Six years ago, Jill Pavlak and Deb Loch were friends with well-paying corporate jobs and a shared interest in becoming entrepreneurs. “We knew we wanted to go into business together,” Pavlak says. Today, the business and life partners are the first women to own a production brewery in Minnesota, according to their attorney Jeff O’Brien, as the creators of St. Paul–based Urban Growler Brewing
The entrepreneurs used an unusual strategy as part of their financing effort: offering free beer and other perks to encourage people to become “founding members” of the brewery.
In July, Urban Growler Brewing opened in a 6,100-square-foot, turn-of-the-century building where the City of St. Paul once stabled its horses. Through a multi-faceted investment approach, Pavlak and Loch have invested about $250,000 in brewhouse equipment and roughly the same amount building out the leased space at 2325 Endicott St.
Financing didn’t come easily. Pavlak and Loch quickly realized they’d need to raise a lot more than they’d originally figured. Over six months in 2012, they were turned down by about a dozen banks.
Gender discrimination played a role, Pavlak believes. “There were young men with only home-brewing experience showing up at banks in camouflage T-shirts and cargo shorts, getting loans. In contrast, Deb and I have impressive resumes; she’s a biomedical engineer, and I have customer-service/sales experience. We felt [getting funded] should be a piece of cake, but it was far from it. We’ve both worked in male-dominated industries, and this was the only time we felt discriminated against.”
Then their friend Dane Breimhorst, owner and co-founder of St. Paul–based Burning Brothers Brewing
, referred them to Matt Chmielewski, his banker at Pioneer Bank
in Mankato. Chmielewski helped them land a $350,000 SBA loan and $100,000 line of credit. “That’s the beauty of the micro-brewing industry — it’s camaraderie, not competition,” Pavlak says.
Meanwhile they have sold 20 percent of the business to 26 equity investors who each invested a minimum of $10,000. The brewers also received a $155,000 loan from St. Paul’s Neighborhood STAR Program
Pavlak says they did not use Kickstarter in their initial round because it prohibits “offering alcohol as a reward.” They also considered Indiegogo, which was appealing because it doesn’t require meeting minimum funding goals. But they settled on the “founding members” idea, and the results have validated that decision.
They’d heard about another startup, Northbound Smokehouse
brewpub in Minneapolis, doing an “all the beer you can drink for life” offering, Pavlak says. That sparked the idea.
Deciding what benefits would be appropriate for each membership level was the biggest challenge, Pavlak says. “At first we thought, ‘Who is going to pay $500 just to get their name on a plaque?’ But people have been coming to our space, having a wonderful experience, and then want their name on the plaque,” (on a 4- by 8-foot wall decoration crafted from 150-year-old barn wood).
Recruiting members was at first “very time-consuming,” Pavlak notes. “We wanted to be able to meet with people.” But friends told friends and “became the best sales force you could ever ask for,” Pavlak says. “They’d tell their friends ‘We’re going to show up for our free pint and we want you to join, too.’ Then we’d get checks in the mail. They wanted a place to meet and liked our mission, which is to bring people together through beer.”
Founders who invest $500 get their name on a plaque, free admission to all events, and a T-shirt. At $1,000 they get that plus “the first pint free for life.” At $2,500 they get the first two pints free for life. At $5,000 they also get the right to use the brewery’s “Founders Table,” with a special beer tasting and free beer for the night. As of late summer, the brewery had 47 members who had invested $60,000, according to Pavlak.
While it hasn’t been the startup’s largest source of funding, it has been the most enjoyable — and in some ways the most significant. Members have been “the best ambassadors for Urban Growler,” says Pavlak. “They are bringing in new people all the time and going ‘above and beyond’ in offering services, from helping us figure out a sound system to getting picnic tables to volunteering at events.”
The “founding members” approach is a form of rewards-based crowdfunding, says O’Brien, chair of the food, beverage, and leisure activities practice group at Minneapolis law firm Lommen & Abdo
. He compares it to yacht-club memberships, in which members get not a share of the profits but certain rewards and benefits specified in the agreement. Such an arrangement typically “is not going to raise big bucks, but it’s nice money to have on top of a bank loan or some other kind of equity capital.”
The brewery opened in late July and staged a grand opening celebration with St. Paul mayor Chris Coleman and others on Aug. 27.
The entrepreneurs are planning a Kickstarter campaign for the second fundraising round, intended to raise another $60,000 or more. They’ll use that round to turn their basic kitchen into a full-fledged cooking operation. They also want to set up a bottling line and distribution operation.
Steve Badger, an attorney with the Dallas office of Minneapolis law firm Zelle Hofmann
, and his wife Renee are founding members and the brewery’s largest investors. They learned of it because Pavlak is the sister-in-law of the firm’s former CFO. “When we met Jill and Deb, it was obvious they had three things going for them: a dream, passion for the dream, and plenty of energy to realize the dream,” Badger says. “That sounded to us like a recipe for success. So we wrote a check. In fact, when we saw the near-completed project, we were so excited that we wrote another check.”