Prepping Your Food Business To Raise Capital Online
Gil Michel-Garcia has mastered the technique of crowdfunding, raising more than $1 million for his food-based company.
Through popular websites such as Kickstarter and Indiegogo, the Internet has provided entrepreneurs with the tools to raise money for new products and projects. Michel-Garcia, 45, urges food and beverage business owners to utilize these online resources to raise capital. The Internet allows entrepreneurs to gain funding while avoiding the difficulties of customary private equity channels, growing businesses and empowering their owners with fewer risks.
“I do not think that there are any cons to socially oriented capital raising, or more commonly known as donation-based crowdfunding, because it normally does not involve the sale of a security, but rather the receipt of a contribution – tax deductible or not – for purpose of furthering a charitable or socially positive endeavor,” he explained.
Michel-Garcia, a native of Mexico currently based in Canada, is the CEO of WAFU Inc., a company that produces and sells Japanese-style salad dressings and mayonnaises.
“I was practicing law in Montreal, Canada, and my current partner and long time family friend Mrs. Mari Toyoda [approached] me to help her with the bankruptcy re-organization of her packaged sushi business, which had as one of its products [our] current WAFU Original Japanese Dressing. After helping her to re-organize her business, we both recognized the potential of the WAFU line and decided to sell the sushi operations and concentrate on developing the WAFU brand of Japanese style products,” Michel-Garcia said.
“I have always loved Japanese food, and when the opportunity presented itself to take over and grow the WAFU brand with Mrs. Toyoda, I could not let the opportunity pass me by,” he continued.
A U.S. securities lawyer by training, Michel-Garcia did not know much about the food industry before meeting Toyoda and joining WAFU. He learned about the industry firsthand, gaining insight and facing obstacles as they came to him.
“The most difficult part about the industry is understanding its convoluted distribution structures, which I was only able to overcome through on-the-job learning. My recommendation to avoid the mistakes that I made would be to ensure that you have a food industry veteran on your board,” he explained.
With so many dominating and recognizable brands, it may seem impossible for an entrepreneur with a small business to break into the food industry. Michel-Garcia explained that business owners should not be discouraged from pursuing their entrepreneurial goals.
“The food industry is actually a very dynamic industry which is not too difficult to enter on a small scale, but in which it is very difficult and time consuming to [grow] into profitable size because of the usually low margins of the industry, about 35-40 percent,” he said.
“My recommendation would be to target a product in which you have a net margin – after costs of goods, transportation, storage, and shipping expenses – of at least 50 percent. This will give you the margin that you need to grow on a positive cash flow basis,” he added.
Food entrepreneurs that can control their margins and raise capital are making an impact on the industry.
“There are many successful examples of U.S. food entrepreneurs making it big in the food industry. One example is Sriracha Chili Sauce, which 10 years ago could only be found in specialty Asian stores and now can be found in any store in North America. They made it big because they were unique and they brought a crossover ethnic food into the mainstream grocery market. This is what we are trying to do with our WAFU brand of Japanese-style products,” Michel-Garcia explained.
Before crowdfunding, Michel-Garcia used different sources of capital. “I initially funded WAFU through my own savings, then through a second mortgage on my family home, as well as with credit cards, and subsequently investments and loans from friends and family,” he explained. “When I needed more capital I turned to government guaranteed small business loans and after that to equity crowdfunding. This allowed us to finally reach the size necessary in order to be able to secure a line of credit from a standard banking institution.”
The crowdfunding sources that Michel-Garcia used to grow WAFU are widely available to other entrepreneurs and business owners. Crowdfunding not only allows entrepreneurs to raise money for their businesses, but also to create public interest in products.
“There are several types of crowdfunding which can be successfully used by companies for different purposes,” he said. “For example, many companies are using reward-based crowdfunding sites like Indigogo and Kickstarter to pre-launch their products, thereby generating initial interest and demand and if successful, developing a proof-of-concept, which can be presented to potential retailers and investors. Other more proven companies and brands like WAFU are using equity crowdfunding sites like CircleUp to gain recognition and access much needed equity capital in order to expand our operations.
“What companies need to understand is that equity crowdfunding involves the sales of securities, which is a very regulated activity and one which requires issuers to double check the accuracy and completeness of all disclosure made to potential investors or otherwise risk subsequent lawsuits and potential criminal liability for failure to disclose a material fact in connection with the sale of a security,” he continued.
Michel-Garcia capitalized on the power of crowdfunding by launching the first cross-border capital-raise for WAFU. The cross-border raise allows investors from both Canada and the United States to invest in the company.
“We launched a cross-border raise not only because I wanted to increase our visibility in the U.S. and acquire additional U.S. investors that could help us to penetrate the U.S. market, but also because by increasing the size of our offering to include the U.S. and Canada, we widened the pool of eligible investors and improved the pricing and terms of our offering of securities,” he explained.
By gaining recognition through CircleUp and investors through the cross-border raise, WAFU hopes to continue to expand its Japanese-style food products throughout the United States and Canada, as well as Mexico, the European Union, the Caribbean, and South America on a smaller scale.
“We also plan on continuing to introduce unique and innovative lines of Japanese-style products targeted at mainstream grocery consumers that will ‘Japanize’ one of their every day foods that they eat,” Michel-Garcia said. “Our WAFU dressings ‘Japanized’ our customers’ salads, our WAFU mayos ‘Japanized’ our customers’ sandwiches, wraps, burgers and fries, and our new lines of products will ‘Japanize’ other western food dishes.”
Christina Raus is a creative writing student who plugs her ears with her fingers whenever anybody tries to tell her that a degree in writing is good for nothing more than to guarantee her a lifelong, fulltime job as a barista. She works as a tutor at the Western New England University Writing Center, where she empowers students of all academic disciplines to express themselves through written language. After graduating with her Bachelor of Arts degree, Christina intends to earn a Master of Fine Arts degree in fiction writing.
Originally posted on May 19, 2015 by Lioness Staff
