Within 10 minutes of tweeting that he wanted to raise money to grow his market stall food business The Rib Man (above), Mark Gevaux, had three offers from wealthy individuals keen to take a stake. Amazed by the response but unwilling to sell part of the business and potentially cede control, he decided to try crowdfunding website Kickstarter to raise the funds he needed to meet demand for his popular sauce, called Holy F*** (minus the asterisks).
The response was equally surprising, with almost 800 backers offering pledges. “I was nervous asking for £10,000 but within seven days we had smashed the target,” says Gevaux, a former butcher whose market stall selling rib rolls smothered in his sauce is regularly mobbed by eager diners.
“I was in the depths of despair before Kickstarter announced they were launching in the UK”
Emilie Holmes, Good & Proper Tea Company
He has now taken delivery of a shipping container that’s been converted into a mobile fridge and kitchen, enabling him to make 10 times the amount of sauce he used to and to serve wholesalers and one of London’s Hawksmoor restaurants for the first time.
In return for their pledges, Gevaux’s backers secured nothing more than guaranteed orders for his sauce, so he has not had to give away a share in the business. “I’m amazed at what I’ve been able to do and I owe nothing for it.” It is now giving him options he never had before, he says. “This has put me in a position to move the business forward, which I had always struggled to do. I might even have something to pass on to my son now.”
Like Gevaux, Emilie Holmes, founder of the Good & Proper Tea Company, raised more than £14,000 through Kickstarter to fit out a van selling loose-leaf, custom-brewed tea to Londoners from a 1974 Citroen H van. It also sells its loose leaf teas online.
“I was in the depths of despair before Kickstarter announced they were launching in the UK,” says Holmes. “I had saved as hard as I could, but still needed more money and the banks were quoting loans at 19% and wanted guarantors, which was not an avenue I was prepared to go down.
“It has been the most extraordinary experience. The power of the crowd is amazing. I raised the funds, but I also had extraordinary and generous emails offering help from all sorts of people.”
Crowdfunding growth
Holmes and Gevaux are part of a fast-growing trend. US-based Kickstarter, originally set up to fund creative projects such as films and computer games by galvanising small grassroots contributions from many individuals, has proved popular with entrepreneurs with products to develop and sell too.
It has so far funded more than 50,000 successful projects globally and of these 1,765 were food and drink-related ventures. In the UK, where it has been operating for a year, it has funded 119 ventures to the tune of £505,000 to date - again including several food and drink-related projects.
Investors in Kickstarter back projects with no expectation of a conventional share in future profits. Many are just promised delivery of the end product, be it a game, a gadget, a bottle of hot sauce or tickets to a live performance. Others donate just for the warm glow of having backed a creative project they wanted to see take shape. It’s a great model for start-ups seeking to prove a concept and gain momentum while minimising the risks.
Kickstarter’s success has inspired several other crowd-sourcing websites connecting entrepreneurs to customers, fans, investors and lenders eager to help develop their products.
The largest new UK platform in financial terms is Funding Circle (see box below), which has lent a total of more than £160m since its lauch in 2010. It operates on a strict lending basis, linking individual lenders with small companies, usually well-established ones with strong credit ratings.
Crowdcube, meanwhile, offers a means of finding multiple backers to fund a project, usually a start-up, in exchange for a share of the business. It has successfully funded 20 UK food and drink businesses, raising a total of £4.49m so far.
Gem Misa, a former Unilever brand manager, got her ‘all-natural’ salad dressing business Righteous off the ground with £75,000 in 2012 and went back for a further £150,000 this year to fund expansion in overseas markets. Righteous is now selling to almost 1,000 UK supermarkets and is also selling to Costco in Canada.
“It’s such a fantastic concept and opportunity for people without money or equity,” says Misa. “If you have a working-class background like me and rent with no assets to guarantee a loan, it’s very difficult to have an opportunity. We were turned down by banks because we were too risky for them.”
Equity funding
Misa says she decided to opt for Crowdcube rather than rival sites for several reasons. “With reward-based sites, you can typically raise £20,000 to £30,000 and we needed more. I felt equity funding was right for us.”
