Introduction

As a CPG founder, raising money to fund your business is one of the hardest barriers starting out. Previously, it seemed that the only options were having rich family and friends, trying to get an SBA loan with no assets, or raising money from Angels or VCs. But good news! Now there are a lot more options to fundraise that don’t require you to sell equity in your business.

Below we’re going to break down some of the new alternative fundraising tools and how to use them for your business.

Crowdfunding

Overview:

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. 

Pros: 

• • You have the funding for each product before you make it, and you get the full retail for the product so it’s guaranteed margin
  • You create excitement around the product by pre selling it
  • 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:

• • Kickstarter
  • Indegogo

Equity Crowdfunding 

Overview:

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. StartEngine is offering $1000 to use towards marketing for your campaign for being part of the Foodbevy community. Send me an e-mail – jordan@foodbevy.com and I’ll send over an intro to their team.
  • Republic

Inventory Financing

Overview: 

Have a big production run coming up that’s going to tie up a lot of your working capital? Inventory financing may be the best answer for you. These providers work specifically with Food and Beverage companies to help you fund inventory production in exchange for a % fee. This is helpful, because most banks and traditional lenders won’t loan you money for inventory. 

Pros:

• • Fund your operations without having to sell equity
  • Produce orders from large retail customers (Walmart, Target)
  • Use to introduce new product lines or open new channels
  • Get approved within a week

Cons:

• • Often requires $10,000 minimum monthly sales to qualify
  • Short terms that are paid off with depletion of inventory
  • Can’t be used for other financing needs

Funding Amount: $10,000-$150,000+

Companies:

• • Gourmet Growth
  • Kickfurther

Revenue Share 

Overview:

Equity-free growth capital that works as a line of credit paid off by sharing a revenue percentage every month. This is a great option that works similar to debt, but has a fixed fee instead of an interest rate. Some providers even have an unlimited payback period without accruing any penalties or late fees. This is a great source of capital once your company reaches a minimum sales threshold. 

Pros:

• • Payback based on your revenue, so you’ll only have to pay what you can afford.
  • Fixed fees allow you to build this into your P&L
  • Non-dilutive capital
  • No personal guarantees

Cons:

• • Fees can be fairly high if you’re a smaller business. Some have a minimum monthly sales requirement of $10,000.
  • Requires you to connect directly to your bank account and they automatically deduct their fees on a daily or weekly basis.

Funding Amount:

$5,000-$100,000+

Companies:

• • ClearCo
  • Amazon.com Lending Services
  • Shopify Capital

Small Business Administration (SBA) Loans 

Overview:

The SBA is part of the government that helps small businesses with loans that are guaranteed and government backed. 

Loans guaranteed by the SBA range from small to large and can be used for most business purposes, including long-term fixed assets and operating/ working capital. Some loan programs set restrictions on how you can use the funds, so check with an SBA-approved lender when requesting a loan. Your lender can match you with the right loan for your business needs. 

Loan Types

7 (a) Loan – A group of SBA loans which guarantee portions of the total amount, cap interest rates, and limit fees. This loan is used for working capital, refinancing business debt, and purchase of furniture, fixtures, and supplies. 

For the food business, this loan is for an established business that is looking to expand and access working capital. The SBA/ lender will look at the value of existing inventory, purchase orders, and receivables. This could be used for inventory, or purchasing a new building, along with equipment needed. 

504 Loans – Long-term, fixed-rate financing to purchase or repair real estate, equipment or machinery. 

For the food business, the government looks at this loan for companies that are going to create more jobs and revenue for a city or region. A few examples, expanding an existing building, building a new facility, or purchasing equipment or machinery to expand business. 

Microloans – this loan is $50k or less to help startups with expansion. The average loan is about $13k. 

For the food business, this is for startups to assist with: working capital, inventory, supplies, machinery, and equipment. 

Pros: 

• • Great resource for startups and small businesses, lots of great resources on the SBA website. If you plan ahead, this could be a great route to go. 
  • Low percentage rates
  • Flexible repayment terms
  • SBA guarantees the loan
  • Fixed interest rate

Cons: 

• • A lot of planning ahead, having all of your documentation in one place, and ready to go. 
  • Long application process, anywhere from 6 months to a year for approval. 
  • The loans require a personal guarantee.

Funding Amount:

• • 7(a) Loan – Max loan amount is $5 million. 

• • 504 Loan – up to $5 million. 
  • Microloan – $50k

Companies:  sba.gov