How Profitable Is Wine As An Alternative Investment?

Episode Summary:

In this episode of The Raz Report, Jason Raznick speaks with Anthony Zhang, CEO of Vinovest.

Jason and Anthony talk about:

• How profitable it is to invest in wine and the yearly rate of return
• How much money is need to start investing in wine and the process of investing
• Anthony's favorite wine to enjoy as a wine investor
• Anthony's life as an entrepreneur

Learn more about Vinovest here!

Hosts:

Jason Raznick

Twitter: https://twitter.com/jasonraznick

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Disclaimer: All of the information, material, and/or content contained in this program is for informational purposes only. Investing in stocks, options, and futures is risky and not suitable for all investors. Please consult your own independent financial adviser before making any investment decisions.

Transcript:

BZ: Very excited on this RazReport to have Vinovest CEO Anthony Zhang. Here's a way you can make money. This guy has created multiple companies and sold them. People reach out to me for advice on what to do for businesses. Next year they need to reach out to Anthony.

Welcome to the show, Anthony.

A:Jason, thanks so much for having me on. It's a pleasure.

BZ: Before we get into your entrepreneurial journey, I just want you to quickly say what you guys do. What is Vinovest?

A: We are a way for anyone to be able to diversify their portfolios into the asset class of fine wine. So we help people buy, store and sell appreciating assets, like investment-grade wines.

BZ: How long have you been doing it?

A:So we are rocking on year three right now.

BZ: And how has it, how has the journey been?

A: We launched actually March of 2020. So if you remember what was happening, that we were heading into a global pandemic. And I remember the first week me and my co-founder launched the business was when the stock market tanks like 20%, 30%.

We looked at each other and think holy crap, is this the worst time ever to launch a new investment platform? Thankfully things worked out. Been able to amass, tens of thousands of investors. So now it's broader platform. And the wine work has been doing pretty well as well.

It's 2020 it's at 17% returns last year, around 19%. And this year we're actually up almost 6% year to date.

BZ: Anthony where did you grow up? what's your story?

A: All right. We're in the bay area, but actually spent most of my childhood years abroad. Beijing, Hong Kong, Vancouver. But came back here for high school, finished up high school in Palo Alto, California, and then started college in LA. And I think that's when my entrepreneurial journey started with my first business, which was a college food delivery startup called onboard.

BZ:Is that the one you pitched to Mark Cuban?

A: Yeah. So after that pitch night with Mark I had the opportunity to join a fellowship program called the Thiel fellowship. For those of you who aren't familiar, Peter Thiel, every single year, gives out a hundred thousand dollars to about 26 people.

And it is no strings attached except you have to drop out of college. I got that. I dropped out of school and actually pursued that food delivery startup full time. And over the course of the next four or so years, we were able to grow that business out to over 20 markets nationwide. We had hunted a thousand students using it, and we eventually sold that.

We were able to get a really good return for our early investors. More than 2X. And if it's any indication, many of those investors now also back to my current company between 2X and 10X.

BZ: So you sold Envoy. And then you said, what was the other company you sold?

A: So if you remember what's happening in Hollywood in 2017, it was a Harvey Weinstein that was dominating the news and all the terrible things he did.

And a similar story was unfolding in Silicon Valley where a lot of big shot VCs were getting called out in the news for pretty much doing the same thing, racial discrimination. Sexual harassment. As a guy, I definitely did not experience any of it. And it was shocking to me and talking with a lot of my friends who, were female founders or founders from other minority backgrounds, they were sharing some of their stories with me privately. And I was like, holy crap these stories need to be able to be out there, but in a way that doesn't hurt the storyteller right.

In a way that can also benefit future powers. So maybe essentially like a rating app for venture capitalists and angel investors. And just because of the climate at the time that site really blew up pretty quickly. Hundreds of thousands of unique searches a month on entrepreneurs and other investors, actually just looking at that out, these other VCs and angel investors that they were potentially going to work with.

BZ: Anthony is that one still around?

