How to Finance Your Next Product Company, Keep More Equity, and Create a Community of Your Product’s Fans
Every small and medium consumer product business (“SMB”) is faced with the challenge of having to pay for inventory before they can earn revenue by selling it. This challenge is especially acute with start-up product businesses, which may be pre-revenue or only have done a couple manufacturing runs and are still working on their distribution channels.
Factoring services is a $3 Trillion market in the US. In a U.S. Bank study, they found that 82% of the time, poor cash flow management contributes to the failure of a small business. In some cases, these start-ups raise capital from venture firms or angel investors to pay for the manufacturing, marketing, and distribution of their products, but the fundraising process can take a long time, a lot of effort, and result in giving up significant equity.
Others work with Accounts Receivable or Invoice Factoring companies, which charge 30–60%, or Merchant Cash Advances like OnDeck or Kabbage, which charge 40–100% on an annualized cost basis. While these options have less strict financing criteria and can make quick financing decisions, the high interest rates, pre-payment penalties, and daily deductions from incoming cash flows make them expensive and difficult to work with.
Bank Loans, which are 3–12% on an annualized cost basis, have been harder since the ’08 crash. Many banks won’t lend to businesses with less than two years of track record. As banks have looked to de-risk their balance sheets and shore up their capital, they have been decreasing lending to SMBs and imposing stricter requirements upon them to get access to cash as the banks are not set up to profitably service this sector. While the banks’ interest rates are appealing, those loans can be difficult to obtain and often require a personal guarantee.
Enter Kickfurther — the first crowdsourced inventory funding marketplace! Founded in August 2014, Kickfurther enables small and medium consumer product businesses to get inventory financing at lower interest rates than typical factoring options, i.e. crowdsourced micro-financing. Kickfurther has deployed over US$60M in capital to 500+ SMBs with an average deal size of $101K.
Kickfurther is acquiring new customers rapidly, on track to exceed 100% YoY growth and $3M in 12 month trailing revenues. They have a strong advisory team including John Donovan, Founding Member and COO of Lending Club who recently joined as Chief Strategy Officer, Bill Tai, first investor in Zoom and seed in Canva, Wish, and Treasure Data, Alex Bogusky, Partner at Crispin Porter & Bogusky, Jack Donenfeld, and Martindale-Hubbell, an A/V rated lawyer with 37 years experience in SEC compliance law.
Let’s use an example to show how this works. Take TAME the BEAST creates grooming products for adults, i.e. shampoos, body washes, shaving supplies, etc. They worked with Kickfurther to create a “Co-Op”, by setting their own profit payment rates (in this case, 5.61%) and estimated payback period (4.71 months).
On the back end, Kickfurther vetted their business using their proprietary checklist focused on owner credit, business credit, production risk, distribution risk, and business acumen. If Kickfurther doesn’t think a business is a good fit for their users (i.e. the business has poor credit, the products are age-restricted, the business doesn’t have adequate revenue, or for other specific reasons,) the business typically receives an answer within 1–2 days as to what needs to be changed in the Co-Op construction or if the business is disqualified.
TAME the BEAST has posted 13 Co-Ops on Kickfurther and, in their latest one, raised $142,594 in 11 minutes through Kickfurther’s users. Users participating in Co-Ops get updates on the progress of the deal. The average time for a Co-Op to become fully funded once it goes live on the platform was only 24 minutes in Q4'19.
As the businesses sell the products the users funded, the business provides payment to the users for the original price the products were funded at plus the profit margin promised to the users. Users are seeing 13.8% average annualized earnings. Many users re-deploy their capital on the Kickfurther platform into other deals.
Kickfurther has a 99% success rate in funding Co-Ops on the platform. Not only is TAME the BEAST getting financing for their next inventory purchase quickly and at lower interest rates than other financing options, but they have now created a community of fans for their products so it’s a win-win for businesses and inventory buyers on Kickfurther.
Another great example is Bright Stripes, creators of fun, creative DIY and crafts kits for kids, which launched their products in the summer of 2019 and quickly gained traction in the market. Within 2 years, they landed accounts including Target, Mastermind, FAO Schwarz, the Paper Store and hundreds of toy and gift shops across the country.
After working together for a decade at a premier arts and crafts company, the founders Sabre Mrkva and Eric von Stein decided to create their dream business. They approached factories they had worked with, which were thrilled to partner with them and gave them great terms. However, they soon discovered that funding through banks was difficult for new businesses.
According to Eric, “After starting out as a self-funded small business, we found that additional capital was needed to finance purchase orders. It can take several months from production until retailer payment, even with large purchase orders. Cash flow was a real issue. Kickfurther was critical to our business. We’ve done 4 extremely successful co-ops raising over $350K.”
“Kickfuther’s reaction time was so fast,” added Sabre. “We called them and within 2 days, the co-op went live and we got funded! Our rep walked us through all the steps and was super responsive!”
Kickfurther won PitchIt at LendIt, “Most Innovative New Lender” in Inc magazine, G-Startup “50 Most Innovative Start-up in the World” (judged by Sequoia, Greylock, Google Ventures, and a “Top Ten Finalist” in the Xtreme Tech Challenge, a global tech competition. Here’s a recent article about them in Forbes.
Whether you are a product-oriented business looking to raise capital or someone looking to support new products and get great returns in a short timeframe, check out Kickfurther!
