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Food Entrepreneurs: Investor Due Diligence is Good For You

Raising capital is one of the main reasons food entrepreneurs reach out to the Food Finance Institute. Because food businesses tend to grow in a stairstep function rather than incrementally, most food businesses need to raise outside funding to be viable and profitable. It can be a daunting and grueling process to raise capital while also trying to develop new products, acquire new customers and hire employees; thus, we have found even the best entrepreneurs need help to do it right.

There are lots of things that go into successfully raising capital. Extensive documentation is needed about the state of the current business. Food entrepreneurs have to come up with a financial plan that builds off their current financial statements and can withstand scrutiny from the people they are raising money from. This involves both creating extensively vetted financial projections as well as synthesizing the company’s business model into a concise but informative pitch and pitch deck. This is on top of the entrepreneur thinking through and discovering investors that align with their goals and accepting that outside investment changes the food business in fundamental ways.

Potential investors in food companies need this extensive work in order to understand the business model, the company’s growth potential and whether or not the business aligns with their investment goals. Food entrepreneurs, in sharing all of this documentation and having extensive conversations with potential investors, can feel like they are airing out their dirty laundry for everyone to see. Their fundamental assumptions about their business will be interrogated and challenged in seeking capital. And yet, this due diligence process is essential for entrepreneurs to mature their businesses into viable enterprises because the process forces them to get clear and articulate about how they make money and their goals.

On our podcast this week, Tim Keane of Golden Angels Investors talks about his and other investors feedback to entrepreneurs as part of the due diligence process and how that helps entrepreneurs better run their businesses and more effectively raise the right capital. Investors want to assess risk in the full execution of the business idea, interrogating the business model rather than solely the efficacy of the product. Essentially, Tim’s core questions to the entrepreneur are: how will you get paid, and when, and by whom? These questions help the entrepreneur understand the fundamental dynamics of their business and identify any potential cash flow issues.

Investor due diligence can feel like a grueling process for food entrepreneurs. However, the process of interrogating the business’ assumptions and activities can sharpen food entrepreneurs for the challenges they face in their business so they can grow for the long term.


And now, our roundup of the best food and beverage finance news, events and resources from around the web…

Food and Beverage Business Models

Business Model Insights

Raising Capital

Raising Capital

Grocery Store Shopping

CPG/National Brands

Grocery Store Produce Section

Market Trends

Regenerative Agriculture

Farming and AgTech

Mergers and Acquisitions

Deals/M&A

Events

Industry Events

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