Getting To 'Yes' Meant Going Down The Rabbit Hole… And Pitching 1,000 Investors

0:10Hello friends, I'm Ray Lateef and you're listening to the number one podcast for anyone building a business in food or beverage, Taste Radio. This episode features an interview with Kaveh Zemanian, the founder of Rabbit Hole Distillery, an award-winning maker of premium whiskey. Kaveh Zemanian is a cool customer. The founder of Rabbit Hole Distillery, Kaveh exudes calmness and his relaxed personality is immediately apparent. That's not to say that the entrepreneur hasn't felt the anxiety and strain of building a brand. As he tells it, Kaveh has spent many nights on his knees, quote, praying to whoever would listen that his vision for Rabbit Hole would come to fruition.

0:54A former clinical psychologist, Kaveh launched Rabbit Hole in 2012. The distillery's name is derived from Kaveh's, quote, passionate descent into the practice of distilling fine spirits, specifically rye and bourbon. The whiskey is produced in small batches at Rabbit Hole's state-of-the-art 55 ,000-square-foot distillery in Louisville, Kentucky, and presented in four core expressions, along with the brand's innovative Founders Collection series. In 2019, French spirits giant Pernod Ricard acquired a majority stake in Rabbit Hole for an undisclosed price. The deal accelerated the brand's distribution across the U.S.

1:35and helped it expand internationally. Covey has continued to helm Rabbit Hole and added a new title, that of Chief Whiskey Officer at Pernod, in the process. In the following interview, I spoke with Kaveh about how his personal passion for whiskey evolved into a professional journey, how he assembled a team of veteran distillers and spirits professionals early into the development of Rabbit Hole, pitching a thousand potential investors over the course of two years and how he got 110 of them to say yes, and his current work developing new products and brands, including Mary Dowling bourbon and mash and mallow whiskey.

2:17Hey folks, it's Ray with Taste Radio. Right now I'm honored to be sitting down with Kave Zemanian, who is the founder of Rabbit Hole Distillery and chief whiskey officer of Pano Ricard. Kave, great to see you. Great to see you as well, Ray. Yeah, this is my first time in Louisville, Kentucky. I've been in Kentucky before, strangely. It's a whole different story. I won't get into it right now. But my first time to Louisville, and it's been pretty amazing. You've been here for a long time. Yeah, I moved here about 16 years ago. So I hope you're enjoying your stay here so far. You are in a different part of town than I've been in so far.

2:47And it's a little bit more quirky, a little bit more dynamic than where I'm staying, which seems to be the more standard state area on West Main Street. But I was driving through here and I was like, wow, this is really cool. It feels a little bit like Austin in some ways. Yeah, it does. This is a neighborhood called New Lou. It sits right between downtown and some of the older parts of the city, like Cherokee Park and Crescent Hill. It's really vibrant, very artistic, very entrepreneurial, and it's really blossomed actually in the last probably 10 years or so. And I think Rabbit Hole has had a pretty significant part in that renaissance of this neighborhood.

3:23Yeah, this is a beautiful building. We're in a beautiful conference room in your office here. How long have you been here? So the distillery, we bought the property in 2014, started planning design in 2016. We're finished with that and started building. We started actually distilling here in 2018, Derby Day 2018. How much your production is here on premise? 100%. Everything we do is here. And, you know, this is a very unique facility because I describe it as a craft distillery designed to scale. And what that means is that we genuinely do small batch expressions. But collectively, if you put the whole operation together, we're able to produce almost 1.7 million proof gallons, which translates to about somewhere north of 26 ,000 barrels a year out of this little facility in New Louisville.

4:13The rabbit that could. The rabbit that could, exactly. We chatted a while back about your journey as an entrepreneur, and you and I have a common passion in wine. I think, if I recall, you originally wanted to become a winemaker? Yeah, I grew up in California, and this was in the early 80s that I saw what's happening to the wine industry. And I had a dream of, you know, buying a farm and starting to make wine. Of course, I was a little kid and my dad thought I'm out of my mind. And that was it. That was the end of that dream. Well, wine and whiskey, they're not too, too far apart in that. Obviously, they're both alcoholic beverages.

