The Almighty $ or How to get Investers [Archive]

DEFCON Creator

10-17-2006, 06:41 AM

Getting investors is something you may want to shy away from in the beginning. It can be more trouble than you expect. $5000 is really not a lot to start up a food industry company. We dumpe about 3-4 times that for a complete startup. Most of your costs, as I have stated before will be the stupid legal crap. Make sure when your lawyer shopping, to get one with food industry experience, it'll save you a dumptruck of money. Also insurance, don't skimp. In this lovely world of "sue everybody" just cover your *ss. I would suggest starting as an LLC, as we did. It makes filling out your taxes that much easier. Do you have a co-packer or FDA approved location to produce your stuff? If not, chances are it'll be illegal to make it at home. Check out your local universities, some will help you locate a location for production. These are a couple basic tips to build on. Once again, $5000 is NOT a lot of money for ANY startup company. If you can do it with that, you're already ahead of the game.

Sickmont

10-17-2006, 08:31 AM

Instead of dealing with investors, why not try for a small-business loan to start-up with? We used a couple of small business loans to get our custom shop going(mostly for equipment/tools and some paint/reducers for stock). The bank was very gracious to us, and it was a hell of a lot easier than myself or my friend Jamie going to get personal loans by far.

DEFCON Creator

10-17-2006, 08:43 AM

Agreed, small business loans are very common, and the financing market lately is bending toward the small company start-ups, as many more are succeeding than they used to. John, as Green said, you have to have a comprehensive view of what you'd like to do and how you'd like to do it. Without this, along with a well-written business plan of your specific goals, the bank officers will look at you as if you were a crackhead. Starting up a company is a wonderful thing, as you can call it your own, but it's not something to just start-up after discussing it over a couple of beers. I take it you have looked into all the facets involved starting a business, and the added pleasure of strict additional rules & regulations that govern the food industry? I will answer any questions you may have to the best of my ability, as I wish to see you do well. Just keep in mind, in the food industry, you really have to cover your *ss.

marcosauces

10-17-2006, 09:39 AM

John,
that kinda cash will get you just at the doors of a lawyer, you need trade marks, labels, FDA approved facilities, and most important.. insurance you don't want someone getting sick and then sue you for whathever you got....do your homework
Business loans are good if you give the bank a business plan if not they will laught at you...food biz is wicked man...

DEFCON Creator

10-17-2006, 10:43 AM

Marco, I think perhaps a lot of people (no, I'm not siting anyone specifically) have the minor misconception that all you have to do is have an idea and just start a business. There are many different angles to consider. The first and foremost is if the production of your can be made in your home or not. Some (very few) will allow it. If a said state doesn't, it doesn't matter if you become an LLC, Sub-Chapter S, C Corp, etc., if someone wants to sue you, they will easily pierce the corporate veil, and you lose everything you own, as there is no distinction between your personal and business assets. Then comes the overhead. We started by printing our own labels, then, as things grew, the laser cartridges became quite expensive, and we now use Badgerland to do them (greay guys by the way). The next is getting the nutritional breakdown (calories per serving, trans fats, sodium, etc) as an idea will never hit mainstream without it, nor will it without a UPC code, which can be supplied by some co-packers. Then, after you lay out the start up costs, how will you distribute your products? Distributors, if you have a good marketable product will help you, but beware, you may find yourself at their mercy very quickly. Advertising is another wallet-buster. Granted there are many ways of free advertising, but most of it is just local. We just dumped a wad at the NJ Devils, and are now corporate sponsors, we also appear on the backs of their pocket schedules this year, kinda cool, but again, it took money. Most businesses don't make any profits for the first 2-3 years, which is when most throw in the towel due to the lack of fortunes they thought they'd reap. It's a lot of work. The payoff is great however, if it does become successful, as it is something you created, and no one else can lay claim to it.

marcosauces

10-17-2006, 11:06 AM

John,
i am totally agreeing with you, we pretty much did the same things you just wrote (except for the corporate sponsor of the Devil's :)) Distributors are great, but they will lay down the price for you, leaving you with a little margin of profit. That's why we do a lot of Festivals and other shows to contemplate the difference and bring in retail profits but very tiring especially if you have a day job 9-5 mon-fri like everyone else.
I tried to make the stuff myself (i had to get the certification of manufacturing first) but let me tell you.....IT IS TONS of work, especially if you have to make 200-300 bottles a week and your dayjob, speeping 3 hours a night and feeling like a mack truck went on top of me. Thats why we went by co-packer, much easier ..:). Overhead can kill you easily and quickly. Labels are NOT cheap and so is the UPC codes. PROFITS..?? haha ask me in few years....
Guys make the homework first.. it ain't good if you don't have fun at it.....
just my 2 cents....

