Source: Annette Dunlap, Business Development Specialist, NCDA&CS, 5/3/16


This Food for Thought is a little different than usual.

As many of you know, a couple of legacy food companies have launched venture capital (VC) funds. These include General Mills and Campbell’s. For those of us in the food sector, this could be good news. But just this week, there are some rumbles in the overall VC world. Analysts are beginning to criticize the downside of venture capital funding, because it forces young companies to place valuations on their businesses, and many of these valuations are highly speculative in nature. The result is a misrepresentation of the actual net worth and true earnings potential of a young company.

The other news is that there are changes in Regulation Crowdfunding – this is the practice of looking to crowdfund your business by getting investments from outsiders. The changes take effect on May 16, and they will open a new world of access to capital. However, bear in mind that the rules prohibit you from doing your own crowdfunding. There is a workshop being held May 5 to discuss the legalities.

Speaking of crowdfunding – You need to become familiar with the provisions of the NC PACES Act. This proposed legislation, which has yet to pass in North Carolina, would make crowdfunding even more accessible to small businesses like yours. There is a chance the bill will be considered in the short session. Check out this blog http://jobsnc.blogspot.com/ to become familiar with the provisions of the Act.

Here is a summary of the key points regarding what investors are looking for:
• A team. There is too much operational risk to invest in individuals. A team trumps the product/market fit or the unique selling proposition.
• Size of market. Is it big enough for a new entrant?
• Traction. What is your progress to date? What have you been able to do with your limited resources, and what has the market done? How has the market reacted to your product? Do you have customers?
• Low risk. Believe it or not, VC and angel investors do not have a big risk appetite.
• Intellectual Property (IP). Do you have strategic relationships that cannot be copied?
• E-commerce. How do you survive in an Amazon world?
• Competition. Who are your competitors, and can they take you on?
• Exit strategy. IPOs are not of interest, because they are not especially popular in NC.

The horizon for a seed-round investor is five years, and they want 10 times their investment back at the end of those five years. You are also required to have these investors represented on your board. Here’s the sobering fact: For every five companies that an investment group takes a chance on, three will fail. Here’s another sobering fact: When you go with investors, you lose control of your business.

For more info, contact Annette Dunlap Agribusiness Development 919-707-3117 Annette.Dunlap@ncagr.gov.