Scotch, an AI-native operating system designed specifically for liquor store owners, has secured $20 million in a Series A funding round, the company tells Crunchbase News exclusively.
Operating as an “all-in-one” software ecosystem, Scotch provides liquor retailers with point-of-sale hardware, custom software, payment processing and a back-office suite to manage state-by-state regulatory complexities. Customers range from boutique single-register shops to enterprise stores running over a dozen lanes.
VMG Partners led Scotch’s Series A raise, which included participation from First Round Capital, Lerer Hippeau and Toba Capital. The injection of capital comes on the heels of a growth spurt, with the Denver-based startup reporting greater than 500% year-over-year growth and surpassing $1 billion in processed payment volume.
While the company declined to reveal its valuation, co-founder and CEO Jake Bolling said the funding marks “a significant step-up” from its $10 million seed round, raised in September 2024 and led by First Round Capital.
Old-school market
Formally incorporated in January 2024, Scotch was born out of a unique industry challenge encountered by Bolling and CRO Kevin Hodges during their previous venture, Skupos. A convenience-store software company that supported 15,000 stores across the U.S., Skupos attracted attention from major consumer packaged goods giants such as The Coca-Cola Co., PepsiCo and Budweiser owner Anheuser-Busch InBev.
“Budweiser, in some way, shape, or form, tried to get us not only to continue to grow our C-store business, but to also expand into the liquor store industry,” Bolling told Crunchbase News in an interview.
Market research conducted in 2022 revealed a striking contrast between the two sectors. While the $650 billion convenience store market is highly fragmented, its point-of-sale technology is heavily consolidated around four major players.
Conversely, the liquor-store industry proved to be an entirely different beast: highly fragmented, intensely regulated and flooded with more than 200 regional, legacy POS systems.
Recognizing that the Skupos business model didn’t align with that level of fragmentation, the founders held off. Following the acquisition of Skupos by PDI Technologies in August 2023, the team revisited the concept.
Drawing inspiration from the business model of restaurant tech giant Toast — with whom the founders frequently shared strategy notes in the mid-2010s — they recognized the potential to replicate that success in a highly specialized, nuanced retail market.
Dan Chen, former chief architect of Drizly (acquired by Uber for more than $1 billion), serves as Scotch’s CTO.
‘Business in a box’ strategy
The platform’s business model scales directly with the merchant, driving revenue through a hybrid mix of SaaS fees, charged on a per-device, per-month basis; fintech monetization, or collecting standard interchange fees on its payment volume and hardware sales, providing the modern storefront terminals necessary to run the infrastructure.
While general retail giants like Lightspeed and Clover exist, Scotch markets itself as the only player capable of handling the severe operational and compliance hurdles distinct to alcohol retail.
Customers include The Liquor Store of Jackson Hole, Big Bear Wine & Liquor, Corkdorks and Everest Spirits Superstore.
Eradicating the ‘toil’ via AI
With inventory sizes ranging from 2,000 to 12,000 distinct products per store, manual inventory and vendor management can lead to miscalculated ordering and tied-up working capital, noted Bolling.
Scotch says it differentiates itself by building artificial intelligence directly into these back-office workflows. The platform uses AI to eliminate administrative friction, with the company claiming its offering can save business owners over a full day of work per week. It also saves them money by giving them, for example, a more accurate picture of their inventory, according to Bolling.
“We’ve really focused our AI workflows on the ‘toily’ aspects of running one of these businesses,” Bolling said. “Some of our customers are sommeliers who opened a store because they are passionate about serving their community with the right wine curation. That’s their creative outlet. We try to take up the parts of the day that suck for these business owners.”
By optimizing supply chains and automating store management, Bolling believes that Scotch’s AI native architecture is driving “measurable” gross margin expansion for its merchants.
Grassroots growth and word of mouth
Because it is targeting an industry historically dominated by “old-school,” family-owned, mom-and-pop operations, Scotch has employed an unconventional go-to-market approach. The company relies on a dual strategy of targeted geographic inside and outside sales reps as well as localized trade association partnerships. The reasoning behind that approach, according to Bolling, is because liquor store owners rarely search for new POS hardware on a whim.
However, the startup’s fastest growth vector over the last six months has been organic word of mouth. Because many state laws cap the number of liquor licenses an individual can own, competitive hostility is low, creating tight-knit networks of friendly competitors.
“They go to the same industry events, they talk to each other, they are in study groups together,” Bolling noted. “When one of them adopts a system like Scotch, they refer a lot of other customers our way.”
Scotch currently has about 45 employees working out of its Denver headquarters. It plans to use its new capital in part to scale its engineering and sales operations across the United States in addition to accelerating product development.
Going after ‘the hard part of the market first’
Carle Stenmark, general partner at VMG Partners, believes that Scotch is modernizing “one of the last major categories of retail.”
“The beverage alcohol market is nearly $250 billion and, despite that, is still operating on systems built in the 1970s with on-prem servers,” he wrote via email. “It isn’t an exaggeration to say Scotch is the only player that has solved enterprise-level complexity.”
Most industry startups never moved beyond basic solutions for small businesses, believes Stenmark.
“Scotch went after the hard part of the market first, solving for some of the largest and most complex retailers in the country,” he wrote via email. “This approach allowed them to harden their product early, and has translated to them having the only product that can actually solve every business operations and payments problem a retailer might have, whether they be a national brand or a beloved regional storefront.”
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Illustration: Dom Guzman