A: Yeah. Now it's called Rate My Investors. So if you go to ratemyinvestor.com I believe it is still the largest database of vetted reviews on angels and VCs

BZ:So what was it like working with Peter Thiel?

A: So the program is pretty awesome. I think the biggest benefit that it gave me was seeing that "Hey, there are a lot of other young entrepreneurs that have taken a traditional path and they're taken out." I was, I was going into my sophomore year at college.

I was working a ton on the startup and everyone around me was just living a normal college life. I feel like I had a community and joining the Thiel fellowship and being a part of that, I think just gave me that sort of tribe that I needed to feel competent dropping out. Or also would have just been in my college apartment, being alone all the time, trying to build a company.

There's a quality standard that comes with becoming a Thiel fellow.

BZ: So while you were at USC you had an accident, right? And are you cool talking about that?

A: Yeah, absolutely. It's a part of who I am. So this was actually when I was running Envoy now. And this is about almost six years to this day, actually. I had a spinal cord injury and so those of you don't know what that is. It means that you pretty much get paralyzed from wherever in your spinal cord break. For me it was a surgical injury. So this was like up in my neck at the C5 vertebrae. And that meant I couldn't really move anything below my shoulders at first. And that completely changed my life because I was in the ICU for five weeks.

I could not move anything. Multiple surgeries and was on a ventilator for almost the next four months. And, talk about having to learn everything all over again. I wasn't thinking about my startup or, investors or anything like that, even though I was in the middle of raising around it at the time obviously that round crumbled.

But I was in full-on survival mode. I didn't even know if I could go back to doing any of the things I used to love. And recovering and being able to have even the drive to want to do something again, other than stare at the ceiling, getting in bed it was a really tough time and I'm really just fortunate to have my then girlfriend now wife with me.

And she was really just by everything and helping me realize that Hey Anthony even though, physically, you're not the same. No, you're all there mentally. You can still be able to do what you love, which is running businesses. And you shouldn't go back to doing the things that you love.

And so then during those five weeks or what happened to Envoy now and what, and just we'll go there first and then I'll. Yeah. It was honestly almost six months where I was away from the business by like co-founders took over, they were running the business in my absence. And, I actually refused to look at a phone for almost four or five months.

Cause I was just fully in denial, what had happened and it was in the hospital in, in, in our rehabilitation hospital for pretty much the next year. And. Th like mentally professionally, personally, how did this change you or did it change you? Yeah, I think what really helped me really snap back into reality was a statistic that my occupational therapist read me.

It was "they're saying that 80% of people have spinal cord injuries. They actually never go back to work." And I was like, holy crap. I don't want to be part of that 80%. I want to just go back to the real world and, be able to live life again. My life cannot just be in a hospital facility doing assisted care for the rest of my life.

That's what actually led me to come back to the. I told him, I go fast. Okay, I'm coming back. I'm still in the hospital. I'm still going to be doing, five to six hours of therapy a day and work on me, but I want to get back to running the business. And that was that, that turning point that kind of gave me a new perspective of being incredibly lucky to get to where I was.

But the fact that there was still so much more to go with the business. And I think that's also what I think helped to drive our company over the next year. So we've got to that eventual acquisition.

BZ: You've gotten some mobility back in your body as well, Is that correct?

A: I can definitely like move a few more things. I'm still in a wheelchair today, but I'm not completely independent. I still have to have the help of others to be able to get along with my every day. And I think that was honestly a biggest, big lesson I had to learn was actually to ask for help.

Cause as an adult, like you don't do that very often. And it was very hard for me to Come to that realization that if I wanted to actually have the freedom that I wanted to have in my life, needed to be okay with that.

BZ: So you do all this stuff, the delivery, investment crypto, how did you choose to get into wines?

A: I came across an article in the wall street journal and it was talking about all these ultra wealthy billionaires and Luxury assets they were investing in that was making them richer. And how crazy are the terms? Are all these assets work? On the top of the list, there's things like wine and whiskey are like classic cars rare luxury goods. And all of them had really incredible double digit returns over the course of decades.