4:54Different, I think, go-to-market strategies for both. But there's something beautiful about being able to create a liquid and do it on your own. literally from farm to bottle. So when you decided to get into the whiskey business, I mean, what really piqued your interest in that space? Because again, you know, there are some similarities between whiskey and wine, but I think launching a whiskey brand seems like it's more complicated than it might seem. 100%. I think the link is that desire to, as you said organically, make something that not only people are able to enjoy, really brings people together, but also with wine and spirits, there's something lovely about what we leave behind and what people are able to enjoy long after we're gone.

5:46So, you know, I'm always mindful of the fact that we have laid down barrels that I will never taste. And hopefully one day people will be able to enjoy rabbit hole whiskey and think about what we've made. So there's that legacy a component of it that's really lovely with wine and spirits and the connecting point. You're absolutely right. You know, the challenge with whiskey is that it's one of those things where there's a lot of capital expenditure going in that kind of initial onset, those early chapters. And you really need to stay close to your vision and true to that in order to be able to build something and make something that's ultimately not only it's on a solid foundation business-wise, but also it's a product that is going to stand the test of time.

6:29The most difficult part, I think, of starting a whiskey brand is that actually distilling is a very complicated process. It's difficult to get a distilling license. It's difficult to do anything without having the experience. But the experience isn't necessarily something that's easily found, at least when you started. Sure. Talk about that process of, oh, I'm going to start a brand, but how do I actually get it off the ground? Because a personal passion is one thing. We talk to entrepreneurs about this all the time, which is, I really want to do this, but actually doing that thing is much more involved than the idea itself.

7:08You know, it started really with just reading a couple of books and getting a little bit more interested in it, taking a couple of classes. but I think really the important kind of fork in the road for me was when I started meeting and working with some of the old-timers here in Louisville and in Kentucky. One of the nice things about looking back to 2011, 2012 when I started was that there were a lot of folks that were eager to help out and there's not a whole lot of individuals really jumping in the game. In fact, just to give you a perspective, there's not a single bank in the state of Kentucky that lend money to bourbon when I first started, which is startling when you think about it.

7:47Nobody was even thinking about bourbon as a viable business or as a commodity that you can bank on, which has obviously changed quite a bit in the last decade or so. Is that just because of consumption trends or the fact that bourbon wasn't a high growth business? I don't think it's because it was not a high growth business. I think there was part of that is tied to that where essentially bourbon was in decline for a long time. And really beginning, you know, maybe mid-2000s, it started to kind of get a research slowly with some of the craft distilleries and the movement in that front. But I just think that in a lot of ways, Kentucky at the time was somewhat from a business side of it, a little bit behind times because we had more dry counties than wet.

8:28And we had banks lending money to the equine industry rather than the bourbon industry, which is quite peculiar when you really think about it from a risk factor. So there was a lot of elements there. And I realized that a lot of the big players were actually banking in New York rather than banking in Kentucky. So the funding was not there. The resources were not there. But with that said, the bright side of it was there were a lot of amazing master distillers and folks that have been in the industry for a long time that were eager to help out. And that even includes folks within the industry, like folks like Chris Morris.

9:01I mean, Chris Morris from Woodford was really a champion of some of the smaller distilleries getting up and running. And along those lines, my personal kind of teacher and mentor in those early days was Larry Ebersole. Larry was at one point at the Seagram plant and now is MGP and then was the master distiller for a while, Turkey. He's, I think, personally been responsible for training and educating a lot of us who really were eager to jump in. but we needed that education and understanding of what it takes to make good whiskey. Assembling a great team of people with expertise, with experience, who can mentor you to a place where you have a solid foundation for success.

9:46There's no guarantee of success, but at least have that foundation is so important. Convincing people to help you. It sounds like there were people who were like, you knock on their door, they'll say, come on in. But in most cases, I feel like that's less the case. That seems like more of an anomaly, at least in the business of consumer brands. Yes, people do want to help, but they just don't have the time. How did you convince those folks that their time was worth spending on you? Yeah, you know, I think because it's a multidimensional business, it depends on which side of the business you're referring.

