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Ephrata National Bank in Lancaster County, Pennsylvania is a $1 billion community bank with 25% of their portfolio funding agricultural entrepreneurs. Lending to support new business models or premium offerings (like value-added processing) can help farmers deal with high land prices and avoid commodity agriculture’s low return on assets.
While established food companies can grow slowly and still be profitable, this is much harder, if not impossible, for emerging food companies. Food companies, because they deal in physical products often produced from a long and complex supply chain, grow in stair steps, not incrementally, in order to reach the right scale to be profitable.
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Brix Cider began producing in small batches and self-distributing throughout southern Wisconsin. Their ultimate goal is to open a cider tasting room (increasing margins and cash flow); however, through the struggle to find the right space, they have learned business problem solving skills and financial literacy.
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Tribe 9 Foods secured growth capital to bring manufacturing in-house for the three brands that merged into their portfolio, something that has allowed them to have control over batch timing, batch size and product quality. In addition, in-house production allows them the flexibility to try new things and have a co-packing line of business for their core product types.
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Union Kitchen is a shared-use kitchen and food business accelerator in in Washington D.C. While having a shared-use kitchen eliminates the need for capital for kitchen equipment, there are many other things food businesses need to raise capital for, which is why they have distribution and retail outlets as part of their model.
To come up with a realistic strategy for action and growth, food entrepreneurs should make efforts to understand this entrepreneurial ecosystem and whether grants, loans, investments or a combination of capital sources makes sense to fund their growth. Only then can food entrepreneurs plant the seeds for a profitable and sustainable food business.
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While the VAPG grant can be complicated (for example, a 75 page application plus Business Plan and third-party Feasibility Study), it requires applicants to critically consider expansion of the customer base and the marketplace for products as well as demonstrate how they will have sufficient business structures, profit and cash flow to operate in the long-term.
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The ideal market for Know Brainer’s individual creamer products has been online with Amazon and their own online store while their multi-serve product is more of a conventional grocery item. They only started to scale their product after extensive customer research and testing.
Because food businesses need to be financially sustainable to achieve their goals, including impact goals, they need to understand their business model and align their efforts behind the model.When speaking to investors, they should to clearly communicate how their business will make money and on what time horizon.
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There are investable opportunities in companies that provide support for regenerative agriculture systems and smaller, donation-supported loan funds combined with technical assistance in the $15,000-$50,000 range fill a market gap for small entrepreneurs as they scale up and seek larger sources of financing later.