Food Entrepreneurs Fail for many reasons… so besides lacking a successfully commercialized products that is “retail ready” (it is the “I am in love with my product” syndrome)… it is capital! Prior to crowdfunding your route was Friends and Family, your bank (ugggh!) or worse and SBA Loan with personal guarantees that are onerous! (more on why I don’t like SBA loans in future articles).
A Crowdfunding Success Story
One crowdfunding success story is Taste of Crete, a line of authentic Greek foods founded by Esther Psarakis. I have interviewed Esther recently on How to Pitch the Retail Buyer to Get on The Shelf so I wondered if she had any advice on Crowdfunding. Esther told me that she raised $5000 in less than a week through her Taste of Crete Crowdfunding campaign. Less than a week! Try that with your banker. So I interviewed Esther to tell me about her crowdfunding experience and hopefully a few tips for food entrepreneur.
As a successful entrepreneur, can you tell other entrepreneurs how the crowdfunding experience is different from traditional you have raised in the past? Maybe in particular debt funding from banks and other institutions?
My particular crowdfunding/ crowdlending experience is with KIVA, a lending platform for small business. We have also gone through the traditional debt lending platform through our business bank. It was a very detailed process requiring a business plan, 3 years of financial statements, a very detailed application process along with a personal guarantee. It took several meetings of pitching to several key decision makers at the branch before a decision was made and the overall process took about 3 months.
With KIVA, we were being lent a much smaller dollar figure, but the business model is scalable. As you pay back each loan successfully, you are eligible to again use their platform to raise an even larger sum. KIVA has sponsors who also vouch for the integrity of the person & company going for a loan on their platform. Basically these sponsors do due diligence on the potential candidate prior to moving them on for a loan through the KIVA funding platform. Taste of Crete’s sponsor is Jalima and Associates, a strategic financial business services company which is headed by Marcela Zuchovicki.
Once our company was vetted, we were able to then complete the on-line application along with explaining what we intend to do with the loan. We were part of the initial launch held in Newark NJ, which marked KIVA entering into the New Jersey market place.
As one who works with startup/early stage food entrepreneurs, I view Crowdfunding to be a fabulous method for consumer products companies to raise startup or expansion capital. In particular what were your challenges as a food entrepreneur in raising capital for Taste of Crete?
Compared to other methods to raise money, such as the traditional bank loan route, I found it very easy to raise money through KIVA, and in fact our initial loan goal of $5000 was completed in just a few days. However, it is important to clearly outline how you intend to use the loan and how it aids in your success. I think KIVA is a very good way for start-up food companies to raise money since often the same people willing to loan small amounts can end up being your consumer. I think many of these sites can provide favorable outcomes for food/consumer products that are focused on the end consumer. They “get” these products. In our case, we primarily sell high end olive oil and a line of Greek cookies made with olive oil.
What were the factors that lead to your decision to go the Crowdlending (Micro-Finance) rout v.s Rewards based or Equity Based?
Taste of Crete would also like to use Rewards and Equity models as well. However, the opportunity came about to be part of the inaugural launch of KIVA in New Jersey though our Sponsor so we decided to try this out and are very pleased with the results. So, in our case, we did get funded for a loan and we have already begun to pay it back monthly.
We are planning to expand our product lines as well as increase our points of distribution. Raising capital through an equity or combined rewards/equity based crowdfunding platform will be part of our strategy for 2014.
Next, Esther tells us what makes Crowdlending different from traditional debt finance. You may never have to see your banker again!