If you’ve been part of Small Bets for a little while, you know that we sometimes dedicate an issue to explaining our thought process behind an investment.

Today is one of those days.

For those who are new here, here’s a quick background: Hustle Fund is a pre-seed venture capital firm. We get about 1,000 applications from founders every month. We invest in about seven of those. How do we decide which companies we say yes to and which ones we unfortunately pass on?

Our evaluation process looks at five elements of a startup:

1. Team
2. Problem
3. Solution
4. Market
5. Traction

In the past, we’ve shared real-life examples of how we used this analysis to invest in Daily Blends, The Cru, Growrk, Famasi and Gentem Health. You can see those analyses here.

Today I’m diving into a business that’s a little different from the businesses above: the wine investment business.

You ready?

What is Vinovest?

Vinovest is a platform that allows people to invest in wine. Wine is an asset class that many investors don't consider when they're building their portfolio, primarily because of its major barriers to entry. While wine may not appreciate as quickly as other asset classes like stocks and equity, it tends to be more stable.

Vinovest enables people to invest in wine without doing the hard work. We’ll dive into that in the “Solution” section below.

The Team

Hustle Fund GP Elizabeth Yin met Vinovest’s founder and CEO Anthony when he was running a startup on food delivery for student campuses. It was doing extremely well and showed Elizabeth that Anthony was an incredible operator.

After selling his first startup, Anthony started working on his next idea.

By that time, he already had a lot of knowledge about wine and had gotten passionate about wine collecting.

Given his passion for the industry and experience running a food startup already, it made sense for Anthony to turn his interest in wine into a business.

Elizabeth knew nothing about wine. But she saw that Anthony was a strong operator with solid industry experience, and felt that the founder-market fit was strong.

The Problem

Retail investors often look for new things to invest in. And investing into wine is a unique offering. There is a limited supply of wine, each bottle has a different vintage, and the value of each bottle typically appreciates overtime. It makes sense as an asset class.

But wine investing isn’t accessible; you have to be in the loop. Fine wine is mostly circulated among the wealthy, or people who drink and appreciate wine often enough to accumulate deep knowledge about it over time.

An investor may want to invest in wine, but not know how to get started. How do you meet wine sellers to get first dibs on the limited availability? How should the wine be stored? Where should the wine be stored?

There’s no one-size-fits-all for these questions – wines come from all over the world, they age differently, and they require different situations to be stored in.

Based on the barrier to entry and the strong potential for big returns, this was a problem people would pay to solve.

The Solution

Vinovest’s hypothesis is that a lot more people would invest in this asset class if it was more accessible.

And so that’s what they set out to do.

On Vinovest, users create their profile, set their risk level and preferences, and … put money in. Vinovest takes care of the rest – they pick the wines for the portfolio (like a stock broker), handle the storage of the wine to ensure it doesn’t go bad and lose its value, and even help sell the wines for an ROI when they’re ready to be sold.

Talk about a “liquid asset.”

Elizabeth liked this solution because it made getting into the wine investment game so simple. Users didn’t need to have industry connections or a depth of knowledge about wine to get started. They also didn’t need to do any research on wine storage, or invest in a big, expensive wine fridge.

The other reason Elizabeth liked Vinovest’s solution was the entry point. Much like angel investing, someone could enter the market with as little as $1,000, and reasonably see a return of 8% to 17% within 5 years.

The Market

Vinovest had no product when Elizabeth first invested. They were talking to their ideal customer persona one-on-one. At this point, these potential clients were simply people who bought and/or sold wine. The Vinovest team was using these conversations to zone-in on exactly what product they needed to build for these wine lovers to start investing in wine.

Unlike most startups, Vinovest didn’t really have a market. There were retail investors who like to drink wine, and people who thought about investing in wine … but there wasn’t an established market.

This was actually quite attractive to Elizabeth, because it meant that Vinovest wasn’t going to be in competition with a bunch of other brands all chasing the same customer.

If Anthony and his team could create this market, they’d have it all to themselves (at least for a little while). And since so many people like wine, Elizabeth also believed that the education piece would not be hard to crack.

So the question is … how did Vinovest get their first customers on board?

Traction

With essentially no market to begin with – and having to set out to create it – there was even less traction. But Anthony is a stellar executor, and Elizabeth strongly believed that Anthony and team would be able to crack this.

And they did.

A few weeks after Elizabeth invested, Vinovest held a wine and cheese event. The thing about events is that it’s tricky to measure the ROI when you’re playing the longer term game. Few wanted to sign up for Vinovest on the spot, and the requirement to connect your bank account in order to do so created even more friction.

But people were curious and passionate about the idea of investing in wine. It was intriguing enough for them to want to dig deeper. And eventually be a part of it. That was enough reason for Anthony and team to keep going to find the sweet spot product to build.

Anthony was also a great sales person. He had lots of personal relationships with people who dabbled in wine investing, and he continually built partnerships with them. These led to more word-of-mouth referrals, which then skyrocketed their partnership and marketing efforts.

By the end of the month they had launched the product with $70,000 in deposits – which was a lot compared to the 0 conversions during the event earlier in the month.

The early days saw a lot of intimate grassroots events. With the first wave of customers on board, Vinovest was ready to build and unlock this wine investing market.

What’s next?

Since Elizabeth’s investment into Vinovest, the company has expanded into investing into whiskey. Introducing … Whiskeyvest.

The market for whiskey investing was a little like wine investing when Vinovest first started; people didn’t really do it because of high barriers to entry. (How do they get into the loop?) Even if they wanted to, they weren’t sure where to start.

With booming international demand for whiskey, and domestic demand close behind, Vinovest jumped at the opportunity to widen their offerings.

In an effort similar to their effort with the original product, Vinovest started by educating people on whiskey investing.

The difference? This time there was greater appetite early on; their target audience was already drinkers, and saw the pros of investing in the asset class over time.

Now Vinovest has a 20-person team and 12,000 clients across 107 countries.

Final thoughts

While Hustle Fund is a generalist VC firm – meaning we don’t specialize in a specific industry – Vinovest’s business was a bit different than our typical portfolio company.

Still, we were able to use the 5-pillar system to evaluate the startup. And given that Anthony and the Vinovest team has shown successful customer acquisition and sales strategies, and unlocked new opportunities for themselves in just a few short years, we’re glad we did.

Would you have invested? Hit reply and give me your honest opinion.

Chloe Tan is the associate marketing manager at Hustle Fund, where she curates physical and written experiences for the Hustle Fund investor and founder community. When she's not connecting with people, she's probably connecting with nature on long walks or by the beach (ideally, both) or diving into alternative universes through good reads and music. Get in touch on Twitter and LinkedIn.