WINE INDUSTRY INSIGHT
EMAIL EDITION - VOLUME I, NUMBER 89 - June 1, 2009
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DEAD! - New Vine Withers After Amazon Bolts & Investors Pull Plug
New Vine Logistics slammed the doors and headed for the hills on May 30, after impatient investors pulled the plug following the direct-shipping company’s mounting losses.
New Vine touted itself as the solution to allowing wineries to sell and ship wine to consumers while complying with the crazy quilt of laws that varied from state to state.
New Vine shutdown notice posted on their shuttered office door.
SMALL WINERIES LIKELY TO SUFFER MOST
More than 200 winery customers were left in the lurch by the sudden closure including Beringer, Cline Cellars and even a Lufthansa wine club. But the smallest wineries — such as Araujo Estate Wines, Paul Hobbs Winery, Fisher Vineyards and Hanzell Vineyards which depend heavily on direct sales – are likely to suffer the most.
WINERIES ANGERED AT LACK OF WARNING
“I am enormously angry,” said a major Sonoma County vintner. “It is the height of arrogant irresponsibility to slap a sign on the door and run for the hills. Our brands can take a hit like this, but I feel sorry for so many smaller wineries who were depending on them. I wouldn’t be at all astonished if some of the smaller wineries sued because the sudden, secret closing didn’t give them any time to prepare.
“The company obviously knew it was in trouble and it had a responsibility to make sure that its closing did not hurt its customers,” he said.
Other winery customers interviewed by WII made similar statements, many copiously laced with profanities.
NEW VINE STONEWALLS INQUIRIES
The company sent out a mass email and posted a letter (above) on the door of its locked offices. It has, however, failed to return most phone calls or emails including those from its customers and the media.
Ted Schlein, the partner at New Vine’s lead investor, Silicon Valley venture capital firm Kleiner, Perkins, Caulfield and Byers, did not return Wine Industry Insight’s phone call by deadline.
AMAZON, ECONOMY, INVESTOR IMPATIENCE SANK EIGHT-YEAR-OLD PROFITLESS VENTURE
Despite New Vine’s stonewalling, Wine Industry Insight’s examination of government records and numerous interviews with investors, winery customers and others familiar with the company’s operations say that the company’s sudden demise resulted from multiple financial wounds including:
- The inability to bring a long-promised Amazon deal to fruition,
- Continued losses which had accelerated over the past six months, and
- Substantially less shipping business from winery customers due to the economic down turn.
“OUT OF TIME, OUT OF MONEY” MAJOR VENTURE CAPITALISTS PULLED THE PLUG ON FRIDAY
Despite published accounts to the contrary, New Vine’s banker, Silicon Valley Bank did not pull the company’s plug. One member of New Vine’s consortium of venture capitalists told Wine Industry Insight that the direct wine fulfillment company, “ran out of time and out of money.”
The venture capitalist said that for approximately six months, New Vine had been trying to raise an additional round of equity financing and “we simply told them that we had had too many promises and not enough progress. In short, as a group, the equity stakeholders said we could not participate in another tranche.”
AMAZON = GODOT: NEW VINE RAMPED UP FOR A PARTNER WHO NEVER ARRIVED
“We got tired of hearing ‘Amazon, Amazon, Amazon,” from the company,” an investor told Wine Industry Insight. “I felt like I was back at a college production of Waiting For Godot. I didn’t like the play then and I certainly didn’t like having my money wait any longer.”
In anticipation of the Amazon deal, New Vine had, in the past year, ramped up shipping and fulfillment capabilities by moving into a 380,000 square foot warehouse facility in American Canyon.
Amazon had become New Vine’s brass ring, but it never came close enough to make investors happy.
AMAZON: SLIM MARGINS, “TOO MANY UNKNOWNS” AND “BOOKS NEVER BREAK”
Amazon had no comment on the issue, but a Seattle insider told WII that, “the potential costs and hazards of wine and all the red tape outweighed the benefits. There was simply too many unknown factors — including the need to rely on a third party — for [Amazon] management to gain the required comfort level. That could change if the company decided to do it by itself and control the process. Still, the overhead with wine squeezes margins too tight. And a book never breaks or goes sour.”
SILICON VALLEY BANK LEARNED OF SHUTDOWN ON MONDAY
Silicon Valley Bank Wine Division Founder Rob McMillan told Wine Industry Insight on Monday that, “We found out about the company’s decision today and we’ve been doing everything possible to find a soft landing solution.”
McMillan said that he has been working with New Vine’s equity investors and talking with parties that may be potential buyers.
“We were not involved in the decisions to close or lay off people,: McMillan said. “Nor have we filed any legal papers.”
NEW VINE CONTINUES THE WINE “TAR PIT” FOR VENTURE CAPITALISTS
Investing in wine has rarely been successful for venture capitalists who have managed great successes in other areas. The $180 million+ lost in wine.com and associated transactions in the millennial DotCom meltdown, however, have not completely deterred Menlo Park’s Sand Hill mafia who have dropped enough money on fine wine to make them want to own a piece of it.
While hard numbers are hard to come by, investors have told WII that New Vine has certainly burned through more than $50 million if one includes software and other goods exchanged for equity.
New Vine’s equity investors include:
- Altos Ventures
- Angels Forum/Halo Fund
- Equity Group Investments
- Kleiner Perkins Caufield & Byers
- Monitor Venture Partners
- Pacific Community Ventures (Part of Accel)
- Staenberg Ventures (Rustic Canyon)
ASHES TO ASHES WITH NO PHOENIX IN BETWEEN
Ironically, New Vine had its beginnings in the ashes of the wine.com meltdown. Kleiner Perkins had suffered major losses in the wine.com debacle, but in 2001 still saw potential.
KPCB Partner Ted Schlein, looking to salvage something from the ruins, recruited Kathleen Schumacher (now Katie Hoertkorn), who had served as wine.com’s vice president and general manager in charge of fulfillment.
He introduced her to Netscape mogul and formed KPRC partner Jim Barksdale, and William Del Biaggio, CEO of the Sand Hill Capital which had retained the assets and intellectual capital of the defunct wine.com.
In short order, Schumacher/Hoertkorn’s new company had $3 million in venture capital and software worth $30 million from Del Biaggio in exchange for his equity.
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