Your Food Business’ Capital Needs Change Over Time
February 15, 2019

Your Food Business’ Capital Needs Change Over Time

Raising Capital
Capital Changes Over Time

Getting proper financing for growing food businesses is one of the most challenging obstacles food business owners face. This is due in large part to the high bar for fundraising and financial communication when growing a food business. And, there are often many sources of capital that need to be brought together to adequately fund the growth of these food businesses. This food funding ecosystem is diverse, with many funders having differing expectations about business outcomes and the business owner’s responsibility or obligation to them as a funder.

Many of the entrepreneurs we work with get hung up or overly focused on the “ends” of the food funding continuum. For example, some entrepreneurs are hesitant to take on outside capital or only want to take on small amounts via channels like crowdfunding platforms. This is often because they are afraid if they approach banks or investors they will lose control of their business or they won’t be able to trust that funder to reflect their values. While these are legitimate concerns, unfortunately, not working with outside capital often limits their growth potential and leaves them undercapitalized, to the detriment of their business.

Other entrepreneurs want to skip right to large infusions of outside capital like significant equity investments because they want to see their business grow rapidly and get profitable more quickly. However, these businesses often need to raise funds on a more modest scale, at least initially, to generate enough sales to make a partnership with a significant equity investor make sense. And, it is important to remember: even established food companies need loans or lines of credit from banks to finance seasonal swings in cash. The need for outside capital never goes away – it just changes as the business changes.

Because of these experiences navigating a funding landscape that can be complicated and confusing, food entrepreneurs often find that their path to the right combination of capital sources does not immediately jive with their existing perceptions of that landscape. Thus, they don’t think the right funding partner is out there for them. We want to assure those entrepreneurs – the money is there, if you show up with the right stuff and know where to look!

On our most recent podcast interview with Joel Solomon, author of The Clean Money Revolution and founding partner of Renewal Funds, Joel talked about how there is a disconnect between early stage entrepreneurs’ perceptions of available money for their venture and the sheer volume of individuals and funds looking to invest in the space at various stages. He talked about that continuum of capital and how friends and family funding often precedes angel funding which precedes other capital sources and requisite business growth. For example, Renewal Funds, because of its size as a venture capital firm and how it can best serve entrepreneurs, only invests once food entrepreneurs reach a certain size in terms of annual sales. Those entrepreneurs have to be on a path that aligns with the mission and business needs of Renewal Funds.

The sources of capital for growing food businesses change as those food businesses mature and have different competitive market realities. To finance and grow profitable food businesses, entrepreneurs need to be able to navigate the expectations of these capital sources and understand at what stage they could be most useful.

And now, our roundup of the best food and beverage finance news, events and resources from around the web…

Consultant With TabletBusiness Model Insights

Raising CapitalRaising Capital

  • Early Money Is Hard Money (New Hope Network) – “Raising early money is hard. If you are lucky enough to have a network of friends and family that not only believe in you but have the means to put money behind that belief, that’s great. However, most don’t. You must take a very active role in finding, recruiting and nurturing potential early investors. Be as innovative and creative in your approach to raising money as you are in the building of your brand. Let all the people around you know what you are doing and that you are raising money. Make it easy for people to invest. If you are going to raise through a convertible note or SAFE (Simple Agreement for Future Equity), then work with a good attorney to develop a term sheet you can present anytime and anywhere.”
  • Navigating funding sources: From crowdfunding to private equity (New Hope Network)
  • The F-Word: Dismistifying Food Funding Terminology (New Hope Network)

National Wholesale Brands

CPG/National Brands

  • Amazon Sets Deadline For CPG Brands To Overhaul Packaging (Forbes) – “The battle that Amazon was facing, whether from an operations, sustainability, or profitability standpoint, is that brands often supply Amazon with the same inventory that they would put on a retailer shelf. Designing packaging that will stand up in a fast-moving warehouse environment is completely different to designing packaging that is primarily designed to catch a shopper’s eye while displayed on a shelf. Some CPG brands have been summoned by Amazon in recent months to overhaul their product packaging to be greener, sturdier and cheaper to ship. From August 1st, manufacturers with products identified for the packaging improvement program will be charged an additional surcharge on non-compliant items, to the tune of $1.99 per item shipped. Brands that upgrade their packaging to meet the requirements ahead of the deadline will be rewarded with a credit of $1.00 for each item shipped.”
  • 5 keys to driving CPG sales online in 2019 (FoodDive)
  • Disrupting The CPG Industry: How Brands Can Adapt To The Future Of Packaged Goods (CB Insights)

Grocery Store Produce Section

Market Trends

  • Why People Still Don’t Buy Groceries Online (The Atlantic) – “Convincing customers to order groceries online is still nearly as difficult now as it was in 1989. Twenty-two percent of apparel sales and 30 percent of computer and electronics sales happen online today, but the same can be said for only 3 percent of grocery sales. Compared to groceries, clothes and electronics and dog food are incredibly simple to deliver. Though it is an $800 billion business, grocery is famously low-margin; most grocery stores are barely profitable as it is. Add on the labor, equipment, and gas costs of bringing food to people’s doors quickly and cheaply, and you have a business that seems all but guaranteed to fail.”
  • Grocery Prices Trending Upward (New Hope Network)
  • Frozen food sales fuel center store growth (FoodDive)

Regenerative AgricultureFarming and AgTech

Mergers And AcquisitionsDeals/M&A

EventsIndustry Events