Weekly Update August 15th

3 Funding Options when Cash is Scarce

August 15, 2022

Hey , 

Equity can be hard to come by and takes a ton of time to raise. Here are 3 funding options to use when cash is tight.

PS. If you were forwarded this newsletter, please 

. 

  Equity Crowdfunding  

Equity Crowd-Funding enables you to sell equity in your company to a larger pool of investors who don’t have to be accredited. People can invest as little as $100, and those investments are then combined together for a complete package. This process works similar to Rewards-based fundraising, but instead of selling product or swag you’re selling equity. This can be a great way to raise growth capital that can be used for marketing, operations, or really anything you want. 

Pros:

  • Equity Crowdfunding gives you maximum flexibility as a founder. You set the company valuation, the amount you want to raise, and can choose not to give up voting rights or board seats. 

  • Having an existing customer base allows you to convert them to investors, who will become even more loyal to your brand. These investors will often become your best customers and your evangelists. 

  • You don’t have to negotiate with investors on deal terms or go through the hassle of setting up individual investor pitches.

Cons:

  • Equity Crowdfunding is still an equity investment in your business and you are selling ownership. 

  • The paperwork to get setup for investment can be very time intensive and require a lot of work. 

  • You have to pay fees to the platforms as a % of your raise, so you don’t get to keep the entire amount.

  • Even if your investors don’t have voting rights, they are still owners and can voice their concerns to you — or publicly.

  • You are responsible for promoting your offering and are expected to bring in 75% of the total fundraising round through your own e-mail list / advertising. This means they best work when you have a large existing audience.

Funding Amount

  • $5 million under Regulation C rules

Companies:

  • StartEngine– the leading Equity Crowdfunding platform supported by Mr. Wonderful himself. 

  • Wefunder - Another great option, and as part of the Foodbevy community you can save $2500 off your campaign fees.

  Rewards-Based Crowdfunding 

Crowdfunding is the practice of raising funds via online based companies like Kickstarter and others. You are pre-selling your product to your customer base by having the customer buy the item, with a few perks before you even make the product. This way you have the funding to make the product, then ship it out to your customers. Most people think crowdfunding is only for new companies, but many founders are using it for launching each new product line they have. It's a great way to generate excitement for your community and generate PR buzz.

Pros: 

  • You have the funding for each product before you make it, and you get the full retail for the product so it’s a guaranteed margin

  • You create excitement around the product by pre-selling

  • You build loyalty by offering small perks or even testing the market for a new product

  • Have the chance that your campaign could go viral

  • You know the exact amount of product you need to make for the crowdfunded orders

Cons:

  • It’s not free, you will have to use some good/ creative marketing if you don’t have a product or following already

  • It might not work

  • You have to do most of the marketing to drive traffic to the campaign.

  • There are fees and costs associated with crowdfunding so make sure you do your research

Funding Amount: 

Averages for food companies range between $5,000 and $100,000

Companies:

CPG Accessible Debt

Debt can be a great option if you’re operating at profitability / break-even / growth and have a path to pay it back. Emerging founders tend to think that equity and debt is an “either/or” scenario, but many smart founders are using a combination of both to fund various parts of their business. Here are a few unique options to use:

  • They offer lines of credit for eCommerce, retail, and omnichannel growth strategies and are very familiar with CPG brands. Send me an e-mail if you’d like an intro to get preferential treatment.

  • Kiva is a non-profit that expands access to capital for entrepreneurs in the US and across the world. US based businesses can receive up to $15,000 at 0% - no catch. Now, similar to a crowdfunding campaign, you have to “market” this debt to your community (along with Kiva’s 1.6 million individual lenders).

  • Similar to Kiva, on the SMBX you can issue crowdsourced-bonds (company debt) to your community and the public. Many people are interested in supporting companies, but are skeptical about equity investments, because the likelihood of a payout is so low. With this option, you can mobilize a larger portion of your community, because they know they’ll be receiving a fixed payout over time from their loan.

  • Best of all, the people who loan you money are likely going to become advocates for your brand, as they are now invested in your success. Many of the investors will then use the interest payments to buy more of your product, creating a circular economy.

Jordan Buckner

Foodbevy

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NEW PODCAST EPISODE: 52. Building a Family Tahini Business with Amy Zitelman, Soom Foods

Are you a fan of hummus?  Amy and her sisters started Soom Foods to bring the world's best tahini (a key ingredient in hummus) to you. Join me for a conversation as we discuss what it's like building a family business, how they go their start in foodservice working with top chefs, and navigating changing consumer behaviors during the pandemic.

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With your help we're building an amazing community of Food and Bev entrepreneurs helping each other!

Jordan

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