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Welcome to Alternate Universe!

In today’s edition:

• Exploring fine wine as an investment 🍷

• Job opportunities at recently funded European startups 👇

• Did a Chinese LLM just blow up the AI world? 😱

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The Crux 🔴

What 🧐

At first glance, wine may seem simple—it’s 98% water and ethanol. Water acts as a solvent, while alcohol contributes body and enhances flavor perception.

But the true magic lies in the remaining 2%, made up of compounds that define a wine's character.

Organic acids, such as lactic, and tartaric acid, form during aging, shaping a wine’s aroma and texture. Residual sugars like glucose and fructose determine its sweetness, while complex-sounding, phenolic compounds—tannins, flavonoids, and anthocyanins—add depth and complexity. These phenolics, sourced from grape skins, seeds, and stems, are especially significant in red wines, influencing quality, consumer preferences, and pricing.

Beyond chemistry, grape variety and terroir further shape a wine’s identity. Terroir, encompassing geography, soil, and climate, adds a unique fingerprint. A Chardonnay from Burgundy’s limestone-rich soils might taste crisp and mineral-driven, while one from California’s sandy terrain might display tropical richness.

Finally, the winemaking process itself influences the outcome. White wines avoid skin contact to preserve freshness, while red wines ferment with skins to extract tannins and flavor, followed by aging in oak to develop complexity.

Wine’s history spans millennia, from ancient Middle Eastern origins to the established traditions of Old World regions like France and Italy, which prioritize terroir and subtlety. The New World—regions like the Americas and Australia—offers a more innovative, fruit-forward approach, reflecting diverse climates and winemaking philosophies.

Attractiveness ✨

1. Low correlation to traditional assets

   This low correlation provides diversification benefits, especially during market downturns, when other asset classes may struggle.

   

   Source

2. Tangible asset

   Unlike traditional financial investments, wine is a tangible asset with an intrinsic value beyond its monetary worth.

3. Superior risk-adjusted returns

   Fine wine has delivered consistent long-term returns, often outperforming traditional asset classes like stocks and bonds as shown by the Sharpe ratios below.

   

   Source

Risks ⛔

1. Volatility

   Wine prices depend heavily on vintage quality, which can be affected by weather conditions during the growing season. Poor vintages may see diminished demand, reducing potential returns.

2. Consumption patterns

   Global wine consumption has been steadily declining, falling from a peak of 25 billion liters in 2007 to an estimated 22.1 billion liters in 2023, with traditional markets like the US, China, and Australia experiencing significant volume drops. This trend is exacerbated by Gen Z's declining interest in wine, as younger consumers gravitate toward non-alcoholic beverages and cocktails, perceiving wine as less appealing and outdated.

   

3. Climate change

   The other underlying threat to wine production is climate change. Rising temperatures and unpredictable weather patterns can adversely affect grape yield, composition, and wine quality, leading to potential shifts in the geography of wine production.

Investment Implications 🤑

The obvious play to get exposure to the wine asset class is through wine stocks. Multiple companies such as Concha Y Toro and Constellation Brands own wine brands in their portfolio. One has to be careful as the revenue portion attributable to wine varies greatly. The other important caveat is the strategic moves that such companies make. Pernod Ricard recently divested its wine assets in Australia, New Zealand, and Spain to focus on its spirits portfolio, aligning with broader industry trends. The sale to Australian Wine Holdco Limited, a consortium of international investors, will see Pernod Ricard offload 10 wine brands, including popular names like Jacob’s Creek. Diageo also divested its wine portfolio back in 2015 to Treasury Wine Estates.

The other direct way to invest in the asset class is to own a private wine collection. This route has traditionally been reserved for HNWI as the barriers to entry (storage & insurance costs) are high. Retail investors can emulate wealthier investors through various platforms such as Vinovest and WineFi, which democratize access to fine wine investing.

Word of warning - I have personally tried Vinovest and have since exited my (small) investment as it was my worst ever. The platform makes grand promises but comes short on almost every front. Similar experiences can be read here and here.

For more entrepreneurial folks, buying vineyards is the other direct play. One topic which piqued my interest is how formerly unattractive land is becoming an option for cultivating grapes for winemaking, due to climate change.

Stocks in adjacent industries sometimes offer quick trade opportunities. In 2023, wine bottle makers O-I and Verrallia spiked due to a diminishing supply, leading French winemakers into a frenzy.

Wine startups are innovating across various facets of the industry. For instance, Vivino has developed a comprehensive wine marketplace and recommendation app, enabling users to discover, rate, and purchase wines. Meanwhile, CrushDynamics focuses on sustainability by upcycling grape derivatives into nutritious food ingredients.

Dig Deeper ⛏️

• Wine Simple: A Very Approachable Guide from an Otherwise Serious Sommelier

• Wine and the climate crisis: Where are we now and what happens next?

• Climate change is altering the chemistry of wine

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Headhunted 🦅

Recently funded private companies need talent! Scout jobs at recently funded European startups, ahead of your competition. 💪

1. Enapi 🇩🇪 - The EV charging startup has raised €7.5m in seed funding. Hiring full-stack engineers (link)

2. Vertice 🇬🇧 - The procurement optimization SaaS has closed a €47.9m Series C. Over 50 roles open (link)

3. Qomodo 🇮🇹 - The payment startup has raised a €13.5m Series A. Hiring a product manager (link)

4. Ecoplanet 🇩🇪 - Energy management software raised a €16m Series A. Hiring a founder’s associate among other roles (link)

5. Matchory 🇩🇪 - The supplier discovery platform has raised a €6m Seed extension. Hiring a Partner manager (link)

Interestingness📔 

• What Is China’s DeepSeek and Why Is It Freaking Out the AI World? (link)

• In the meantime

• Trump’s memecoin blew up, now the crypto community is worried (link)

• Time for another book. I have been digging into the US incoming VP’s memoir, Hillbilly Elegy. Totally recommended - available as a movie on Netflix.

• Trump and trade - a never-ending love story (link)

📚 New to investing? Grab a PDF copy of my ebook here.

As always, the financial disclaimer!

This is not investment advice. I am not a financial advisor. Make sure to conduct your thorough research before purchasing or selling financial products.