Financing the growth of your business can be an intimidating area for any food business – concepts, jargon and risk combine to make this a challenging negotiation. There are two key types of funding – debt and equity. Each are different creatures from a legal and practical perspective. In this article, we’ll be focusing on equity finance options.
Your investor relationship
Because equity investment takes a more permanent form in your business –in the form of shares – the choice of investor is key. Your investor will have accepted a degree of risk in your business as well as the potential reward so will have a real interest in your longer-term success.
An equity investor’s primary concerns will relate to:
- The growth in value of their investment
- The ability to realise their investment
- How they can influence the shape of things if the business starts to struggle
It’s important that when you select your investor, you factor in where you and your potential investor meet on the scale of these considerations. Trust, respect and collaboration are vital to investment outcomes.
Personal chemistry is important and where possible your investor should have the resource to provide follow-on capital and ideally have a background and connections in your sector – a sounding board, door-opener and finance source all in one!
Check whether your business qualifies for Enterprise Investment Scheme (EIS) relief. This will increase your attraction to potential investors.
There are a number of potential equity sources available to your business. These are the most obvious ones:
- Friends and family – be warned, I live by the maxim that it’s better to make friends of your investors than investors of your friends.
- Customers or suppliers – of your business. We’re seeing more of this.
- Business angels – typically a HNWI who has run and sold their own businesses. There are a number of angel networks but a good starting point is the UK Business Angels Association. Often they will open up their own networks to broaden your investor pool.
- Venture capitalists – again this is a thriving community here in the UK. Check out the British Venture Capital Association as a starting point.
- Corporate venturers – this is where large companies are looking to invest in smaller companies, particularly start-ups. Increasingly, corporates are establishing their own incubators for firms, providing an environment for the business to grow with support, skills and coaching. From an F&B perspective, investing in a grassroots brand can lend the corporate that more relevant, cooler brand association as well as providing an opportunity to give back. It’s worth approaching larger organisations to that end.
- Crowdfunding – this is raising money via online platforms and is increasingly popular for young and developing businesses. There are a number of legal and regulatory aspects which a business needs to consider and the platform will help with some of these.
Crowdfunding platforms include Crowdfunder, CrowdforAngels, CrowdCube and Indigogo. The platforms will provide a central hub to share and promote your funding goals, with supporting marketing materials. This structure allows customers and suppliers to become stakeholders and ultimately, brand ambassadors; it can work well as a marketing campaign in its own right and open your network up to more experienced investors who can help as you grow your business. Fees range from 2.5% to 15% so do research before committing!
Raising the right finance can make or break your business. Raising equity finance, from the right source, can provide stability for your business and a launch pad as you take your brand to the next level. Make time for the process; it can be at once exciting, challenging and time-consuming. With the right support in place, it could be the game changer your F&B brand needs.