Communicate Your Financials Well to Raise Capital

Consultant With Tablet

Investors and other funders need the owners and senior management of the food businesses they work with to understand their financials extremely well and communicate about them clearly. This means knowing a few numbers off the top of their heads, like the company’s EBITDA, its top-line sales, its gross margin etc. Food and beverage businesses need to know other nitty gritty details as well, but there are a few numbers that investors focus on first when reviewing financials. Knowing these numbers also helps brands properly price their products. As more and more consumers demand healthy, natural and free-from foods and as more capital and technical assistance is made available for new and innovative brands, the brands that survive will be the ones who take their communication about their financial position (and other metrics like store velocities) seriously.

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

Big Idea

Business Model Insights

  • How Office Catering Startup Ox Verte Bootstrapped Its Way to Profitability (Food+Tech Connect) – “Food businesses require lots of iteration, over a period of time. That kind of iteration requires either very patient, understanding investors or no investors at all. We don’t confuse raising money with earning money. Sometimes it appears that raising money is more important than actually earning money. Some people find a $10 million Series A more exciting than $500,000 in real EBITDA.”
  • Bow Hill Blueberries on Organic Berry Production and Adding Value to Products, Farm, and People (Farmer to Farmer Podcast) – “They market their fresh and frozen berries to institutions including Microsoft’s food service and the Seattle Seahawks, created their unique line of value-added products and they have established a differentiated presence in the marketplace, even though Washington State is the United States’ largest producer of organic blueberries.”
  • Meet the Man Who’s Making Good Eggs Profitable (Food+Tech Connect) – “When Hall joined Good Eggs, the company was losing money on every order. Today, it’s making money on every order. How did he do it? He focused on measuring contribution margin per order, which came down to increasing basket size, improving gross margin and reducing variable costs. To improve gross margin, Hall focused on perfecting the company’s order rate to minimize spoilage. The company also got smarter about its SKUs from a margin assortment perspective, getting more efficient about how they buy and price products.”
    Raising Capital

Raising Capital

  • VMG and Encore Consumer Capital tell all: Here are the numbers they’re looking for (New Hope Media) – “We are more about net sales than gross sales, because I want to understand how much you are discounting to drive volume. The line I care most about on a company P&L is gross margin. We also care about POS data, sales per point, anything that shows velocity.”
  • How To Find The Best Support For Your Food & Ag Startup (AgFunder) – “Accelerators are the most common resource with over 40 dedicated to food tech and agtech, and though the promise of capital (usually around $35-50k in exchange for 5-8% equity) can be tempting, they are not the only option that can help you access funding, mentorship, and domain expertise. There are many different types of resources, each offering a distinct value proposition: some provide funding, some require in-person commitments, some are focused on specific types of companies (e.g., consumer packaged goods (CPG)), and some provide access to equipment or office space.”
  • When are you ready to raise capital? Advice from two all-star investors (New Hope Media) – “When your business is scaling and your cash flow isn’t, you can be pretty certain that you are in need for an infusion of capital. It is metered by what we expect growth to look like. It comes down to the fundamentals: are you disruptive, is your product viable, do you have a roll-out plan?”

Wholesale Brands

CPG/National Brands

  • Brands have the power to communicate the benefits of organic to consumers (New Hope Media) – “Areas to emphasize include 1) Human health 2) The environment. 3) Revitalizing communities. 4) Debunk the myths. 5) Translate to consumers.”
  • Start-up strategy: Incorporate innovative package designs (Food Dive) – “Research shows shoppers spend an average of 27 seconds making a decision in the retail aisle, which makes shelf appeal incredibly important in capturing relatively disengaged consumers. Another key to success is making packaging seem more premium — making it sized or optimized for convenient consumption, or with a bold or tactile feel.”
  • Should You Use Margin or Markup When Determining Your Price Points? (Small Food Business) – “Typically – a word I hate to use because it seems as though there is so little that is ‘typical’ in the food industry – everyone you talk when communicating with buyers will be dealing in margin and not markup. Retailers will usually want to know what their margins on products will be based on your manufacturers suggested retail price (MSRP) so this is information you should know ahead of time.”

