I like grey – particularly French and graphite – and I have always considered it more than just a convenient stop somewhere along the journey from black to white. The trouble is the world likes ‘definites’, and, more often than not, it prefers a simple choice between two clear options.
For the last decade in the Australian wine world, most discussion on the issue of company ownership has been appropriately simple: public or family. But now I think the background is about to become a little more colourful…
Today, I would like to explore the idea of ‘patient capital’, and offer a perspective on commercial investment that could be a greater part of our wine community’s future. At this point, I would also like to declare an interest: I am currently working on the thousand candles farm in the Yarra Valley (http://www.thousandcandles.com.au), a project which squarely fits into today’s post topic. I hope that rather than clouding my judgement, this gives me some relevant experience. As ever, you will be the judge…
Traditionally, patient capital has been used in not-for-profit initiatives, and has applied itself to capacity-building projects in developing countries or emerging markets. It can best be described by the following key characteristics:
- A long time horizon for investment
- A goal of maximizing social/brand/institutional – rather than financial – returns
- An ability to provide management support for new business models
- The flexibility to seek partnerships with governments and corporations through subsidy and co-investment
Beyond its guiding principle of gentle incubation, patient capital circumvents the greatest hindrance to good ideas and products – the heavy, gravitational pull of start-up capital debt-financing, and the constant struggle of cash flow management. These two factors alone have aborted more ‘great’ projects than any lack of consumer demand, robust competition or market-readiness.
In a wine community already baring the visible scars of public ownership – distressed assets; trashed brands and constantly restructuring personnel – and also now pushing an emerging vanguard of family-owned businesses, I think this idea will become an important third player in the enterprise mix.
The travails of a wine business are well-known to us all, and it is these very same challenges – vintage vagaries; high capital gearing; slow gestation of vineyard, wine and brand development – that make such a structure enticing. One winemaker I spoke to recently even declared it ‘the ideal fix’, and was totally unfazed by the reality of an arm’s-length, third-party holding the controlling equity interest, as long as operational decisions and delivery remained close to home.
At this point, it seems obvious to me that the ultimate viability of this kind of arrangement depends very much on the character of the hosting ‘sponsor’ – whether private individual or collective, collaborative group.
I am not advocating that the Australian wine industry should become a happy hunting ground for every well-heeled and equally well-intentioned philanthropist, but I am saying that the next phase of our development will not flourish under a straight choice between public or family ownership – the former is highly questionable as an operating platform; the latter, too exclusive by its very nature and far from ‘open-source’ in terms of recruitment.
Patient capital does exist, but it requires both the discipline and the fiscal fortitude to hold a longterm vision. The best negotiating capital to secure it is a compelling and original vision – including a return on investment – that probably can’t happen anywhere else, and certainly won’t happen without it.
I have already experienced the suspicion and cynicism that surrounds benevolent foreign investment in Australia – everything from charges of ‘emporer’s-new-clothes’ to outright racial stereotyping (for anyone still clinging to jokes about wine best enjoyed with a coke, you should stop to consider what the Chinese, Japanese and even the Dutch think of our western habit of adding milk to tea…).
The fact remains that we have been so prodigal with our own approach that it is going to take both outside investment and some new perspective to fix it. We can open our hearts and minds, or we can continue to rage impatiently – and vainly – at the storm.