Getting creative: Different funding options for food movers, shakers and makers
When traditional funding methods don’t work, it’s time to look for more creative funding models, like crowdfunding.
Every food and beverage processor needs funds to invest in capital expenditures that lead to growth. It could be financing equipment upgrades, a new product line or a launch into a new region.
But some may find they don’t qualify for traditional funding methods like bank loans. They may be too young, their personal credit has taken a hit while pouring everything into opening the business, or the company’s value isn’t sufficient to use as collateral. Newly incorporated businesses have even more difficulties as they lack a history of being financially stable or having audited statements.
When traditional funding methods don’t work, it’s time for business owners to look for more creative funding models, like crowdfunding and venture capital investors, and explore how they can help move the business toward growth.
Making growth happen
Kailey Gilchrist, owner and CEO of NONA Vegan Foods, says she was ready to take the next step in her business’ growth but wasn’t a fit for bank financing.
“The food industry is really expensive,” she says. “It’s sort of pay-to-play in a lot of ways. I tried going to the bank, but your personal credit can get shot because you’re spending all you have on your baby – your business.”
When Gilchrist was ready to start exporting her products, she knew she needed extra money for everything from expanding production to marketing.
“To launch anywhere, to a new region, you need more money,” she says.
A common problem
Mark Van Vliet, senior corporate and commercial relationship manager at FCC, says the biggest challenge businesses like Gilchrist’s have is working capital.
“A lot of times, their financial statements aren’t to a level that a typical financing institution would want,” he says. “When you go for financing, you want visibility of the transactions within the company.”
A bank’s role is to lend money, but they must verify the right borrowers.
Gilchrist established a $300,000 crowdfunding fundraiser through FrontFundr. As an equity crowdfunding platform for everyday people who want to invest, it’s the perfect fit for her company.
“This makes so much sense for us,” she says. “I love having all these smaller stakeholders as brand ambassadors.”
Crowdfunding has several benefits, according to Dana McCauley, chief experience officer with the Canadian Food Innovation Network.
“Because you need to be super clear about your value proposition to get folks to support crowd-funded campaigns, being on such platforms forces businesses to hone their messaging and business models,” McCauley says.
Additionally, feedback can be part of these platforms, which can benefit the fundraiser and the business.
Although FrontFundr investors acquire equity in the company, they are unlikely to play active decision-making roles. It brings balance to McCauley’s suggestion about keeping the decision-making structure smaller.
“The longer small businesses can stay the course and avoid taking on equity partners, the better,” she says. “Keeping your ownership pool small and strategic has advantages.”
Van Vliet and McCauley see crowdfunding as a good way to start a business, though not necessarily to grow it. At the other end of the spectrum is going public, which Van Vliet says is very expensive.
“You need a really rapidly growing business. It’s a lengthy process,” he says. “The rationale is that once you’re public, it’s easier to raise capital because they are very transparent [organizations], and it’s all audited at the highest level.”
McCauley says venture capital becomes an option when companies have solid plans to scale the business.
“To be ready to work with venture capital, small business owners need to create a data room, investor pitch and projections,” she says.
Tips for raising capital
- Have a clear, concise business plan with three-year projections
- Ensure financial statements are in order and know all the details of your numbers
- Know your cash conversion cycle. That is, the time to convert inventories into cash flow from sales.
- Have a good lawyer and accountant to help evaluate the company and offers
- Know what you want money for and why
- Don’t just sell – collect on sales
- Define your long-term plans for the company, like will you remain at the helm?
Article by: Ronda Payne