When a company grows fast, you have more costs before profits are made. That’s why more sustainable companies use crowdfunding for a loan.
Guestpost by Matti van de Gronde
We take a look at the crowdfunding campaigns of ZEP (€325.000) and Yogi&Yousef (€400.000), and how they handle their inventory financing. What can we learn from these companies?
1. Separate inventory costs from fixed costs
Salary and other fixed costs are predictable but there’s no certainty they mean revenue/earnings. With expenses to inventory however, a few months later they do mean earnings when the inventory’s getting sold. So inventory costs are easier to finance. Yogi&Yousef used this in their campaign to prefinance the harvest of dates.
2. Go for multiple small loans instead of one big loan
ZEP sells solar roof tiles and got more inquiries than they could handle. They expected to loan between 1 and 2 million euro to be able to supply enough tiles for the next coming years. But if not every inquiry leads to a sale, there will be a shortage in budget.
So the sales director of ZEP Joost de Graaf and Oneplanetcrowd decided to choose for a series of smaller loans. Now ZEP has raised 325.000 euro, which allows them to buy inventory for current orders. When there will be new orders, ZEP can choose to host another campaign. This minimalizes the risk for crowdfunders, while it saves ZEP on interest.
3. Ask clients for down payments
When clients do a big down payment, you need a smaller loan. But even a 10 percent down payment is worth it, as crowdfunders rate this as a more trustworthy order, than if the client payed nothing beforehand at all. It takes away some uncertainty.
4. Make sure every order is signed
I know for a fact that ZEP has great contact with their clients and is doing business based on trust. Crowdfunders however don’t know this and need some kind of objective confirmation. By asking their clients to sign their orders, ZEP could show Oneplanetcrowd that they really got orders worth over half a million euro. This makes the trust tangible for investors.
5. Be prepared for extra sales inquiries during and after your crowdfunding campaign
When a crowdfunding campaign goes live, it means a lot of visibility for a company. Snappcar for instance saw their user base rise like a rocket during two campaigns. ZEP got the attention from individual investors who wanted the solar tiles on their roofs as well. Camptoo, during their campaign, was approached by a consortium. In short: be prepared for the extra benefits, not just for the money you’re raising!
Matti van de Gronde is Investment Specialist at OnePlanetCrowd. This blog appeared in Dutch on Linkedin first.