Alex Kammerling is another Crowdcube success story. The former cocktail barman secured part of the £180,000 funding he needed to develop his new ginseng-based alcoholic spirit Kammerling’s, from 85 small investors through Crowdcube, in return for shares in the business.
“Crowdcube is such a fantastic concept and opportunity for people without money or equity”
Gem Misa, Righteous
“It’s hard trying to find money for new, different products like this,” says Kammerling. “We had got as far as we could with overdrafts, personal and family money and things were getting tight.”
That’s not to say that crowdfunding success is instantly guaranteed for every project. Crowdfunding channels like Kickstarter are becoming much more competitive as awareness of their benefits grows. Pitches that fail to secure their target get nothing and a quick trawl of Kickstarter reveals several food and drink pitches that have failed to hit their mark.
The successful ones typically have a strong video fronted by the founder, with a strong story and a solid proposal. This was the strategy Holmes adopted.
“Standing out is even more important now. The person who shot my video told me I had to be in it and with hindsight that was so important. Unless you have a tech product that fans will pay to get first, you are selling the business on the basis of your passion. People are backing you and your vision.”
Social media promotion
Promoting the venture to the fanbase is also important, she says. According to Kickstarter, there is a tipping point: if you reach 30% of your goal then 90% of the time the project will succeed.
Gevaux used his Twitter following to drive his pitch. “I’ve got a strong connection with my customers through Twitter. They have designed the sauce labels and even helped me with the pitch video. I have 9,000-plus followers and in the end 68% of the funding came from responses from Twitter.
“Get it to as many people as you can,” he advises. “It’s a numbers game. You want to get retweeted by people with thousands of followers. I got retweeted by newspaper editors, food critics and the West Ham chairman.”
Misa agrees that it’s important to push your pitch hard to give it momentum. “Do your own campaigning before the pitch goes live so you have people on board as it goes live. If people see it is 20% funded early on, it adds to the credibility of the business.”
Crowdcube investors are no pushover, will ask tough questions and are collectively very smart, so don’t underestimate the work you need to put in to your business plan as well as your pitch, adds Kammerling. “That really made us toughen up our business plan. When you’re being asked questions publicly you realise you need good answers.”
The equity route may seem harder and less appealing, says Misa, but it is worth considering for food startups with ambitions to grow much larger.
“You may not like the idea of giving out shares in your company but I would rather have 50% of a £10m business, than 100% of a £100,000 company.”
Funding Circle: a win for gin
Fruit liqueur maker Bramley and Gage funded the company’s growth through cashflow for most of its 25 years, but recently it needed to increase its gin production capacity. “We are happy to borrow for capital equipment so we decided for this project we would borrow to fund the growth of the still,” says director and co-owner, Michael Cain (above right). “We have a good track record with our bank and it would lend but not at a competitive rate.”
Cain decided to try borrowing the money through consumer-to-business lending site Funding Circle. “We liked the concept of peer-to-peer lending with no equity stake as we did not want to lose control of the business. It gives our customers, friends and family a formal way of investing in our business that is safe for them. “They rated us below-average risk and gave us a good rate - around 6% - whereas on a bank business loan we would not get below 8%.”
Securing funding this way has also had unexpected benefits, says Cain. “Funding Circle publicity is generating traffic to our website and into shops.”
It is also helping Bramley and Gage cement its relationship with retailers, says Cain. “Funding Circle investors are retired or semi-retired with savings pots to spend. They care about the provenance of borrowers and of their food and they tend to be Waitrose customers, which helps. Waitrose have been great customers for over six years and they expect us to give them volume and sales and PR. “
Sites like Funding Circle will only lend to established businesses, says Cain. “The way that Funding Circle audited us was far more thorough than a bank.”
He also advises businesses not to do it purely in the hope of getting good publicity. “Don’t look for crowdsourced funding just because it’s popular at the moment or because you think you might get good PR. The cold facts have to add up for you.”
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