Why Do Food Entrepreneurs Fail? Besides being stuck in the kitchen and not addressing issues to successfully commercialize their products (it is the “I am in love with my product” syndrome)… it is capital! Raising capital for a small food business is probably the single largest hurdle a foodpreneur has in launching or growing their business. So food entrepreneurs are stuck using conventional bank financing (what is worse, root canal or pitching to a banker!) or worse, and SBA Loan! (more on why I don’t like SBA loans in future articles).
Ryan Caldbeck… founder of CircleUp, an equity crowdfunding platform that connects Investors with Consumer Brands sums it up well: “I worked in consumer focused private equity and saw most investor firms are not that interested in funding consumer companies with revenues less than $10 Million. However I know there is an enormous pool of national brands with several million in revenue having difficulty raising capital.”
One great crowdfunding success story is Melt Buttery Spread, a Rich & Creamy luscious butter improvement that is truly good for you. So I interviewed an expert, CEO of Prosperity Organics, Meg Carlson to tell me about her crowdfunding experience and hopefully a few tips for food entrepreneurs. She is an in crowdfunding in so far as Melt Organics raised approximately $1 Million in 8 weeks which really boosted their ability for an aggressive product launch , adding additional distribution nationally.
As a successful entrepreneur, can you tell other entrepreneurs how the crowdfunding experience is different from traditional Angel or VC funding?
The crowdfunding platform that we utilized, CircleUp, reaches a broader group of qualified angel investors and helps with the matching and due diligence process.
Traditional funding requires personal meetings for
- Pitching to a Group
- Due Diligence.
Additionally if you are not it is cost prohibitive and time-consuming to travel to meeting with angels outside the Northwest.
As one who works with startup/early stage food entrepreneurs, I view Crowdfunding to be a fabulous method for consumer products companies to raise start up or expansion capital. In particular what are the challenges you see as a food entrepreneur in raising capital the traditional way and why does crowdfunding reduce or eliminate those capital raise issues?
The challenges in raising capital through angels is the necessity of reaching out to individual angel investors or through angel funds or angel groups in order to complete the process. As one of many companies participating in their pipelines, the time for initial contact to securing funds can be quite long and arduous. Key differences:
- An early raise we completed with angels in 2010 took more than a year to reach our $700,000 target.
- Conversely with CircleUp we were able to close our round of funding in about six months.
What were factors that lead to your decision to go the Equity Crowdfunding route vs. Rewards or Debt based? [not sure I understand the reference to Rewards?]
We have utilized Convertible Debt in the very early stages of our company, and pure equity raises as the company has grown. We have also secured SBA loan financing to supplement the equity raises. We believe it is critical to balance debt and equity capital raises based on the company’s development stage and capital needs. Equity crowdfunding enhanced our 2012 equity raise by broadening our reach to angel investors outside of our region and accelerating the due diligence process necessary to secure funding.
A Crowdfunding Campaign is different from an Angel or VC Pitch. Although equity investors need an ROI, there seems to be more of a focus on “connecting” with a community or social cause that will resonate with investors. How did you approach building the Melt campaign that made it work for Crowdfunding? Can you give me some examples of essential elements that an entrepreneur needs to address?
Since we utilized CircleUp we found the connection with our brand’s commitment to sustainability and our community of Moms and Dads seeking healthier food products to their families to be a universal theme. While angel investors, whether sourced through crowdfunding or directly, seek a return on their investment, they also invest in management teams that have proven track records, consumer product categories with large addressable markets and innovative, proprietary products that have the potential to scale. We also find that our investors love our products and become evangelists for the brand.
Any other advice for entrepreneurs seeking to go the Crowdfunding route?
Do your homework on the various crowdfunding options. Seek references from entrepreneurs who have successfully raised funds with the crowdfunding option you are strongly considering. Ensure your have good legal advice if you are securing equity investment in your company.