10:20On the distilling side, there were a lot of eager master distillers who were happy to help out. And, of course, you pay for their time and for all the valuable information and lessons that they're imparting. Other aspects of the business, for example, just the fundamentals of being able to get the right financial officer and get the right forecast and all the other things. Or even the money-raising aspect of it. Just to give you an example, I had over 1 ,000 pitches. and in the end about 110 investors, small investors, no venture money that were able to, you know, basically believe in me and jumped in with me.

10:58But that took a long time. I think that process alone was about two years of knocking on a lot of doors, hearing a lot of no's and ultimately, you know, being able to persevere. But so it really depends on what side of the business you're looking at. There's also the legal compliance side of it, which again, if as long as you got the resources to pay for it. Lehrman Beverage Law, for example, is one of those resources for me that was very helpful in helping me understand what are the kind of guardrails, if you would, in the industry, what do you need to do from a licensing standpoint, TTB standpoint, and all those things.

11:33So there was a lot of great folks. The first step was to line out what are the categories, what are the areas that I need to focus on from legal, from finance, from production, so on and so forth, and then fight the right people. You either pay for them to teach you or they actually join in. And that was the other piece that I was very fortunate enough at the time that I was able to assemble a great team that they were able to join. Either they went on payroll or they actually got skin in the game. And that's how we got going. So it sounds like you didn't just jump into this blind. I think there are some entrepreneurs who say, okay, I'm going to throw some stuff at the wall, see if it sticks.

12:11You came in with a plan. You said, look, I'm going to at least have a solid strategy, a solid business plan. If it doesn't work well, you know, at least I had the proper preparation for my business. Yeah, for sure. And I think I, just to frame it up in terms of context, I was, my day job was a psychologist. I was a clinical psychologist for over 20 years and the transition from psychology to whiskey making probably good a good two years where, I got one foot in one, one foot in the other one until I was at a point where it felt like, okay, now I need to be 100 % in the whiskey game. And that really was in some ways hedging my bets to a certain extent, particularly because I had a family with three little kids.

12:57It wasn't just about me. It's about family as well. So that hedge and that kind of a progression was really important to make sure that this is not just a pure gamble, but something that's a little more thoughtful. I once spoke with the founder of Nantucket Nectars. He's now the founder of a soda brand called Culture Pop. And he had once said, entrepreneurship is not a hobby. And I think there are some folks that would say, look, you can't have one foot in one place and one foot in another place and actually expect to be successful in entrepreneurship. But then I see some entrepreneurs and I've talked to some folks who say, look, you can't go into this thing and be broke and not be able to, I guess, fund your personal life, especially if you do have a family.

13:50But how do you navigate both jobs effectively? How do you make it such that you're not skimping on what you need to do to be successful as an entrepreneur while still maintaining the income and the, I guess, general expectations of being a parent, being a father, being yourself on the other? Yeah, I think, you know, for me personally, I think in some of the colleagues that I've talked to, I think it really pivots around what kind of support network you have. I couldn't possibly do what I did without my wife. You know, the fact that she was able to be behind me understanding and knowing what it takes both financially in terms of the sacrifice and compromises there, but also emotionally in terms of the time and attention that it takes away from her, the kids, and everything else that I like to do.

14:38I mean, there's days that it would have been really great to be on the soccer field with my son as opposed to, you know, hitting the road and trying to make another pitch to raise some money. So that support network, I think for me personally was key to be able to navigate that terrain. I think without that support network, you're either going to end up sacrificing and losing those relationships, be it professionally or personally, or you're not going to make it. And I think for me, that social support network was really key to be able to begin to transition from one profession to another. Is that how you advise newcomers to the business or just newcomers to consumer brands in general?

15:18is, look, you can't do this without the proper support network? No question about it. I think you need the support network unless you really don't give a shit about your support network. I mean, honestly, like if you don't really care about your partner or your kids, and you're just 100 % focused on what you're going to do, you're going to risk and ultimately potentially lose those relationships. And for me, obviously, that was not the case. I mean, I valued my wife, my children, and as much as I'm passionate about making whiskey, I wasn't about to chuck everything I have in terms of my family for a business.

