All startup businesses need funding to get off the ground. Figuring out the pros and cons of the options that are out there and then choosing one can be a challenge, especially for startups in the food and beverage industry. Here are five great funding options for pre-seed and seed stage startups.
Microfinance/Crowdlending: Kiva
Kiva is a nonprofit that facilitates the crowdfunding of loans for entrepreneurs. Entrepreneurs apply for a loan then get vetted by Kiva. The loan is then posted on the Kiva website where microlenders around the world can fund part of the loan. The borrower receives the funds, after the fundraising goal is reached, to use to grow their business. Then the borrower pays back the loan. Kiva is a great option for entrepreneurs as it does not require a credit score, there is no loss of equity, and the loans are zero-interest. Kiva loans, however, must be fully funded for the borrower to receive the funds and the approval process can sometimes be challenging.
At Union Kitchen, Dave Knowles used Kiva to help launch his pie company, Lord of the Pies. Dave successfully raised a $10,000 interest-free loan on Kiva to help finance the large upfront costs that come with designing and purchasing packaging. Dave is also using his Kiva loan to launch new flavors. Overall, Dave was happy he chose Kiva. He found it hard to argue with an interest-free loan and is currently on track paying it off.
Crowdfunding: Kickstarter
Kickstarter is the leading crowdfunding platform for entrepreneurs. Startup food businesses can make a Kickstarter page with a video and written description of their product, rewards that incentivize people to back the startup, and updates to draw more backers. Kickstarter is great because it not only provides a source of funding, but it is also an opportunity to raise brand awareness and create buzz, attract customers who are invested in the success of the company, and simplify the process of raising and receiving money. Kickstarter is not without drawbacks. They require that the project be fully funded in order for the startup to receive the funds. Kickstarter also takes 8-10% of successful funding in fees. Fulfilling incentives poses a particular challenge for food entrepreneurs. Foods with a short shelf-life or that do not ship well cannot be used as rewards, therefore, eliminating Kickstarter as a funding possibility. Producing enough product to meet the demands of the rewards can also take weeks or months of work.
Revol Snax, another Union Kitchen Company, raised almost $44,000 on Kickstarter. Co-founders Nadine and David used their funds to purchase equipment and materials, pay for the production of their product, and fulfill their rewards from Kickstarter. Kickstarter also helped them to raise awareness of their brand, reach a wider range of consumers, and drive consumers to purchase Revol Snax online.
Credit Cards
A credit card is a good way for startups to pay for ingredients and supplies. Entrepreneurs can open up a personal or business credit card with a bank and use that card to make their purchases. Credit cards are beneficial because they allow the entrepreneur to pay at the end of the month. This makes managing cash flow easier and liquidity easier. Credit card transactions do not require the startup to have the cash on hand for the purchase. Many credit cards also offer rewards or money back which can be beneficial for the startup. Credit cards do carry risks, however. Late payments can incur high fees and damage an individual’s credit score. A good credit score is also required to open a card.
Family and Friends
Family and friends are an initial funding source for many food businesses and startups. Entrepreneurs can turn to their relatives and friends for investments, in exchange for equity, or loans. After the business grows, the loan can be paid back or can be turned into an equity stake in the company. Friends and family trust you so there is no complicated vetting process. Credit scores and collateral are often not needed with family and friends either. Not all friends and family have money to give, however. There are also potential complications from mixing business with family and friends.
Pitch Competitions
Pitch competitions are events where entrepreneurs pitch their ideas to judges who pick a winner and award the winner, or top finishers, money or other rewards. Entrepreneurs can find a local pitch competition, make their pitch, practice, and then compete. Pitch competitions are beneficial for startups because practicing pitching is valuable even if you do not win. They are also an opportunity to showcase the startup and its product. Winning a pitch competition can also be a way to quickly raise a large amount of capital. Competing can be difficult and the judges are a subjective audience. Pitch competitions, like the Vinetta Venture Challenge, occur throughout the D.C. area. They tend to be annual or bi-annual events.
Margarita Womack won a pitch competition at her alma mater, Georgetown University. She used her winnings to launch M’panadas. Winning the pitch competition gave her more than just cash. Pitching gave her the chance to connect with investors and people in the food industry throughout the D.C. area. These connections are helping to drive M’panadas to even greater success.
You can find Lord of the Pies, Revol Snax, and M’panadas at Union Kitchen Grocery stores in the D.C. area.
Interested in starting your own food business? Learn more at Unionkitchendc.com