An Ottawa-area company that’s gaining a loyal following for its spirits made from a milk byproduct has landed $4.8 million in fresh venture capital as it looks to get a taste of the massive U.S. market.
Dairy Distillery recently closed the new investment round led by Ag Capital Canada, a private equity fund based in the southwestern Ontario town of Tillsonburg that's focused primarily on Canadian companies in the agriculture and food sector.
Founded in 2018, Dairy Distillery makes cream liquors and other spirits from milk permeate, the liquid left over after cream, fat and proteins are removed from whole milk.
The unconventional business idea has been a resounding success for the Almonte-based enterprise, which took second spot on OBJ’s 2021 list of fastest-growing companies with revenue growth of more than 2,000 per cent in its first three years.
Co-founder and CEO Omid McDonald said the new investment would allow the company, which now employs more than 20 people, to expand its current facility and construct a large-scale ethanol plant capable of producing five to eight million litres a year of low-carbon ethanol for transport fuel.
With more cash on hand for marketing and promotions, Dairy Distillery plans to expand its distribution across Canada by the end of 2021. McDonald said the firm is also in talks with a U.S.-based marketing firm to start rolling out its products south of the border within the next two years.
'People love the product'
“People love the product, and we’ve been lucky to get investors willing to go out and tell our story to help build a product that could become a household name,” he said.
When the COVID-19 pandemic began, Dairy Distillery launched another business line, pivoting to producing hand sanitizer for Ottawa hospitals.
McDonald said the company plans to use some of the new funding to ramp up production of the sanitizer and supply other health-care institutions beyond Ottawa. Dairy Distillery currently brings in about half its revenue from hand sanitizer sales, but McDonald says the product will likely account for a smaller share of the company’s overall income once the pandemic abates.
ACC contributed about 70 per cent of the total funding in the latest round, with participation from other investors, including Irving Ebert of Purple Angel and Stephen Monuk of York Entertainment Group.
ACC is a minority shareholder in the company, while several other investors from earlier funding rounds, including friends and family of McDonald, also hold a stake in the firm.
“There is a strong expression of support and skin in the game from various investors and staff, which is a collective expression of belief in where this company can go,” said John DePutter, a principal investor at ACC.
DePutter said Dairy Distillery has a solid track record, strong revenue base and an efficient production process.
Pointing to another key factor in the company’s success, he said Dairy Distillery’s business model aligns with the theme of environmental sustainability that has become increasingly popular in the business world.
"They are adding value to a basic agricultural raw material."
“The company is basically transforming an unused byproduct from dairy processing plants into various useful consumer products,” DePutter noted. “They are adding value to a basic agricultural raw material.”
He said ACC was particularly impressed with the company’s pivot to producing hand sanitizer when the pandemic struck, noting it allowed the young firm to support local efforts to combat the coronavirus and diversify its product offerings at the same time.
Dairy Distillery’s “top-notch” management team and strong culture also attracted the equity fund’s attention, he added.
“Here is a company that with careful planning and execution of their plans has the potential to grow across Canada and even on a bigger scale to possibly garner a piece of the huge U.S. marketplace with revenue streams not just in spirits, but also in sanitizer and other related medical and ethanol fuel markets,” DePutter said.
In addition to providing funding, ACC supports companies in its portfolio with mentorship and business guidance. But DePutter said Dairy Distillery’s experienced and knowledgeable leadership group likely won’t require a lot of assistance with scaling up.
“To a large degree we want to stand back and let these people roll, and be there when called upon,” he said.