And I was like, holy crap. Like I did not know art had those returns. I had not known why I'd had those returns and I was like, Hey, it sounds pretty cool. Being able to collect and invest in wine. And the worst that can happen is that I'm stuck with a bunch of nice wine that I can end up drinking.

If I'm not getting those returns or pick the wrong lines, if that's my downside scenario, it doesn't seem too bad. Decided to start collecting wine and realized very quickly why you need to be very wealthy because I was spending tens of thousands of dollars on things like insurance custody, setting up the right storage, getting, trying to get into all these like exclusive auctions.

And it's a ton of barriers to entry that I don't think would be feasible for any average retail investor or any even like most high net worth. So like the amount of work that it takes to actually properly and properly. Investing in wine is a lot. And I thought to myself that's ridiculous that we're in, we're in 2020, 2021, 2022, and this is still the way that you invest in wine.

The easiest way to transact wine is to wait two weeks and go and auction. And your market is the people who are in the room, right? That's silly to me, especially being in crypto where everything is transparent, global 24 - 7, right? Instant. That's actually part of doing that on the side for a few years and realizing that Hey, this is something that I'm very passionate about and I want to give this sort of access that I've developed myself throughout the years.

I want to give that to more.

BZ: So how does the process work? So there's a lot of stuff that you've done behind the scenes that we need to talk about here. How have you actually pulled this amazing platform off. Did you have to become SEC approved? Like how many years did it take? This is fricking pretty impressive, man.

A: . So this was this is just a lot of exploration between me and my co-founder and we realized that Even though a lot of people we think would be interested in investing in wine, but like yourself, for example, most people, first of all, haven't even heard of wine investing and they definitely don't know which ones to pick.

So that's why we chose this product. Which is essentially like a guided or managed portfolio as a first product, right? Like you pick your risk appetite, you pick, a few other inputs, how much you want to invest and things like that. And then we'll, we'll do all the heavy lifting for you, we help you pick the one. We help restore store the wines. We help you show the prices and history. And when you should sell those wines, we really are the ones to be that sort of like educational guide as you start your wine investment journey. So why do you think wine is as good as not as good as the alternate investment?

So I actually came from it from more of a crypto medical, right? Like people love. It's deflationary. It's something that has a very fixed supply, same with wine, and then get him to eat it. If you release a thousand bottles into the market, you can't ever print more bottles from that same year.

And why don't even take it one step further where in addition to that, people are drinking those bottles every single day. So maybe after year one, that 1000 bottles turn into 900. And just given supply and demand. That means that the remaining 900 bottles were just going to be a little bit more scarce and valuable.

On top of that wine actually agents, right? The profile of that wine actually changes throughout time and people prefer the taste of aged wine. So not only is this product getting more scarce over time, but it's actually changing and appreciating into a better product. And those two are really the key drivers of why wine goes up and down.

When you pick the right one. And to me, those things that seem like very simple to understand and something that doesn't really go away. People are not going to stop drinking wine anytime soon.

BZ:Do I invest buy the bottle of wine and you guys store it? Or how does that work?

A: Yeah, so we store it for you by default.

You can actually get it delivered to you and drink it if you want, but by keeping it within our storage facility. It makes selling the much easier, because it's like a, it's like buying a car where like the moment it's off the lot and it gets into like your garage, it's massively devalued.

So by keeping it in our temperature controlled facilities that maintains the highest possible resale.

BZ: How many facilities do you have?

A: All over the world, actually, because our wine has grown all over the world. So if we're buying wine from France for keeping it in France, if we're buying wine from Napa, we're keeping it in Napa.

BZ:Do you have to buy insurance on it?

Yeah. So all of these facilities have pretty robust insurance on them because what if the wine breaks right? What if there's an earthquake? What if you know the runs out of power and it's no longer temperature control. So all of those protections we have in place as part of the Beano best program, so that you actually can have asset protection and be able to feel safe as a first time.

BZ: Are you being the first robo advisor for fine wine?

A: Yeah, I think it's a very good comparison because we do have algorithms behind that make it a fully automated process.

