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Sunday, 25 May 2014 22:00

Malt producer hopes for six-figure raise via crowdfunding

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A supplier to West Michigan’s growing craft beverage industry plans to become the first company on this side of the state to take advantage of Michigan’s new crowdfunding law.

CEO Erik May hopes his Jenison-based company, Pilot Malt House LLC, will be able to meet a six-figure fundraising goal once the crowdfunding campaign goes live within a couple of weeks on the portal run by the Indianapolis-based LocalStake Marketplace LLC.

The company, which officially launched in August, works with West Michigan farmers to produce locally made malt from barley crops. Malt is a key ingredient in the production of beer and some distilled spirits.

Almost immediately after the company launched, the orders started rolling in, May said, noting that its first customer, New Holland Brewing Co., purchased 6 tons of malt for its distillery. The company delivered that first order in January and since then added about two dozen customers, he said.

“We’re using that experience with New Holland as the proof of concept, and I think we’ve proved the market,” May said.

After the initial orders and the positive reactions Pilot Malt received, May said he realized that the company had the potential to become a viable business. To date, however, May still works a day job and didn’t have access to startup capital to scale up the business as quickly as it needed, he said.

“I realized I needed to get on top of this and figure out how to be bigger,” he said.

As a startup, Pilot Malt found itself in a tough spot: It needed funding to jump start its operations but lacked the track record that would make it an attractive prospect for a traditional lender, May said.

“We have a lot of potential, but we need capital to realize the potential and we’re too new for a bank to deal with us,” May said.

The company considered adding equity investors — May said he’s been repeatedly approached by people interested in investing in Pilot Malt — but he thinks giving up a piece of his business is “kinda scary.” After exploring multiple avenues to raise the needed capital, crowdfunding “seemed like a good fit,” he said.

Michigan crowdfunding campaigns listed on localstake.com take on two forms. Companies can choose to have funders make an investment in exchange for equity in the business, or they can opt for a revenue share model that pays back investors with a portion of the company’s sales.

The new investment vehicle was made possible by passage in December of the Michigan Invests Locally Exemption (MILE) Act, which allowed Michigan-based companies to solicit investments from in-state investors without having to register with federal securities regulators.

The first successful Michigan-based crowdfunding campaign listed on localstake.com that brought in $175,000 for Tecumseh Brewing Co. was structured as a revenue share.

“As a business, we want to have funding in hand once harvest happens,” May said, noting that a typical Michigan harvest takes place in late July and early August.

Last year, Pilot Malt worked with one grower in Niles who produced 10 acres of barley for the company. This year, May added three additional growers, two east of Ludington and another in the greater Grand Rapids area, for a combined 65 acres of barley.

“Our goal … is to create a network so these farmers can grow something other than corn and soybeans,” May said. “They like (growing for us) because they know where the product goes.”

Malted barley is the largest and last piece of the craft brewing supply chain to be sourced in the state, May said. Over the past few years, a handful of growers have started raising hops to sell to Michigan microbreweries. In fact, three of the four barley growers also grow hops, he added.

While the “buy local” movement plays into the business plan for Pilot Malt, the company wants to offer the highest quality malt possible to ensure it has repeat customers, he said.

“‘Buy local’ is why we’re in business and why we’ll be successful, but just being local isn’t enough,” May said. In his estimation, a buyer interested in purchasing local malt will be a one-time buyer if the quality doesn’t meet or exceed the customer’s expectations. That’s why the company has taken its time to focus on quality because “we want people to buy over and over and over.”

Read 4531 times Last modified on Tuesday, 27 May 2014 21:50

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