Grocery Store Produce Section

Market Trends

  • Investors Push Food Giants to a Path of Less “Antibiotic” Resistance (Food Ingredients First) – “Food groups are being urged to curb the amount of unnecessary antibiotics used in the supply chain because it has serious consequences for human health and more needs to be done to cut out the excessive use in meat and poultry. And it is the investors behind some of the big name food companies that are so concerned that they are warning about the medical and financial impacts of the overuse of antibiotics.”
  • Evolving views of healthy eating strain CPG sales (FoodDive) – “CPG sales are starting 2017 on something of a slow note, as some of the biggest companies have reported decreasing sales so far this year. While some may point to the White House and economic uncertainty as the cause of these low numbers, others believe this sales dip has more to do with a changing consumer mindset. Today’s consumer demands healthy, fresh food — a category for which CPG companies have not traditionally been known. Because of this, many major food companies are reformulating their mainstay products to contain less sugar, salt and preservatives, as well as creating entirely new health-focused items.”
  • A Snapshot of Today’s Natural/Organic Shopper (Progressive Grocer) – “Perhaps most significant for retailers is that most age groups favor purchasing natural and organic products at traditional grocery stores, although Millennials have shown an affinity for the value channel. Millennials purchase natural/organic food most frequently, with on average 60 percent of their food baskets containing half or more natural/organic products.”
  • Trends driving the free-from phenomenon (Food Business News) – “Once a descriptor used mostly with macronutrients like fat and sugar on foods designed for special diets and weight-loss plans, “free” is now one of the most used words among food marketers. The elimination of food ingredients and components from everyday foods resonates with consumers on avoidance diets, and the number of such consumers is growing, either for real medical reasons or perceived wellness benefits.”

Mergers And Acquisitions

Deals/M&A

  • Plants, drugs and drinks: Another healthy year for M&A in U.S. nutrition industry (New Hope Media) – “This high level of activity highlights the durability of M&A within the U.S. nutrition industry, which has continued at a healthy pace since the Great Recession and has been backed by the ever-increasing trend toward healthier diets and lifestyles. In the final analysis, while M&A is a strategic corporate decision regarding growth and expansion that is enabled by boardroom confidence and low-cost capital, it is actually end consumers that are driving the M&A market forward through their never-ending search for better tasting, healthier, convenient and responsibly manufactured and sourced products.”
  • Why mega-mergers alone won’t solve the food industry’s growth problems (FoodDive) – “While mergers are likely to continue, long-term growth must also include internal innovation and a willingness to work with other companies in ways that may have been unheard of in the past. Consolidation will probably continue to occur but consolidation by itself is not going to allow large manufacturers to get on-trend from a consumer standpoint. There may be another 3G acquisition. There may be consolidation for others, but it’s not going to solve the growth problem fundamentally, these kind of scale purchases. So we think that manufacturers and brands are going to have to look for other avenues.”
  • Big Food Bets Small: Leading Food Corporates Amp Up Startup Bets (CB Insights) – “On April 20, Unilever announced it would acquire condiments startup Sir Kensington’s, adding the brand’s vegan mayonnaise and other products to Unilever’s product lineup. The deal highlights a trend toward increased private market activity in food & beverage, as global food leaders aim to tie themselves to the smaller companies that could potentially erode their market share. In fact, $18B of large packaged goods sales in the US shifted from large companies to smaller players between 2011 to 2015. To adapt, some of the biggest food companies have launched new funding vehicles since 2015. In October 2015, General Mills launched its VC unit 301 Inc., while Campbell Soup announced Acre Venture Partners, a $125M VC fund, in Feburary 2016. Kellogg’s followed, launching Eighteen94 Capital in June 2016, though it didn’t make its first investment until early 2017; Tyson Foods, one of the world’s leading meat producers, also launched Tyson New Ventures in December 2016, and made its first investment into plant protein startup Beyond Meat. Many of this cohort’s investments so far have focused on plant-based foods.”

FaB Wisconsin

Industry Events

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