And we're the ones that are seeing those and fully being able to manage it for. Of course I got human experts that do inform and update that algorithm, but it's really that combination it's so scale such a huge user base while not having to hire a ton of new people.

BZ: How many investors are on the platform?

So I think we're creeping up on 10,000 investors on the planet. And a lot of them are like yourself, right there. They're very much versed in the investing world. They're investing in other alternatives and they see this as just wasted bark, some of their money that doesn't have the same correlation to the other stuff that.

BZ: Now there's a quote, you said "the main thing separating someone with a hundred million investible assets and a hundred thousand investible assets is not the stock markets it's access to alternative investments." What do you mean by that?

A: I think access to quality alternatives is really that difference-maker because.

Anybody can invest in stocks, and you can pick all the same stocks. You can pick all those same cryptos, but still, I think that role of alternatives is where there is so much information asymmetry. There's so much gated, right? It's not everybody can invest in the top real estate funds.

Not anybody can get into the best startups. There's a, there's definitely a kind of a gate and a barrier there. And same with wine. Not anybody can invest in best wines in the world because of those reasons of, not having access or not having the right storage and things like that.

WithVinovest, we're trying to do our part in helping to change that.

BZ: Vinovest launched a live marketplace to buy and sell wine on February 3rd, 2022.Can you talk a little bit how that works?

A: So this is very similar to. A trading platform. A lot of people are going to be able to make their own decisions on, Hey if I don't want the managed portfolio to pick those wines out for me, if I, maybe I'm graduating from the manager side or maybe I'm just a more active type of investor.

And I like to make my own picks. That's the place for you, right? If you're really betting on the region of champagne, you can just buy all the champagne you want and be able to have a very concentrated portfolio. Or if you really love this one producer, do you think their line's going to go up, skyrocket, you can just do that.

It's a more, I think active experience for our users. And so far we've seen a really great response.

BZ: Can you give like a number of, so if I invested $5,000 today, In 10 years what will it be? Can ypu just tell me like a rate of return that you think I could get over the next year by percentage terms?

A: So historical rates returned to the wine market at been around just over 10%.

You can just compound that and do the math where it's a pretty stable asset. It's something that is going to have minimal drawdown periods during the sessions. And it's reliable, right. Line investing in wine has been around for how does. It just really hasn't been available.

BZ: Okay. So it seems like a no brainer. Are there accounts that invest in like hundreds of thousands of dollars or even millions?

A: Yeah, we had people up on, on that level and those are more so like the institutional clients, family offices where they're managing large sums of money.

But most people are in the single digit thousands. They're just starting out the retail investors. They're looking to put some of their money in their overall investible portfolio into this asset, like wine and then build it up over time.

BZ: Okay. And how does Vinovest make money?

A:So we make money through our management fees.

So this covers the storage, the insurance, and all those protections that we talk about. And for that's how we, that's how we monetize.

BZ: Did you have to become SEC approved?

A: So this is outside ofSEC because we're not selling securities, right?

Currently is not deemed as a security, it's a collectible. And because we're also not selling shares that represent wine or selling fractional ownership, I think like a lot of the other, real estate or art sort of investment programs. That makes it so that you're just buying a bottle of why you're just buying a case of wine.

And you can drink it too. So that kind of preserves the utility of the wine, which makes it a lot more flexible from a regulatory standpoint.

BZ: So if I put a 100k dollars into. And I keep it in until 2025. Let's say the money stays with you guys and then you guys would say, if I want to sell the, you guys would send the money back, basically.

A: So we'd sell your wines off to the next person, right? And then you would you'd get those returns, the Delta between what you paid for and what it sells for.

BZ: I created my account. How do I fund my account?

A: Pretty much any single payment option under the sun. You can write us a check. You can pay in crypto. Credit card, you can link your bank account.

BZ: So can I do that online or do I need to call someone now all online so I you don't need to talk to anybody?

A: You can do that.

BZ: What is your favorite wine?

I'll say a favorite recent has been Vincent Dauvissat Chablis. Super crisp. Just goes really well with, cheese, fish, and even chicken. And that's one that I've been really enjoying recently.

So thank you for coming on.

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