DEFCON Creator

10-17-2006, 11:38 AM

Man, sounds like deja vu. We do our own marketing and all that as well. Yeah, it's a lot more work, but we're having fun at it as well. The way we look at it is once it stops being fun, we shut the door, look back, and say, "Man, that was a good ride". We kind of do the same thing with the festivals, but more in the order of Defcon Days (always indoors, no inclement weather...Oh yeah, and it's always at a bar). Myself and the wife both have 9-5 jobs as well, so I truly understand the lack of energy sometimes. Weekends? What are those?

Shooty*

10-17-2006, 11:42 AM

Perhaps a "if you like my death to cows site, how about helping me out" link on your website? A contribute via paypal link or something like that.

imaguitargod

10-17-2006, 11:43 AM

Yep, we are gathering all the info on pricing and cost of materials, and FDA approval and so on and so fourth (the reposting of the warnings and advice is always appreciated though). I recently went back into the archives here and re-read all the business end posts (I must say, Defcon is the man for always posting great info on that end...not to say the rest of you guys dont, but John's a real trooper when it comes to that stuff).

The $5,000 was just a top of my head estimate and will be much more refined soon. Dave and I are working out the details of the business plan on a daily basis so we will have that to present to people when shopping it around (can we say non-disclosure agreement?). No way are we going with doing this in our kitchen with a coffee grinder ;) . We will be going with a co-packer.

The small business loan sounds good (does one actually have to pay that back if done through a corperation or LLC? Say we file for bankruptcy and such?)

marcosauces

10-17-2006, 12:06 PM

The small business loan sounds good (does one actually have to pay that back if done through a corperation or LLC? Say we file for bankruptcy and such?)

they will take anything collateral you gave them.
not scaring you....just advising you at whats awaiting for you, and trust me is fun as John said but when the fun is over, you just better stop and look at something else.

imaguitargod

10-17-2006, 12:26 PM

they will take anything collateral you gave them. not scaring you...
Oh! Collateral, I seriously forgot about that! That might be a slight problem.

Banker: So, what kind of collateral are you using for this loan?
Jon: I have a 1975 AMC Gremlin. Its green.
Dave: I have this pen...it's a Bic and blue.

but when the fun is over, you just better stop and look at something else.

Like that pink elephant in the corner over there....oh god he's spotted me! Run! :shocked:

marcosauces

10-17-2006, 12:51 PM

LOL...

DEFCON Creator

10-17-2006, 01:22 PM

Oh! Collateral, I seriously forgot about that! That might be a slight problem.

Banker: So, what kind of collateral are you using for this loan?
Jon: I have a 1975 AMC Gremlin. Its green.
Dave: I have this pen...it's a Bic and blue.

Like that pink elephant in the corner over there....oh god he's spotted me! Run! :shocked:

You really scare me sometimes...

imaguitargod

10-17-2006, 01:23 PM

You really scare me sometimes...
I do my best!

imaguitargod

10-18-2006, 09:43 PM

Well, talked with Dave and he would like to try to avoid the bank loan stuff. So were back to the investor idea. Has anyone delt with investors before?

Hillbilly Chili

10-18-2006, 09:57 PM

put me in for another $20 Bro, grass roots, blind a** entrepreneurial Spirit shit works too (with heap big dedication). If you put half the dedication into your venture as you do your attentiveness to this board…I’m in! Now you only need another 125 Hillbillies

DEFCON Creator

10-19-2006, 06:44 AM

Well, talked with Dave and he would like to try to avoid the bank loan stuff. So were back to the investor idea. Has anyone delt with investors before?