15:53But at the same time, you know, once I have those guys on board, then it actually gave me a lot of courage to be able to push ahead. Because I knew with Heather behind me that I feel good about the home front. I know that the kids are taken care of and I'm there when I'm able to be there. And together we're able to build something that we can be proud of. Yeah. And looks like it kind of worked out for you. I would say so. You talked about the thousand pitches in two years. Okay, if I'm doing the math correctly, that's over a pitch a day, well over a pitch a day on the road. Why did you feel like you needed to play the field as much as you did?

16:32Or was it just necessary to do so? Well, it really was tied into the vision of what I wanted to create. I started naively thinking that I'm going to be able to have a small operation and maybe a pot still and kind of get going from there. There was more romance than business. But as I started learning about the industry and what it takes to really build a brand, I realized that, you know, my vision ultimately is to build a brand that's lasting. And if I want to do that, I got to build a company and a business, infrastructure, team, and culture and everything across the board with products that's able to scale.

17:09And if I'm going to do that, I need to build a facility that matches that ambition. You know, in those early days, there was no Bardstown Bourbon Company. There was no MGP in Kentucky. And just for context, those are places where you can go with an idea and they will create your product for you. You have a, yeah. Correct. Correct. Because, you know, I didn't want to go out there and source and blend. There's nothing wrong with sourcing and blending, but my vision for Rabbit Hole was really rested on this philosophy that I figured out very early on that kind of boils down to this idea of bourbon is 51 % corn, 49 % possibility.

17:46And what that means for me is that, you know, the beauty of bourbon is that you can really experiment with different grains and create, just like wine, you experiment with different varietals. You can experiment with different grain bills and create some wonderful, lovely whiskey expressions. So for that reason, I wanted to make my own recipes, but the problem was there was no distillery that would contract distill for me. They would sell bulk liquid, but they would not change their operation schedule to make these recipes. So for me, the light bulb moment was let's build the facility. Not only I'm able to make rabbit hole liquid, but also I'm able to contract for other people.

18:24So that revenue can help us build the company and build the brand. But that required a lot more money on the upfront to build this facility. And that's why I was hitting the road to raise money to be able to build a rabbit hole in Louisville. How did you determine how much of your capacity to outsource versus what you'd be able to create in-house for yourself or your brand? It was, you know, we went through a forecasting exercise. And honestly, a lot of that stuff is your thumb in the air and seeing what direction the wind blows. But roughly speaking, I figured that, you know, if we're producing north of 25 ,000 barrels, I'd like to start laying down maybe half Half of it for rabbit hole and half of it available for contract distillation.

19:09And that was a rough math that we did that actually came out in reality pretty damn close to that 50 % in those initial years. And then, of course, as rabbit hole was growing, we adjusted that percentage and eventually did away with contract distillation. Just back to the investors for a sec. 110 investors out of the 1 ,000 pitches. So it's a little under 10%. what was the key selling point for the ones that bought into your vision? Two things. I think the first thing was being able to put something together from an asset standpoint that brought some value to the table. Number one was I bought the property here where Rabbit Hole is.

19:51It used to be an abandoned warehouse, and I was able to acquire that property, and that became one of the pieces that became a selling point. And along those lines, I partnered with Doug Pearson, who is an architect that worked at Frank Gary's office in L.A. for seven years. And together we came up with a design for this facility. And that became a really compelling kind of selling proposition. And then the other thing was I was able to get a five-year contract distillation contract and agreement with another distillery that became really valuable. Because at the time, in those early days, there was not a whole lot of folks that were extending contracts.

20:30Some brands were emerging, so even the supply was drying up. So that contract became also a valuable asset for the company. So together, the real estate and the contract became kind of the initial springboard for the pitches. And just to be clear, the contract was for you to produce the liquid for another distillery? No, no, for us, for Rabbit Hole. So basically what I was basically saying is that, look, we got the real estate. We've got the loan to get going for the distillery. And at the same time, we got a contract distilling agreement that guarantees us in the next five years having X number of barrels that we're getting at this dollar amount.

21:13And it's going to be worth a lot more than that five years from now, six years from now. So, you know, the kind of assets that being built building on inventory and real estate was essentially the foundation for the pitch. Were these folks, these investors, were they savvy about the whiskey business, but the spirits business? Or was it you having to explain it to them very clearly? This is how you're going to get a return on your money. And even though there is risk, it's backed up by assets and contracts. Yeah, majority were not familiar with the industry at all. In fact, I don't think there was anybody, maybe one or two folks, I don't know, one or two folks that have had some experience in the industry.

