It's no secret that money makes the world go round. In this industry, money and innovation play equally important roles, but in this economy, the scales are a bit off. The ideas keep coming but investment money is tight. Kimberly Lord Stewart takes a look at a successful case study in a failed economy
FI: In this economy, it seems as if investment and startup money is hiding under bankers' mattresses. Despite this, your company has had success in helping clients with funding and new product launches. What is your best advice for entrepreneurs seeking funding?
DR: "It is true that start-up money is harder to find and/or more expensive these days. That said, it is out there and available if one knows where to look, knows what investors value and knows how to best present the concept to match investors criteria. There are several factors our company encourages entrepreneurs to consider when going out to raise money.
Much of this is not rocket science, but done well and with authenticity, it can make a difference. We like to say that the better they are at 'the R's of entrepreneurialism — receptivity, resilience and resourcefulness,' the more likely they will be able to achieve their goals.
It's important for entrepreneurs to think strategically, several chess moves down the board, particularly when it comes to financing. An overarching goal should be to build a company that is attractive to the next round of target investors. For instance, one should think about the size, basic approach, structure and eventual exit necessary for a Series B and C before even thinking about the structure and pricing for a Series A.
For instance, our company did this with One Natural Experience (O.N.E.), and that same plan is in place for HiBix/OOBA as I write this. O.N.E. recently did its latest financing/partnering with Pepsi and Catterton and, as a result, the company is well on its way to success.
Time, in addition to money, is one the entrepreneur's most precious resources. We encourage entrepreneurs to learn how to politely and quickly screen potential investors to be sure they are worth spending any considerable time with in the early stages of the fund-raising process. It is always great to meet people who may invest down the road, but if it is not likely that your offer meets their criteria now, our advice is to stay friendly, stay in touch, ask them if they know of anyone who may be interested in an immediate offer and then move on.
FI: What are the constants that investors look for?
DR: There are so many 'me, too' products coming out that many categories are overcrowded and investors do not generally want to back the third or fourth (or later) entries into the market. Although being first (or even second) has its clear advantages, there are ways to compensate that can be even more important to investors. One way that we've been successful is to help investors understand what we call 'meaningful differentiation': what makes this opportunity unique, as well as how and why this company and their investment have a better chance of succeeding and outperforming its competition.
As much as the product and/or service should offer something unique that fills a need or void in the market in the end, people invest in people they believe will deliver results. Given this axiom, especially during these uncertain times, there is no question that the strength of the executive team is a primary criterion for any serious investor. If the entrepreneur does not personally have experience in the industry or category they want to enter, we highly encourage them to recruit at least two to three successful industry veterans with both entrepreneurial and 'scale up' experience to be part of the initial team.
We've also found that investors appreciate the right mix of passion and modesty, which is not always an easy balance to achieve; being overzealous can be a turn off. They look for entrepreneurs and executive teams who have confidence in themselves but also recognize the necessity to build strong teams around the vision and company mission. We consistently find that given the right vision, market timing, branding, product and resources, the strength and depth of the senior and middle management have the greatest impact.
FI: What have you learned from recent product launches that you can share with readers?
DR: We've been involved with several start-ups and early-stage companies over the years, including Naked Juice, Odwalla, Numi, TAZO and POM Wonderful, but two recent examples come to mind. The first is One Natural Experience (O.N.E.) and the second is HiBix Corporation, makers of OOBA sparkling hibiscus.
We joined O.N.E. in 2006 as strategic advisors when there were just three people in the company. We worked in a very hands-on fashion for the next two years, helping the owners position the company and the brand for rapid growth. We helped develop infrastructure and systems to support the business and develop the initial team to move the company forward.
I credit the success of the early fundraising to a combination of a very committed executive team with a good balance of passion and experience; a well-developed and believable business model; an ability to leverage existing relationships within the industry; a unique, secure and scalable supply chain; and lastly, several early successes in the marketplace that were tangible, measurable and verifiable. For instance, coconut water was introduced a few years earlier by two other brands, but the vision, strategy and strength of the team, along with the other factors mentioned above, gave the investors the confidence that O.N.E. would outperform the competition, and thereby take a leadership position in the category quickly.
HiBix is a slightly different story. The founder had more than 20 years of experience in the biopharmaceutical industry. This was his first major step out as an entrepreneur, and the beverage industry is notoriously crowded. We joined him at the end of last summer when the company was just a few months new.
I attribute our ability to collectively raise several million dollars over the past year to a host of factors, each one reinforcing the other. First, OOBA is a unique product — it's the first sparkling beverage made from the hibiscus flower — a flower with considerable research toward cardiovascular health when extracted and used in the right way. It is sold in a very attractive and proprietary bottle, and the brand name OOBA and label are fun and memorable. OOBA is also positioned as a solution to the shrinking demand by adults in the carbonated soft-drink category.
As much as we met with success when working with both of these companies, it's important to note that they've each had their share of challenges, twists and turns. We found that how the entrepreneurs and the core team responded to these challenges and levels of uncertainty was a measure of future success.