Hmmmm, starting up a company from the start with investors. Not a good idea. You'll find very quickly that investors want a return on their investment rather quickly. Starting a hot sauce company is not a very good venture for making quick money. Also, the investors will have legal say in how you run your company. Far be it for me to tell you how to go about the start-up, but at least with the bank, you still maintain complete control over the internal logistics of your own idea.

imaguitargod

10-19-2006, 11:40 AM

Hmmmm, starting up a company from the start with investors. Not a good idea. You'll find very quickly that investors want a return on their investment rather quickly. Starting a hot sauce company is not a very good venture for making quick money. Also, the investors will have legal say in how you run your company. Far be it for me to tell you how to go about the start-up, but at least with the bank, you still maintain complete control over the internal logistics of your own idea.
Hmmmm....you make a really good point...:think:

DEFCON Creator

10-19-2006, 01:23 PM

Hmmmm....you make a really good point...:think:

Just food for thought. Investors are like the little devil on your shoulder, and can grow in size when the profits aren't rolling in to feed their insatiable appetites.

Sickmont

10-19-2006, 02:34 PM

Just food for thought. Investors are like the little devil on your shoulder, and can grow in size when the profits aren't rolling in to feed their insatiable appetites.

We actually had a couple of people who wanted to "invest" in our custom shop. Jamie and i thought it over and decided "HELL NO". We figured we'd have better chances dealing with a bank. And it turned out to be true, because a couple times a year our business basically falls flat on it's face, and we didn't want to be dealing with what you described above. Besides, as Jamie had said, "i don't want to have to kick the a** of someone i owe money to".

marcosauces

10-19-2006, 04:31 PM

Actually Creator we had bunch of people asking us if they could be investors in our company...but as you sayd they are little devils on your shoulder waiting for the return...plus i do not like to play with somebody's also money either..so DEFINITILY a no go..!!! too devilish...:)

Cap'n Bones

10-19-2006, 05:58 PM

Yeah don't sell yer soul to investor's in this business. If at all possible, avoid borrowing any money. It may take a bit longer for things to get rolling without a loan, but the initial slow growth will provide the opportunity for you guys to get creative in the "how to's" of making your venture move ahead, and the experience will come in handy during the slow times that you'll be faced with from time to time after you're established. You'll be suprised how far you can stretch a dollar if you do your homework. And did I mention BARTER! It's amazing how many folks that are willing to trade their service for some talent that you may have. You have mentioned that you do Graphic's work. Use that experience to your advantage. Just trying to throw some ideas you way Jon. Hope it's helpful...

imaguitargod

10-19-2006, 08:21 PM

Just trying to throw some ideas you way Jon. Hope it's helpful...
Thank you! Throw as many ideas at me as you want...as long as they are not attached to bricks...

marcosauces

10-20-2006, 06:48 AM

Maybe that brick will hit you the right way.... :D

DEFCON Creator

10-20-2006, 06:53 AM

Cap'n, good advice. Jon, don't feel you have to jump right into this. I would suggest making a few test batches, and sending them out to people who want them, or do what I did, go to local watering holes, and just have friends and friends of friends taste the stuff. It's a great, and inexpensive way to at least test market. In the mean time, you'll be saving your pennies. In my case, I had actually been making my wing sauce for nearly 15 years before entering the market. The thought of entering the market never even entered my head until a little over 2 years ago. However, in that time, and many Superbowl parties, I was able to tweak the recipe to what it is today, thanks to the most awesome test market there is, a bunch of drunk idiots sitting around watch the Superbowl...If something sucks, they'll be the first to tell you, and they did.

huvason

10-20-2006, 12:53 PM

... a bunch of drunk idiots sitting around watch the Superbowl...

Hey... i've never watched the superbowl at your house! :lol:

DEFCON Creator

10-20-2006, 01:39 PM

... a bunch of drunk idiots sitting around watch the Superbowl...

Hey... i've never watched the superbowl at your house! :lol:

Neither have I, I'm usually out back manning the turkey fryers! LOL!

huvason

10-20-2006, 05:24 PM

Neither have I, I'm usually out back manning the turkey fryers! LOL!

Hope there cranking on Sunday!

huvason

10-20-2006, 05:34 PM

OK.. back on topic.... I have to agree with what's been said. START SLOWLY..... I am going through it myself right now. Thought I knew what I was doing and went 90mph at this thing before I was swamped for all sides. Trying to take over the world in a week :lol:

I've slowed myself way down, and things are goin much better. If $$ is an issue, I agree with what's been said - no investors at this point. Just proceed at a pace that makes financial sense (and dont use cc's to finance it!)

just my 2c.....

