the product may be, the founder has to be equally if not even more impressive.

Kombucha seems to be a beverage that hasnt realized its full potential in the alcohol sector outside of California. Given your investment in JuneShine, why are you bullish on kombucha?

In general, Im most passionate about functional alcoholic beverages with transparent, healthy ingredients. Yes, it feels good to get a little tipsy, but Im excited about other incremental functional benefits that alcoholic drinks can potentially provide. I think hard kombucha epitomizes this trend. The product is wholly organic, gluten free, and contains probiotics, antioxidants, and vitamins. And it makes you feel good without the aftermath of a pounding headache. Its just not cool to be hungover anymore.

The GTs [Kombucha] of the world have already nicely paved the way for the higher-alcohol kombucha brands to enter the sector, because the average consumer is now already aware of kombucha. I also love the demographics. When I realized that my girlfriend Bianca and I were both drinking hard kombucha in 2018, I immediately further diligenced the sector and found out that roughly 65% of JuneShines tasting room attendees were female, and 60% of their Instagram followers were female. Its generally quite difficult for Bud and Miller to effectively market to female millennials and rising gen z-ers, so I think the big guys will keep a keen eye on the emerging hard kombucha brands.

Weve already seen this trend substantiated by ZX Ventures investment in Kombrewcha. Theres also a growing anti-alcohol movement among young people, so I think hard kombucha is an emerging product that can potentially bridge the gap between alcoholic and nonalcoholic, based on its functional benefits and potential for lower ABV.

Hard seltzer has been the story of the last couple of years. But you dont seem to be investing in that area. Why not?

I credit hard seltzers with initially enticing me into the overall alternative alcohol sector. Ill never forget the first time I saw a Truly. I immediately dismissed it as a silly fad. Fast forward several years, and I was buying the stuff by the case for pool parties. Same with White Claw. The hard seltzer space is now a duopoly, with those two brands dominating the subsector. You also have A-B InBev eagerly pushing three seltzer brands: Bon & Viv, Bud Light Seltzer, and Natty Light Seltzer. The space is crazy now.

As a venture capitalist, my goal is to always pursue the next big thing, as opposed to simply backing a better version of White Claw, for example. Also, at this point, I just dont love the taste of flavored malt beverages, and I only invest in companies that I will actually consume and actively promote.

Beyond financial investment, what else do you offer the companies that you invest in?

Theres constant chatter in the venture capital world regarding smart money versus dumb money. All investors like to consider themselves smart money, but after doing this for more than 10 years across multiple investment funds, I make it an unbreakable requirement to only invest in companies where I can add value. My biggest strengths are high-level strategy, connectivity, and validation. Ill rarely spend five hours discussing operational specifics with an entrepreneur, but I love spending five minutes making an invaluable connection or acting as a strategic sounding-board to the CEO.

In general, Id like to think that Im at least one or two degrees of separation from most people, so I always enjoy making warm intros on behalf of my portfolio companies. Im a huge fan of gifting products and stocking my house and fridge with portfolio company products so that I can share them with friends and entrepreneurs that come through my house for meetings.

Regarding impact, I avoid pre-launch companies, because there are just too many moving pieces, and it dilutes my strategic impact. Instead, I think I make the biggest impact while a company is raising a seed or Series A round, after theyve raised a little money from friends and family and have launched at least one product in the market.

How many companies are you looking to invest in in 2020?

I kicked-off 2019 at a crazy pace. I was almost making one investment per week, which was similar to my investment cadence with Ashton back in 2011, when the consumer tech boom was in full effect. But I now really want to decrease my investment frequency and increase my average check size. Ideally, Id like to make one or two investments per quarter, but no more than one investment per month.

Beyond making a return, what are your goals for investing in these companies/spaces? And how will you generally define a successful investment?

My old boss and mentor, Ron Burkle, used to tell me, When you make an investment, you need to always focus on three requirements: 1. be proud of it, 2. enjoy it, and 3. make money from it; but if you have to miss on any of them, miss on making money. You must always be proud of what youre doing and enjoy it. That statement will stick with me for the rest of my career. Because when Im proud of an investment and actually enjoy it, the third component, making money, has a tendency to follow suit naturally. When investors chase money and returns, they sometimes get burned, because they can get pulled outside of their comfort zone and start making short-term decisions. But I like to chase inspiration and innovation, because money usually follows.

Photos by Jonathan C. Ward

Read more:
Venture Capitalist Chris Hollod on Why He is Investing in the 'Alternative Alcohol' Space - Brewbound.com