Everybody in the L.A. tech industry seems to know the Reum brothers.
The siblings, Carter and Courtney, have invested more than $50 million as part of an informal syndicate, which has participated in funding rounds alongside prominent angel investors Brian Lee, Paige Craig, and Troy Carter. They are also known for sweetening deals by bringing in celebrity investors such as Demi Moore and Tobey Maguire.
Now, after selling an undisclosed majority stake in their Beverly Hills vodka company Veev Spirits to Luxco Inc. of St. Louis in March, the brothers want to expand their investment portfolio even further.
The Reums are formalizing their investment activity, which had previously been relegated to a side business, by launching a startup studio and syndicate named M13. A syndicate is a structure that allows other accredited investors to participate in deals discovered by someone else. The Beverly Hills firm is aiming to syndicate $100 million in investments into dozens of startups, especially consumer products companies, over the next five years.
“We want to build a holding company that can incubate, create, and launch companies,” Carter Reum said. “It’ll be a combination of incubating and creating our own ideas and purchasing brands that we don’t think are reaching their potential.”
M13 will aim to help budding consumer products companies learn the tricks of the trade, such as landing distribution deals, branding products, and managing inventory. Some startups will be given office space at M13’s 3,000-square-foot Beverly Hills headquarters, while others will collect mentorship and resources from afar. In exchange, the firm will take a minority stake in participating startups.
M13 plans to make 20 to 40 investments a year of between $100,000 and $250,000. Its goal is to incubate five to 10 of those portfolio companies, said Carter. The amount of investment from M13 and its syndicate would vary based on a startup’s size and stage. M13 will also take a 20 percent cut of each syndicate member’s profit after an exit, according to the firm.
The Reums are hoping their experience in building up Veev and angel investing, as well as their celebrity connections built through years of social, promotional, and networking events, will help bring about a whole new generation of L.A. consumer products and e-commerce companies.
That could be useful in Los Angeles as there are not many local incubators and investors with expertise in developing and selling physical products, said Kara Nortman, partner at Santa Monica’s Upfront Ventures.
“I do think that there is a gap in the market around that,” she said. “(The Reums) definitely have a reputation for being smart guys.”
After several years in Goldman Sachs’ investment banking division, the brothers thought they should try their luck in the liquor business and founded Veev in 2007. At the time of the sale, Veev had sold more than 1.5 million bottles of its vodka and ready-made cocktail beverages since its launch, according to the company.
The deal provided the Reums with more cash to pursue angel investing. They’ve participated in funding rounds for more than 40 companies over the last decade, including Elon Musk’s Space Exploration Technologies Corp., Warby Parker, Bonobos, Thrive Market, Blue Bottle Coffee Co., and Surf Air. The brothers are also limited partners in a number of venture capital funds, including Arena Capital Advisors, Bam Ventures, SV Angel, and Lowercase Capital.
Still, launching an incubator in Los Angeles right now could be challenging. For starters, the rapid growth of the local tech industry over the last few years has meant seed money, mentoring, and introductions to venture capitalists – some of the main selling points of accelerators and incubators – are much easier to come by. Some incubators, such as Launchpad LA and StartEngine, are no longer bringing in new startup classes.
Also, some entrepreneurs say that incubators are not always worth the hefty cut – often between 5 percent and 7 percent – they take in equity.
“I personally have mixed feelings about incubators,” said Jonathan Shokrian, co-founder and chairman of Culver City online underwear retailer MeUndies, which received an investment from the Reums last year. Shokrian said he opted not to participate in an incubator when starting the company because he didn’t think he needed the help. But Shokrian acknowledged that every company is different.
“Founders don’t always have the resources to create consumer products,” he said. “Their incubator is a unique platform that will lend expertise in inventory management and product development.”
The Reums are confident their model for consumer goods startups will work.
“There are a lot of entrepreneurs that have a good idea and have a lot of traction but don’t have the expertise,” said Carter. “We think we will be able to get companies to market faster, less expensively, and with better products.”
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