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February 10, 2020
The funding gap in the natural products industry is growing. The funds are moving up-market. As the average fund size increases, the economics warrant that the average check size does as well. That means that a brand has to be further along in terms of revenue, distribution and brand awareness before they are able to secure institutional money.
At the same time, the industry’s most active angels are fatigued. They are getting crushed by the onslaught of inquiries. Some whom I’ve spoken with are receiving more than 50 pitch decks a month from founders who are desperate for their support. Even at their most active, these angels are likely to make less than 10 investments a year. As they find themselves buried by inquires, many have decided to make fewer but larger investments.
The net effect is that early money has become harder to come by even as more capital flows into the natural products space. It is somewhat counter-intuitive. Founders need to take responsibility for finding their own set of angels. The good news is that with shows like "Shark Tank" and the overall growing interest in private placement investment, more people are becoming angel investors. Just note that there is a difference between an interested friend or family member willing to put in some cash and an accredited investor. In my opinion, and for reasons not germane to this article, I feel it is critical that the money raised comes from the latter. That is unless you are raising through an equity crowdfunding platform. More on that later.
Where do you find them? Well, that is not easy. But, there are some good resources. The Angel Capital Association has a member directory that includes active angel groups. There are also platforms such as Angel List and Gust. The Angel Resource Institute also has some good information. Local universities are also often good sources of potential angels.
The other “must-do” is to network. As you reach out to the funds that respond “you are too early,” ask them for introductions to any angels or high net worth individuals in their networks. Go to pitch events, even if you’re not pitching. You can be just as effective during the mix and mingle portion of the event as you can be on stage. Let everyone know in your network that you are raising capital and would like to be connected with accredited investors.
Equity crowdfunding is still in its infancy. Truthfully, my personal bent was somewhat negative towards this option. But that is lessening over time. I feel the platforms are responding to some of the challenges, and with the widening funding gap, equity crowdfunding is one of the few potential bridges a founder can take to avoid the valley of death. Wefunder and others have helped some brands successfully raise meaningful seed and pre-seed funds. So, at this point, I encourage brands to assess how this might fit into their capital strategy. Especially if you have a strong network of followers who may not be accredited investors.
Finding angels, raising early-stage money is not easy. Having a strategy to do so is as critical as your product, brand and go-to-market strategy. It will take a lot of work. You’ll be told “no” more times than not, and whatever time you think it will take to raise the needed capital, double it. Founders: develop your networks, leverage the resources above, be persistent and resilient, and share with your fellow founders what you learn along the way.
We need more angels and if you’ve been considering becoming one, please do so.
Elliot Begoun is the founder of TIG, a practice focused on helping emerging natural product brands grow. TIG positions CPG brands to raise capital, prove velocity, gain distribution and win market share.
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Founder, TIG Brands
Elliot Begoun is a 30-year industry veteran, author, podcast host, founder of TIG Brands, and champion of Tardigrades. TIG Brands supports a community of entrepreneurs interested in building nimble, capital-efficient, resilient brands that become Tardigrades, not Unicorns. Learn more about TIG Brands’ programs here and catch Elliot at FoodBytes, the Hirshberg Entrepreneurship Institute, and the Natural Products Business School. Tune into the TIG Talks podcast and find Elliot’s articles in publications such as The Huffington Post, SmartBrief and New Hope Network.
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