September 2014 Issue of Wines & Vines
 
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Investor Interview: Charles Banks

How the founder of Terroir Capital chooses wineries for investment on three continents

 
by Laurie Daniel
 
 
Charles Banks
 
Charles Banks Photo by Fred Lyon

Charles Banks, the founder and managing partner of Terroir Capital, which invests in wineries and hotels around the world, is known to many as the former owner of Screaming Eagle Winery in the Napa Valley. But since selling Screaming Eagle and Santa Barbara County-based Jonata to business partner Stan Kroenke in 2009, Banks has been busy investing in wine ventures in California, South Africa and New Zealand.

In California, Banks’ investments include Mayacamas Vineyards in the Napa Valley, Sandhi and Qupé in Santa Barbara County, and Wind Gap in Sonoma County. Overseas, investments include Mulderbosch in South Africa and Trinity Hill in New Zealand. Banks is a partner with sommelier and vintner Rajat Parr in a Burgundy negociant project, Maison L’Oree. He and his wife Ali also founded Cultivate Wines, a venture that donates 10% of sales to charitable causes. And he’s an investor in Blackberry Farm, a luxury hotel in Tennessee, and the Inn at Mattei’s Tavern in Santa Barbara wine country.

    HIGHLIGHTS
     

     
  • The man known to many as the former owner of Screaming Eagle Winery discusses recent acquisitions.
     
  • Charles Banks says three key filters in choosing an investment are the people, the place and the potential.
     
  • He says that it’s much easier to take an existing brand and reinvigorate it than to make a new brand work.
     

Wines & Vines: How did you get involved in this aspect of the wine industry?

Charles Banks: I was in the investment business, running CSI Capital Management, when I fell into a dreamlike opportunity to be the managing partner of a new vineyard development project with Arnon Milchan and Jerry Levin in Santa Barbara County. Jonata was an amazing way to start in the wine business. Arnon and Jerry were excellent mentors and opened doors all over the world for me and our new project. Jonata led to an opportunity to buy Screaming Eagle, thanks to Tom Prentice, our viticulturist. We had a great run until my partner, Stan Kroenke, decided he didn’t want a partner anymore. I had founded Terroir Capital in 2004, and this gave me the opportunity to take what I had learned and take Terroir in a new direction, focusing on building a global wine company. We didn’t make our first winery acquisition until 2010.

The first winery we tried to buy was Mulderbosch in South Africa. I say we “tried” because it took me over three years to get the deal done. In the interim, we founded Sandhi with Rajat Parr, became partners with Andy Erickson and Annie Favia Erickson on Leviathan, and bought Tulbagh Mountain Vineyards in South Africa, which we renamed Fable Mountain Vineyards. Then we kept finding more opportunities with great people like Pax and Pam Mahle of Wind Gap, Bob and Louisa Lindquist of Qupé, Robyn and Robert Wilson of Trinity Hill in New Zealand, and the Schottenstein family, our partners in Mayacamas Vineyards.

W&V: What do you look for when you make an investment in a winery?

Banks: When we are looking at a potential acquisition, we put it through several filters. First and foremost, we look at the people. Are they a fit? People are everything to me in business. Our partners need to fit in with each other and share our values. Next, we look at the place and the story to make sure they are inspiring, fit with the rest of the portfolio and don’t create conflicts for our team. Third is potential. We must see and feel the potential to make something special and make a difference. We need to make wines that make a statement and have the potential to define whatever category we are in. Whether it’s the Chardonnay of Sandhi, the rosé of Mulderbosch or the Cabernet of Mayacamas, we have the goal to be definitive.

The final criterion is financial. We need to see a clear path to profitability and long-term sustainability. Our job ultimately is to provide the capital and discipline to get there. Sometimes this requires significant patience. It took me six years to buy Mayacamas and over three to buy Mulderbosch—well worth the wait in both instances!

W&V: To what extent have you used debt (as opposed to equity investment) in your winery ventures?

Banks: We use very little debt, especially early on in the life of our projects. Once the business is mature and stable, I am comfortable with a reasonable and sustainable percentage of debt. We work well with Silicon Valley Bank. They meet all our needs, and they are very conservative, which suits us well.

W&V: Some of your investments and partnerships have been in new ventures, like Leviathan and Sandhi. But you’ve also invested in established properties like Mayacamas, Qupé and Mulderbosch. How do these older wineries fit into your overall strategy?

Banks: It is extremely difficult to start new brands. The industry is very crowded and littered with meaningless and story-less brands. It takes something special, not just distribution, to make a new idea work. It’s much easier to take an existing brand like Qupé and inject some capital, energy and financial discipline. That being said, there is only one Qupé and one Bob Lindquist. Fate needs to smile on you sometimes!

W&V: When you invest in a winery like Wind Gap or Qupé, what does your role become in the operation of the company?

Banks: My role varies project to project. Overall, I need to be a loud voice supporting a clear vision on the production side while providing the discipline and infrastructure for the sales, marketing and financial side. For example, we invested in one winery that had more than 20 SKUs. Our task was to clean up the portfolio and identify which wines were the drivers of the business.

I need to be making sure each brand is understood and respected under our umbrella while laying the tracks for the future growth of Terroir and our team. As I mentioned earlier, the people are key. My wife Ali and I want to make sure we are supporting each and every partner and team member so they can achieve their goals and dreams.

W&V: What is the current climate for these sorts of transactions?

Banks: The economic climate is pretty good, in general. We operate outside the normal climate. The types of opportunities we are looking for are few and far between. If it’s “on the market,” it’s probably not for us, so the climate is largely irrelevant for us. Finding smart, creative and passionate partners isn’t about the financial climate. Some rich guy selling his estate isn’t interesting to us. An excitable 30-year-old with vision and a dream is far more appealing.

W&V: You’ve invested in California, South Africa and New Zealand—and you’re importing wines from Burgundy through your Maison L’Orée venture with Rajat Parr. Are there other wine areas around the world where you’re interested in investing?

Banks: I would love to find a way to invest in Argentina, but it’s impossible right now with their irresponsible and disastrous economic policies. I think Washington, Oregon, the Jura (France), Sierra Foothills and all over Spain should provide plenty of reasons for us to stay busy over the coming years. There’s not much I’d rule out.


A resident of the Santa Cruz Mountains, Laurie Daniel has been a journalist for more than 25 years. She has been writing about wine for publications for nearly 15 years and has been a Wines & Vines contributor since 2006.

 
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