E.Z. Earl

10-20-2006, 08:50 PM

Well, it's a sad thing to say, I saw it coming a year ago and now it's here... I'm doing my homework (with my partner in crime, Dave) and going into business with a hot product (3 to start out with). Now since I don't have the $5,000 or so to start the ball rolling, I will need investors. Any tips or hints?

Man - think this move over really well before you pull the trigger! You are a dyed-in-the-wool chilihead with a love for the burn. Most investors you solicit are not going to give a fig about the product or the industry. They will want to know what is the risk:reward ratio. They will be primarily interested in just one thing - what is the return-on-investment and how soon will the ROI bucks begin to flow. If you can do this without O.P.M you are much better off. Trust me, a marraige is easier to manage than a partnership with investors. And we have not even talked about ULOR filings under the Blue Sky laws or filling our annual K-1 reports! I did this once in my ignorant youth and it was a nightmare before I managed to extract my fat from the fire. The business didn't survive the financial chaos.

Anija

10-24-2006, 04:49 PM

You might try a co-packer first, or a custom blending outfit. Try
Custom Blending (http://www.customblendinginc.com/custom-blends.html)
or
Rocky Mountain Spice (http://rockymountainspice.com) ...you can also check out their retail site, MySpicer.com (http://www.myspicer.com/)

DaveReed

10-24-2006, 05:26 PM

Hi, everybody!

I'm Dave, imaguitargod Jon's friend looking into the new products. My father was in food pac kaging for his whole career - big time stuff. We'd thought of the product liability insurance, co-packing (no doing it at home - commercial producers, FDA approved packers, etc) and using friends and acquaintances for test marketing. Hell, THEIR positive comments was how we thought of this to begin with.... As for market research, we've looked around the markets (Ralph's, Von's, etc.) and find nothing else like it

Even found a couple co-packers, one will even do the lab testing. Bar code is no problem either. Can be had comercially for $50 or I have a friend who bought 10,000 and can get one or 10 for free, provided they are the right type Labels? We are graphic designers.

We're working on the recipe a lot, and it comes down to $ and availablity of the right raw materials. After the recipe is set, a co-packer for a "test run" of a few hundred bottles. Standard bottles, average labels (not die-cut) and we're off the the races. Oh yeah, PRODUCT LIABILITY INSURANCE!!!!

The questions are mainly how much $. Don't know yet. Private investors can come in many types, friends with lots of cash is a good one, especially if they don't want a "cut of the deal". It seems that most of the previous posts about them is they are the "perpetual profit participant" variety. I think we're more in the market for a "%150 return on investment" kind, with no special schedual in mind. How easy that is to find will be determined by our further research into the costs of production of the "test run", which will become more clear as we work on it.

Keep those cards and letters coming! All input is good!!!!

Dave

POTAWIE

10-25-2006, 06:22 AM

Welcome Dave and good luck on the products.

E.Z. Earl

10-26-2006, 11:52 AM

Welcome aboard, and good luck with the new business venture. - E.Z.

marcosauces

10-26-2006, 04:01 PM

Welcome Dave..

panic rev

11-01-2006, 05:22 PM

yea investors bought the meat processing company I work for. Ever since it has been hell for everyone. They know nothing but money money money. You become a slave to them and that is no joke

marcosauces

11-01-2006, 09:12 PM

Yep...who wants that, not me.

imaguitargod

11-01-2006, 09:45 PM

As ashaimed as I am to say this...we might go with rich friends for the money (that's the nice thing about living in Hollywood, you get to have some rich friends sometimes).

marcosauces

11-01-2006, 09:56 PM

make sure you feel right about it..thats all
You happy - we are happy for you..!!!

imaguitargod

11-01-2006, 10:03 PM

make sure you feel right about it..thats all
Ya, it's a hard decission, but it's down the road a bit so I have time to wrestle with other ideas.

You happy - we are happy for you..!!!
Oh, thank you. It's nice to have supportive people.

Continues the thread, I've heard that you have to show that you actually need money when you do the bank loan/start up business loan. From what I have heard that consits of copies previous tax fillings to the IRS(which would be a problem for Dave and I)...what information did those that went this route have to show?

DEFCON Creator

11-02-2006, 06:45 AM

Not necessarily the case. The economy is doing quite well, and has been for some time. This being the case, banks have become a bit more lenient towards start-up companies in general. They will require a detailed list of what the funds will be used for, which is nothing out of the ordinary.

