Get the right investment you need to stay afloat, increase operations, and scale
By Victoria Walling
Building and running your healthy food and beverage business is no walk in the park. Your weeks are filled with long days, back-to-back meetings, demos and product samplings, strategic planning, and the list goes on. One thing that concerns any founder is the financial aspects of building a business, which can entail a lot of costs. This is why raising funds is an integral part of running a successful operation within the healthy CPG industry.
It allows you to cover the costs of operating your business and scaling it in the future. You are able to take care of rent, equipment, inventory, compensation, and marketing costs. You can scale by hiring more employees, expanding into new markets, and having the resources to develop new products.
With proper funding, you can better focus on research and development, marketing and sales, and provide stronger customer service because you already have the bandwidth without having to worry about cash flow.
Everyone who ventures into business wants to succeed. But what if you’re a first-time founder or a homegrown entrepreneur looking to raise funds? Here’s a list of five ways to raise funding, depending on your need, capacity, and demand.
#1 Small business loans
Let’s be realistic. More often than not, many of us aim to bootstrap our own businesses. If you have the financial resources, go for it! You may be able to fund your own healthy food and beverage business long-term.
But if not, you may have to consider taking a small business loan from banks and financial institutions to get funding. You’ll need to provide a strong business plan, financial projections, and other documents to prove and show that you are a good candidate for a loan. It’s not just your business that’s evaluated here but your credit score and history as well.
Loans can be a good option if you need to raise a large amount of money quickly. It’s important to note that loans will have to be repaid with interest over a period of time. If you’re unsure of which bank or financing company to reach out to, you can check Hello Alice, an online platform designed to help small business owners to secure the right funding opportunities – be it from grant opportunities, small business loans, to credit card application.
Pro: You have complete control of your business.
Con: High interest rates that you’ll need to pay back on time.
#2 Angel Investors
Angel investors are wealthy investors who fund and support startups and small businesses. What’s great about angel investors is they are able to not only provide funding but also mentorship and guidance to help you grow your business.
But remember, it’s important to find angel investors who are truly investing and interested in your company and see the potential of success. You will have to pitch your business to them the best way possible, convincing them that investing in your business is the right decision for them. Try to think Shark Tank or Dragon’s Den. You really need to sell your business and product.
One successful brand that has secured investments from angel investors is Halo Top, a low-calorie ice cream brand that received angel investment from Justin Woolverton in its early years and has since then been acquired by Wells Enterprises.
There’s also Beyond Meat, a plant-based meat alternative company that received angel investment from Bill Gates and a few others. The brand has then gone public and is now traded on the Nasdaq. You also have KIND Snacks, a healthy snack bar that received investments from Sean Combs, Daniel Lubetzky, among others, in its early stages.
Sources: Halo Top Instagram, Beyond Meat, and Kind Snacks websites.
Pro: You get mentorship and guidance from angel investors.
Con: They may want too much control over your business.
#3 Venture Capital
This is nothing new to those who have been in business long enough. Venture capitalists invest in high-growth companies that have the potential to generate significant returns. They oftentimes invest larger amounts of money than angel investors but also expect a larger return on their investment.
There are great benefits to this type of funding as you gain access to the capital that you need to grow quickly. Venture capitalists have a wealth of experience in the industry. They can offer valuable advice and guidance as you run and grow your CPG brand. They likewise have extensive networks of contacts that you can gain access to, so you are able to connect with potential customers, clients, partners, and employees. When you have venture capital backing, it highlights to other investors that your business is a steady, serious venture with the great potential to succeed. This can eventually make it easier for you to raise additional funding in the future.
However, it’s important to understand the downside of venture capital funding. When you accept such funding, you are giving up a portion of ownership in your company, as they will have a say in how you run your business. They also expect their investments to generate high returns, so you will be under pressure to grow your business and achieve profitability. If you are unable to meet their expectations, you may be forced to give up your company or even close shop.
Protein-packed, veggie-boosted mac & cheese brand Goodles received capital from Springdale Ventures, that focuses on funding early-stage companies within the CPG space. Encore Consumer Capital, a San Francisco-based private equity investment firm has invested in Ancient Harvest, a plant-based and gluten-free pasta, nutrition bars, and quinoa products. Health-ade, a high quality kombucha brand, received angel investment from First Beverage Group to grow the business with a new product in the health and wellness category.
Sources: Goodles, Ancient Harvest, and Health-Ade websites.
Pro: Access to capital, expertise, and growth.
Con: Loss of control in the business
Grants are a thing many CPG entrepreneurs look for today. There are a number of government and private grants available to you that meet certain criteria. It’s a great option if you need to raise money for a specific business that serves a specific social or environmental purpose, or even one that is heavily involved in research and development.
Grants are debt-free and do not need to be paid back, but the hard work comes in early on as they can be very competitive to secure. It requires a lot of paperwork and documentation to apply alone. Some grant-giving bodies that include and focus on healthy food and beverage businesses are:
The Good Food Innovation Fund, which is administered by the Rockefeller Foundation and the MacArthur Foundation. This grant program provides funding to small and medium-sized businesses developing or producing healthy food and beverage products. Enterprises selected benefit from result-based-financing and business development support to grow their business even further.
Ladies Who Launch, is a non-profit organization that works with various partners and aims to celebrate, elevate, and empower women and non-binary small business owners and entrepreneurs through grant and mentorship programs, education resources, and such.
The Kellogg Foundation Food and Community Program provides grants to businesses and organizations focused on creating sustainable food systems and on increasing access to healthy food. They carefully select grantseekers based on specific criteria.
Pro: No need to be paid back.
Con: Highly competitive to secure grants
This is probably the most popular option for early businesses or those that want to scale without having to have all the strings attached in angel investor funding or venture capitalist funding. Crowdfunding involves collecting small amounts of money from a large number of people. Online platforms such as WeFunder, Kickstarter, and Indiegogo help you set up a crowdfunding campaign to promote your business and product to potential investors.
Take for example BlackBird Foods, a plant-based frozen pizza and meats brand, which started their own crowdfunding campaign on WeFunder. They continue to seek investments via crowdfunding to fuel their expansion and operations. They are currently backed by an angel investor, several venture capitalists such as Trellis Road, Alwyn Capital, Deep Ventures, Hanfield Venture Capitals, Lever VC, and Sustainable Food Ventures, among others and that hasn’t stopped them.
You will need to create a compelling pitch that explains your business, your product, and why people should support it. You will need to create and set a realistic goal and offer certain rewards to donors.
Pro: It can help you raise a lot of money and build a community.
Con: It can be risky, time-consuming, and expensive.
There are several ways to raise and secure funds for your business, and it all depends on your specific business goals and immediate and long-term priorities. It is vital to do your research and create a solid business plan before even considering applying for any grant, loan, or funding activity.
Go out of your comfort zones and network with other business owners and investors. This will help you learn more about the fundraising processes and find potential sources of funding that will help you build, run, and scale your healthy CPG brand even further.