4 key details to know about venture capital funding

Few food and beverage processors can access the funds needed to power the anticipated high growth for business start-ups. Borrowing is usually necessary, and there are many options - credit cards, mortgages, short-term loans and lines of credit.

Where does venture capital fit into financing your food processing dream?

Venture capital (VC) is a private investment from individuals, organizations or venture capital funds. René Benoit, director of Venture Capital with FCC, describes it as funds provided to companies with high-growth potential in the start-up, early or emerging stages. These are the stages of business when other types of funding can be challenging to obtain.

“The funding is generally in the form of an equity investment,” Benoit explains. “Venture capital funding can be suitable for businesses across nearly every industry, including food and beverage processing, and business size – from a brand-new company with no revenue to established companies with substantial reoccurring revenue streams.”

Anything your business requires to achieve high growth is suitable for venture capital funds.

The key is that your business has significant growth potential soon.

Funds may be used to purchase equipment, such as industrial mixers, bottling lines, or packaging equipment, build a sales and marketing team, secure intellectual property rights, and more. Overall, anything required by your business to achieve high growth is suitable for venture capital funds.

Here are four ways to help navigate venture capital funding:

1. Create a strong presentation

Unlike traditional funding, the process with venture capital funding goes beyond credit checks, financial statements and applications. Obtaining VC involves in-depth presentations that outline your company’s history, products, growth prospects, what the funds will be used for, how they will power your company’s future and other detailed questions. Think of the reality pitch television show Dragon’s Den, which gives a glimpse of micro-sized presentations companies use to obtain VC investors.

Presentations are given to potential investors or managers of venture capital funds. Who you present to depends on the investor structure. Opportunities are found with individual (often called angel) investors, groups involved in complex funding structures or at events through pitch events where investors learn about opportunities.

Benoit says FCC Capital can help point to sources of VC. Opportunities can also be found by attending conferences, talking to others who have obtained VC, and searching for funds that specialize in food and beverage businesses.

Practice, dig deep and be ready to make the best first impression possible.

2. You may get a new partner

Like TV shows, VC funding leads to a long-term relationship where the funder becomes part of the organization’s ownership. And just like on TV, it can be hard for entrepreneurs to accept what may come with venture funding. While funders don’t always want an active say in what happens in the company, many do.

“In an equity investment, a funder is purchasing a certain percentage of a company for a certain dollar value,” Benoit explains. “This percentage ownership can range from a small minority stake where the funder may not influence the business, to obtaining majority ownership where they would be a very active partner in the future of the business.”

With that in mind, he says, do some research to learn about your investor.

“Educate yourself as much as possible,” he says. “Understand and do your homework on who you partner with, as it has economic and business impacts.”

3. Work continues after the pitch

A positive outcome from a presentation is far from the last step. Investors will do their due diligence before handing over funds. The process can take weeks to months, depending upon the amount of money involved and your business needs.

Additionally, one successful round of funding doesn’t mean the process is over. VC starts with smaller investments, and additional capital may be granted as the business hits various milestones. Benoit advises building a plan and forecasting information for future funding needs based on projections, so when money is needed, the plan to source investors is already underway.

4. Surround yourself with experts

Seek out a trusted mentor or advisor to help you navigate the venture capital world. It can be a complex path, and an advisor can help you navigate the positive elements and flag obstacles, and they can be a valuable part of the process.

Use the same method to find mentors as you would to find investors – network in the food and beverage industry.

Conferences, trade shows, learning events, community associations and sector groups are examples of places to connect with colleagues in the sector and find potential mentors.

“Seek out accelerators or incubators in your area or specific to your industry,” Benoit says. “These will have companies and participants in the same stage with similar needs as well as program facilitators and mentors.”

Article by: Ronda Payne