When should I give away equity in my natural product business?

When should I give away equity in my natural product business?

Having enough capital to build one's business is a key challenge for every natural entrepreneur. Is the solution giving up equity right away?

The co-founders of leading consumer-focused private equity firm Alliance Consumer Growth (ACG)—investors in EVOL Foods, Krave Jerky, The Honest Kitchen, and BabyGanics—answer questions from natural products entrepreneurs.

Q: When should I give away equity in my natural product business?

A: We understand that having enough capital to build your business is a key challenge for every entrepreneur. Our view is it's best to raise equity (i.e. sell a stake in your business) as late as possible.

Your founders' equity is valuable. The more traction you can show, the better your future valuation will be. If you're going to take money early, look for friends, family and helpful angel investors. For young companies trying to prove their viability, "customer money" (i.e. generating product sales and gross profits) is the best money because it proves that consumers and retailers desire your product.  

As a founder, this means you may need to play "jack-of-all-trades" for a period of time to keep your overhead and team costs down. But if you can generate consistent sell-through at retail, and strong gross margins, and reach $3 to $5 million in annual sales, you may become a great candidate for professional investment funds.

Above $3 to $5 million in annual sales, growth opportunities can often outpace internal cash generation and companies begin to actually need larger amounts of growth capital—as well as the value-added services that professional investment partner funds can bring.

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