Dyce51

01-19-2007, 02:05 PM

I may be chiming in on this one a lil late but you could also try finding a commercial kitchen. I originally found one but I thought it was to far to drive so I searched and found one closer to where I live. I met with them. We signed confidentialty agreements anf I gave them my recipe. I give them $1,000 down payment (make payments on the rest), we then set a production date and I have to be there for it to test the sauce to be sure it is to my standards. They run a 1,000 bottle batch of the product, keep a couple of small bottles for testing. They test it for ph, nutritional values, and longevity (shelf life). Then I meet with the design people and develop a label. You see (at least here in Ohio) there is specific information that needs to be on the label and needs to be in certain areas. The put me in touch with some really great discount label printers (they deal with us small guys) We get the label delivered to the kitchen and as the batch is bottled (fully automated) the bottles are filled, sealled, washed and labeled. This is all done for me for the cost of $.271 an ounce or $2.17 a bottle (finished product).

I tried the idea of making it myself at home and the Federal Department of Agriculture and the FDA had a realllly BIG problem with that. They said that your facility must be FDA, DoA, EPA, and Health Department approved, inspected and have a Canning license. If you try to get around this and you do produce it on your own I was reassured there are big big fines and possible jail time.

I also have a few dry products (rubs and spices) that I have made. Again they must produced in a certified facility. Noe the kitchen I use for my sauces does not do dry products, they put me in touch with a local spicer that is certified and is quite reasonable on pricing. When you use a spicer you can get considerable price breaks on the spices due to the large quanities they deal in and you are buying unpackaged spices (bulk form) that do not have all the added packaging expense added into it.

Now I am still in the process of all the other legalities and insurance BS so I can't really comment on the expenses of that yet.

imaguitargod

01-19-2007, 02:38 PM

It's never too late to chime in on this thread dude!

BigDawg

01-19-2007, 03:09 PM

I tried the idea of making it myself at home and the Federal Department of Agriculture and the FDA had a realllly BIG problem with that. They said that your facility must be FDA, DoA, EPA, and Health Department approved, inspected and have a Canning license. If you try to get around this and you do produce it on your own I was reassured there are big big fines and possible jail time.

Gotta love the FDA. I appreciate them looking out for JohnQ public, but I got inspected 3 times within 2 weeks last August - the city, the state and then the FDA. They said they do opposite years of the state but since they where there might as well inspect me. It can be a big hassle...but I am glad, so far, we still do all. Once you get threw FDA red tape it's not too bad.

Cap'n Bones

01-19-2007, 07:52 PM

I moved the posts pertaining to bar codes to this thread.. http://www.thehotpepper.com/showthread.php?t=1336

Great info!! Check it out for bar code cost and other useful information. Thanks all for the helpful input!

GrillingGreg

07-29-2007, 07:52 PM

$5000 would be a very bad amount to get from investors. Sophisticated investors aren't interested in a deal that small because it's not worth their time. Unsophisticated investors aren't worth your time.

$5000 is way cheap for a specialty products startup. It's quite easy to spend $20K just to get the first bottle of sauce off the assembly line. Then you start on sales and marketing.

rwaddell50

07-31-2007, 10:15 PM

I would echo the fact of starting small and debt free. I have not been doing this for long and I am in no way even close to some of the other guys in size. But I am Debt Free, which I value even more. I started with doing it at home and with my product, Ranch Hand Candy, I can for now. It falls in the range of a cottage industry. I got an awesome website designed by my sister in law and I do craft shows for most of my sales. I have been going for over a year and I am still debt free. Beware getting investors or partners. Better to start slow and build up than sell your soul away for aquick turn around. Remember the tourtoise and the hair. The slow poke wins in teh end.

Also, have to plug Dave Ramsey, for Debt free advice.
www.DaveRamsey.com

Dyce51

08-02-2007, 08:32 PM

I made the best move (I think) yet in my adventure. We are about 2 weeks away (if all goes as planned) from our FIRST COMMERCIAL BATCH!!!! I have a friend of mine and fellow business owner with lots of connections working for me as a Sales Rep. He is making some great contacts and we are about to close on our first "Big Deal". It has taken me almost 3 years to get to this point because of financial reasons. I have bought as I needed instead of dumping a butt load of money all at once. We are just waiting on a few legalities and then we're off to the races!!!!!!!!!!!!!!!