Balcones’ Chip Tate warns of investor risks

Chip Tate, founder and master distiller of Balcones distillery, has warned of the risks distilleries face when enlisting the support of venture capitalist groups as he engages in a legal battle with his own board of investors.

Balcones’ Chip Tate is now able to break his silence after a restraining order imposed on him was relaxed

In August this year, the board of investors at Texas-based Balcones distillery took out a restraining order against Tate, preventing him from entering the distillery or speaking with distillery workers and the media.

Since his restraining order was relaxed last week, Tate told The Spirits Business that since April this year, the board has been attempting to oust him from the company – which he set up and built in 2008.

According to Tate, his predictions of the financial costs of the distillery’s on-going expansion and personal clashes with investors led to the board offering to buy his remaining stake in the firm, which he refused.

Tate and his second round investor Michael Rockafellow, initially brought Allen on board through his Oklahoma-based equity firm PE Investors LLC in February 2013 in a bid to increase capacity. Tate’s share in the business reduced and the equity group became the largest shareholder.

The board has accused Tate of trying to derail Balcones’ expansion through his “unconscionable and reprehensible” behaviour, a claim Tate strongly denies. Instead, Tate insists the board tried to make his work “extremely difficult” in a bid to acquire “universal control” over the distillery.

Since legal action ensued, Tate has said that he will only remain at the distillery if PE Investors leaves.

One party “must leave”

“My hope is the same as it has always been over the past few months which is that one of us must leave. This isn’t a great marriage anymore and we need to decide who gets to keep the house.

“If they are hell bent on keeping Balcones then they need to pay me my part and give me my freedom. We are moving back towards mediation, but I am most excited about making whiskey again.

When asked about his views on venture capitalists in light of his current legal struggle, Tate said: “Venture capitalists are highly problematic and of course I wouldn’t have gone into business with them had I known what it would be like. This isn’t true across the whole industry, but there are definitely risks involved.”

“It’s the challenge we face growing a business like this because we have to convince people of our vision, which is hard as a lot of people think they know better. But they need to trust the distillers.”

Just this week, Balcones has revealed details of its expansion – which will see the 1923 Texas Fireproof Storage building turned into a US$15 million distillery having been previously used by the firm for whiskey storage.

Operations continue

“We have received more acclaim and attention for our spirits than we ever could have anticipated,” said distillery manager Jared Himstedt, who has been leading operations since Tate’s suspension.

“It will take us years to get enough whisky in the barrels to begin to address our current supply shortage. This expansion is going to allow us to get more product out there, maintain the quality of our spirits, and continue to innovate and experiment on new expressions.”

When contacted by The Spirits Business, Balcones said that it would not be “appropriate or fair” to discuss the case at present time but that its agreement to pursue mediation with Tate represented an “attempt to move forward”.

However, the distillery confirmed that it is operating at full capacity and that expansion plans were proceeding.

A statement from Michael Rockafellow read: “As the largest owner, an early investor, and the sole lender to Balcones until 16 months ago, it’s immensely satisfying for me to watch Balcones’ success exceed our original aspirations.”

Rockafellow added that he remains “active in the management of the business”.

According to Tate, while he would prefer to stay at Balcones, he would also be willing to set up a different distillery. “I just want to get back to making whiskey again”, he said.