21:54The rest were non-industry folks with very little experience and knowledge about the spirit industry. But most of them are from the Commonwealth, and they knew bourbon and grew up around bourbon. And there was a passionate side of them that really dreamt and loved the idea of being a part of a venture like this. They came in from that angle. With that said, most of them were business people, so they had experience even though it was in the spirit industry. They understood valuation. They understood inventory. They understood assets, certainly forecasting, and what kind of a return on investment potential were presenting to them.

22:31Were there any of the investors that you pitched to, ones that you were like, we have to have this person on board? I would assume no because it's just so many you reached out to. But did you feel like there were some that you were like, OK, if I get this person, I'll be able to get the next one and the next one after that? I think that's, you know, a lot of times that's how angel investing works. But yeah, no, no, I think it wasn't one individual. It was actually a group or two. One of the things that, you know, I realized first very early on is that when it does have that kind of a ripple effect.

23:02So, you know, if I persuade you, all of a sudden you've got three, four different folks that you can bring to the table. There was a couple of folks that were part of a larger investment group. So having a conversation with one of the two people ended up bringing in 30 to 40 people just because they were part of a larger investment group. And it really helped with that process. It sounds like things kind of fell into place. You got your investors, you got the building, you got the contract, but there's still a lot of moving parts. And I'm sure there's still a lot of risk and there's a lot of anxiety about getting this all started.

23:41How did you manage your own personal, I guess, concerns about things falling apart or, you know, the potential for things to go wrong? Because it sounds like at the time there were just so many things going on. Honestly, a lot of nights on my hands and knees praying to whoever would listen. And I'm not kidding about that. I think there was a lot of anxiety because it's one of those things that you just never know. I think the whiskey recipes alone were a part of that. Heather used to ask me, how do you know if these recipes are going to be any good? And of course, the answer is I have no idea because you just don't know where the liquid's going to land four or five, six years later.

24:21and that's actually part of the reason she used to say you're going to take the family down the rabbit hole with this crazy idea and that's how the name came to be but that principle, that kind of idea was resonating throughout those early years because we didn't have any sales. We're basically laying down. There's a lot of money going out but not a whole lot coming in or any coming in but I think what kept me going was looking at the broader marketplace and being really bullish about what's happening the bourbon and American whiskey. And that's what gave me really the fortitude and the kind of energy to keep going forward.

24:58Plus, you know, as we got going, we got more people in the fold that were industry folks. You know, my head of operations, Cameron Talley, was and has been a wonderful kind of partner along the way, along with a lot of other folks from marketing and finance that joined the group. So it was in the anxiety was not just on my shoulders, primarily on my shoulders, but at the same time, I was able to really kind of balance it out with other realities that showed sign of hope. Quick break. If this episode has you thinking about what's next in food and beverage, explore BevNet and Nosh Insider, our subscription platform with deeper insights from the BevNet team.

25:33Visit tasteradio.com slash insider to learn more. One of the interesting things about beverages, and I guess, you know, food in general as well, but beverages in particular is that the liquid can be great. And I've seen a lot of great beverage brands where I'm like, wow, this tastes amazing. And then I look at the package and I look at the brand architecture. I'm like, oh, this needs a lot of work. And coming out of the gate nowadays, it's like it's table stakes. I've talked about this in the podcast before. You have to have a great brand. You have to give a great package design. And it's just so important for buyers to recognize that, okay, I can put this on shelf and people are going to want to take it off the shelf.

26:13With Rabbit Hole, you had the name, which is a great name, but the branding itself, being able to stand out on shelf amidst or among dozens, if not nowadays, hundreds of other brands, what were the key elements of that branding architecture? I think part of it was trying to be less traditional. We talk about how we're founded on tradition, but we're really forward-looking. I think that at the time, Rabbit Hole, the vision behind Rabbit Hole was not to essentially make your grandfather's bourbon. I felt that there is an entire consumer segment that bourbon is not catered to. So if you think about the package, the bottle alone, I was very conscious about trying to design something that has both masculine and feminine attributes.