Anxious viewers of election coverage on CNN or Fox Business last week might have seen a commercial encouraging them to join its “Saucy Posse” and become an investor in Cleveland, Ohio-headquartered Saucy Brew Works.
The 30-second commercial gives a brief rundown of the business, which opened in 2017, as enticements to sign on as an investor, with awards for its beer and pizza and a sponsorship deal with the NBA’s Cleveland Cavaliers.
“That’s where you come in,” the narrator says. “For the first time ever, you can be an investor in Saucy Brew Works. Our success comes from our people, the Saucy Posse, those who are passionate about our mission and help us to grow.”
An update on the StartEngine page said Saucy raised more than $20,000 in less than 24 hours after the commercials were broadcast.
Thus far, more than 1,458 people have invested in the regulation crowdfunding equity offering, with the company raising $555,659 toward a maximum offering of $1.07 million, on the StartEngine platform. The raise is expected to close on December 23.
The minimum investment is $100, with each share valued at $1. The company is offering as many as 1.07 million shares, each valued at $1.
According to the offer details, co-founders Brent Zimmerman and Eric Anderson own 45% and 30% of the company’s Class B units, respectively, while Paul Hubbard holds 48.81% of the Class A units.
Saucy lists a pre-money valuation of $82,430,000, which raised eyebrows of a few potential investors for a company that has yet to reach profitability.
Across several replies to questions on the StartEngine page about how Saucy arrived at a valuation, Zimmerman justified the valuation by pointing to three soon-to-open brewpub locations — Cleveland at the Pinecrest district, Columbus and Detroit. A new production facility in Independence, Ohio, is expected to open in 2021.
“Based on our industry research and the financial results specific to our Cleveland brewpub, we anticipate strong margins at these locations that will directly impact our bottom line,” he wrote.
Zimmerman added that the company expects “very little new overhead costs associated with these openings,” beyond depreciation. Zimmerman said Saucy’s sponsorship deals with the NBA’s Cleveland Cavaliers and American Hockey League’s Cleveland Monsters, as well as the existing management and sales teams, give the company the appropriate selling and administrative expenses to sustain the company’s growth without incurring additional costs.
The expectation is the new locations would post similar revenue to Saucy’s Cleveland brewpub or higher, Zimmerman wrote.
“So without putting specific numbers down, we do not think it’s unreasonable to project 3x – 4x top-line growth by the year-ended December 31, 2021,” he wrote. “And for reference purposes, we say 2021 because that will be the first full calendar year with all locations being open for the full 12 months. Our final location, in Independence, Ohio, will be [an] exponential accelerator. This location will drastically increase our distribution business, along with allowing us to cater more parties, events, etc. The hope is to have this completed by the end of 2021, meaning the year-ended December 31, 2022 will likely see significant revenue growth as well.”
In 2019, the company lost more than $2.2 million after generating revenue of nearly $3 million. In 2018, the company lost $2.4 million, after generating nearly $2.4 million in revenue. However, the company pointed to increased revenue of nearly $602,000 between 2018 and 2019 due to increased taproom sales and distribution expansion.
Although Saucy has yet to reach profitability, Zimmerman wrote that the company is “looking at break-even levels in 2020 with the goal to be profitable in 2021.”
Zimmerman told Brewbound in late August that the pandemic scuttled projections of profitability in 2020.
“We would have been by now if it wasn’t for COVID,” he said. “The timing of our pubs are months behind. I mean, Columbus is almost a year behind. So you know you can imagine we spent all the capital upfront to get those open and they’re still not open yet, including some employees on payroll since February that we didn’t want to lay off.
“But once those pubs get up and running, we should be profitable, whether it’s this coming quarter or the following quarter.”
Nevertheless, Zimmerman told potential investors that the company’s retail and restaurant margins have improved from 17% in 2018 to 21% in 2019.
“While we still think we have room to grow in that area, we are generally happy [with] the increase between years,” he wrote. “The distribution side of the business is where we need to improve as that is what is driving the gross loss.”
During the COVID-19 pandemic, Zimmerman said the company has increased its takeout business by 134% year-to-date. He added that revenue has increased year-to-date through June 22 by about 5%.
Speaking to Brewbound, Zimmerman argued that expanding during difficult economic times presented the company with more opportunities.
“Great companies are made during recessions,” he said. “This is the absolute time you should be doing and pressing forward with a brand to grow it, not when it’s easy. So I’m more emboldened by what’s going on around us than I was before we started this when everybody was bullish on everything.”
On the fundraising page, Zimmerman wrote that the gross loss was expected as a full production brewery staff and sales team is needed to get the brand picked up by grocery stores and other retailers in Ohio.
“We are at that point and have sales data to present to these retailers why it’s time for us to enter even more of their stores,” he wrote.
Should Saucy reach its maximum goal of $1.07 million, the proceeds would go toward capital expenditures (81.5%), working capital (15%) and StartEngine fees (3.5%), the investment site says. As such, the money would go toward completing the buildout of its Pinecrest development and Columbus locations, as well as down payments on its locations in Detroit, Michigan, and Independence, Ohio.
Saucy has also left the door open to future additional capital via equity raises.
Jess Infante contributed to this report.