A Very (Very!) Brief Guide to Funding Your Food Startup
/So you’ve decided to get your food business off the ground. By now, you’ve got a business plan, boundless ambition, and you’ve probably been eyeing the perfect space for a while now.
But, with a plan in place, there is still the question of money. How will you fund your business? The good news is that the current climate of the food and agribusiness sector is very forgiving, providing ample opportunities for hopeful entrepreneurs. So, we’ve compiled a quick list of options for you. Of course, you should do more research before you begin pursuing funding, but we hope this list will give you some ideas!
VENTURE CAPITAL
Sherbrooke Capital, based out of Wellesley, MA, began in 1999 to provide "growth and expansion capital to emerging companies in the Healthy, Active and Sustainable Living market."
Recent years have seen venture capital’s interest in food blossom. A modern craving for better food and innovation has seen the conventional food industry’s market share drop substantially, creating fertile ground for start-ups looking to innovate. The success of brands like Honest Tea, Annie’s Homegrown, and Chobani has shown investors -- and the world -- that taste is changing rapidly and customers are demanding healthier, eco-conscious food that existing industry titans are not providing.
Venture capital offers the entrepreneur a chance to financially nurture their business idea through investment in exchange for part ownership and equity. The hope, on the part of the investor, is that the company will succeed and eventually be sold or publicly traded. The main advantage, then, is that venture capital is used to taking risks, and is more likely to provide funding than other opportunities.
BANK LOANS
The loan; a funding opportunity as old as money itself. Loans have a number of upsides. For one, you retain ownership of your start-up in the event of its success. But, at the same time, loans usually have limited funds or, worse, high interest rates. A start-up is a risky proposition for a lender, after all, and building up credit card or personal loan debt puts you in the precarious position of having that debt hang over you. Loans are best used to supplement your initial capital, not comprise it entirely.
CROWDFUNDING
Crowdfunding websites like KickStarter and IndieGoGo offer the entrepreneur an interesting proposition. By gathering start-up capital from a number of small investors who have no real financial interest in the company, the entrepreneur can retain ownership and build funds. Since crowdfunding opportunities do not need to be paid back (with the exception of the perks and rewards built into the model) they are perfect for companies whose product garners significant public interest.
Recent success stories of this type of funding include a Native American restaurant startup, the Boston-based co-op, Democracy Brewing, Juliet in Somerville, and Mei Mei Street Kitchen. The lack of attached strings also means that companies have greater control over their vision and are unbound to the demands of part-owners.
ANGEL INVESTORS
Angel investors are basically venture capitalists, though they invest their own capital, not pooled capital. Like venture capital, the investor invests in exchange for equity ownership, which brings with it the same considerations necessitated in venture capital.
Understandably, angel investors are careful, choosing their investments carefully and deliberately, and only investing if they are comfortable with losing money. However, this means that when angel investors invest, they bring not only their assets, but a network of people -- from lawyers to strategists -- that can assist you with your business.
This advantage makes it worthwhile to seek out angel investors like Slow Money or Boston's own Edible Ventures -- both networks of experienced investors seeking out innovative startups.
FRIENDS AND FAMILY
When you’ve exhausted other opportunities, turning to people you know can be a good resource. Unless you’ve got extremely generous or wealthy friends, though, this won’t be a primary source for you. Still, personal loans from people you know are a good way to fill in the spots that other opportunities missed.
GRANTS & PRIZES
Grants are one of the best options for funding of any type. Unlike loans, they don’t need to be repaid. They are hands-off in every way except for the application process. That is a small price to pay, however, given the potential for success. The downside, of course, is that they are competitive, with everyone vying for a chance to win. Still, the landscape is dotted with tons of organizations looking to fund companies that operate with various socially aware policies in mind. For example, Austin’s Food & City hosts a startup competition with $50,000 at stake, the USDA has a Small Business Innovation Research Program with thousands of dollars in grant opportunities, and the Food & Farm Communications Fund offers grants for projects that "make clear the links between farms and the cultures and landscapes they are a part of."
Still, these are but a few of the grant options out there. Many are highly specialized with strict criteria. If your company is aimed at tackling one of the many issues related to food, make sure to spend plenty of time investigating grant funding.
We hope this post helps you to conceptualize solutions to your funding woes. However, be wary of attempting to come out of the gate swinging too hard. Funding will only take you so far, whereas the combination of traction, an excellent team, and sustained growth will set you up to succeed -- and attract additional investors. In the end, it's not how much you have, but how well you spend it.
