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Whether you’re an emerging brand or a small producer of a specialty product, you know it takes capital to grow your business. I hear from ag producers and entrepreneurs alike looking for investors to fund their business. Some are in the middle of raising but need help convincing certain investors who have shown interest (or who have verbally committed but are waiting for more data). Some are just beginning the search and need to put together their growth strategy.
No matter the stage, your growth plan will have to make sense and be believable to investors. They want to know how you will spend their money and they need to assess risk. Perceived risk will determine when they will get in, how much they are in for, and the structure of the deal.
In the next few weeks I’ll be covering how to position yourself to get the investment you need by:
1. Accurately identifying your market potential
2. Knowing which stage you are funding
3. Proving out omnichannel
First, understand that aggressive growth valuations are probably not appropriate for your business. High multiples of revenue are only expected for brands that have real strategic advantages in hot categories (alt animal today, energy drink yesterday) and majority share can endure (note PepsiCo’s Gatorade still holds majority share of the global energy drink market) but most category leaders are less than 20% share of their categories.
The second thing you’ll need to nail is matching your stage of growth and milestone expectations with the investment need. Many brands looking to raise think they are funding the scaling of their brand when really, they are still in the startup phase. Likewise, investors expect certain data and growth models from brands in their pitch. This mismatch leads to stalled out raising rounds and/or bad deals that kill brands.
Lastly, gone are the days when investors were willing to fund digitally native brands in order to see them into other channels like retail. Today, investors want retail proof. How to show viable sales in another channel, within your budget and prior to the next raise is tricky yet necessary in 2023.
Capital markets have corrected and food company valuations are not as astronomical as they were. That means investors are looking for safer bets and scrutinizing deals more closely, making it difficult for small brands to close deals.
Yet, deals are being made all the time. Stay tuned for next week’s post.
All my best,
What’s going on in capital markets for food brands: Since last year, we’ve seen a correction in valuations for emerging food brands. VCs are investing in larger, later stage deals. - FORBES
Top 10 brands by funding, according to food & beverage investor database FABID