What drives success for brands on the fundraising front? You need to have an attractive valuation, or investors won’t consider investing. Elliot Begoun welcomes a brother from another mother, Chuck Cotter. Chuck discusses with Elliot how you need to receive feedback on why people may be less interested or provide a lesser valuation. You can’t get bogged down arguing with investors about your product. Instead, you need to step back and assess how to tweak your product or strategy to be more attractive to investors. Need more fundraising strategies? Tune in!

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Listen to the podcast here

With Chuck Cotter “Brothers From Another Mother”

This is going to be the first installment of what will be our regular series of Brothers From Another Mother. Chuck Cotter, my younger and considerably less attractive brother, is joining me on a monthly basis to talk about all things in the industry from what is going on on the fundraising front, what is happening in M&A activity, watch out for things that we are seeing, things that are exciting or worrying us, and answering any or all of your questions. In the process, we might have a little fun giving each other shit, which is completely good. As Danny Walsh said from Peak State Coffee, he is here just for the banter, so the pressure is on.

Before we start, there are two things I want to talk about. One is around what Luke and Bree have done with the assistance of the Marshall Fire. It is amazing the amount of money that has been raised within the community. It has been amazing how quickly they were able to stand up the 501(c)(3) and get it going. It is another emblematic way that this industry performs miracles. It is very cool. Thanks to Luke and Bree. The other thing is crowdfunding is growing rapidly as a countermeasure to the increasing funding gap, especially for early-stage brands.

We have got three of our TIG brands on WeFunder, RIFF, Spinster Sisters and Tia Lupita. This is a way for folks in the industry to put your money where your mouth is and to own a piece of some cool brands. Also, to encourage your friends to do the same. You can get in for a couple of hundred bucks. It doesn’t have to be massive but share with people. Let them know that they are doing this, that they are out raising. Put a little bit of your own dollars against it if you would. You can go to WeFunder.com and search for those.

Chuck, let’s talk about what is going in the funding range. In particular, what is happening with funding for early-stage in Angels, seed funds and so forth. It is becoming a louder cry from a lot of these early-stage folks that it is so damn hard to raise money, especially from institutional until you get to a much larger size. You have to get so much further on so much less to get to that money. What are you seeing overall from a funding standpoint, the activity in funds, Angels, and brands raising money? What are some of the things that are driving success? Is it anything in terms of being creative around terms? Is it being patient and resilient? Share your thoughts.

Unfortunately, that is exactly what I’m observing in the market. Not that it was ever easy but that it is much harder for the earlier stage brands. It is almost like there has been a bifurcation in the market over the last couple of years because we have had the busiest months we have ever had with deal flow. At the same time, a lot of our earlier stage brands are having more difficulty than they ever had raising that Angel money. I can’t completely tell you the reason why.

I’m hoping that all the activity on one end of the market will end up shaking out to make it a little easier again to raise money at the earlier stage of the market. What we’re seeing is when you can get to a certain stage, there is still a lot of venture money out there. Maybe even more than before and those healthy valuations. It is not like we are seeing people who have achieved the plan that would get them to series A having significant difficulty or getting compressed on valuation. Those are still healthy.

What we are seeing is getting to that, “I’m ready for series-A and for this checks.” It is harder for two reasons. One, the series-A checks seem to have increased at least anecdotally. I don’t know if you have seen that, where the funds want to write larger checks at that stage, which means the brands have to be a little farther along to justify a slightly higher evaluation. For example, if a fund is going to write you a $5 million check, the valuation can only be so low or else you are selling too much of the business in that round. That cuts both ways.

In the early stage, I don’t know why it seems so much harder. I don’t know if it’s because there are so many early-stage brands. If it is because there is so much fatigue among Angels, which you and I have talked about a bit. I love to hear your speculation. If you can get to that series-A stage, there is still a whole lot of money out there on brand favorable terms, but it is harder to raise money to get there.

It is a combination. I don’t think there are any more brands. The data tracking and the number of the new brand entrance are about the same. We haven’t seen this giant influx. I thought there might be, coming out of the pandemic, as people were shaken out of their nest with “I got no job anyways. I might as well start a business” mentality. That hasn’t significantly manifested in the numbers. I do think Angel fatigue is a big part of it, especially in the industry. Some of the super Angels are getting inundated. It takes so much time and bandwidth. They are tired, so they are choosing to write fewer bigger checks, much like the funds are.

I want to ask you a question on Angel fatigue because I’m trying to speculate myself. Do you think it is fatigue because they get hit with so much deal flow? I’m saying this because I am observing that it is a slight part of it. Is it that the valuations are so healthy at the series-A stage that a lot of entrepreneurs believe that should flow through into the valuations in the terms at the earlier stage? A lot of Angels are getting fatigued by the idea that a company with zero revenue or very little revenue was worth $10 million already or something like that.

That is certainly part of it. Where founders are making mistakes is they are getting too protective and caught up in their early valuation because they are so worried about initial dilution, and also setting a precedent and so forth. Everyone has to understand that the earlier in asking an investor to get in, the more risk exists and the longer that money is going to be tied up. If I’m an investor in ICA, even if I see a great upside or relatively high risk or a lot of things that haven’t yet been de-risked or proven, the likelihood is I’m not going to see this money best case for 7 to 10 years. The deal has to be freaking good. I have to believe in it.

As an industry, it is like any other thing on social media, everybody is thin, young, great looking, and life is perfect as you and me. I’ve always appreciated Allie Reed who has been very honest in her experience of 54 rejections before her first yes. We are not sharing enough of the hard stuff. Why is it so hard? Why can’t I raise this money? Why can’t I get it done? The right approach in the early days is to think about your capital in tranches. What do I need to get to prove the next stage to de-risk and more significantly, improve some more product-market fit?

Secondly, what do I need to put together in terms of terms that are going to appropriately reward the early investor for taking on the risk and be willing to tie up this money and be a little bit less concerned about that early dilution? They are seeing a fair amount of deal flow, but they are also seeing a lot of deal flow that is exactly what you said. Somebody is coming to us and saying, “We are in five stores. We did 50,000 last year and we are raising $1 million. Our value cap is $10 million. Our interest rate is 3%. Our discount is 20%.” You are not going to get anybody to get too excited about that. It is important to understand that you have to create a path for these investors to make money. The clearer and more likely that path is, the more you increase your chances of getting yes.

It looks like we got a question on this topic.

Ryan at Happy Moose Juice is asking, “At the same time, wouldn’t you question a business with an attractive valuation for an investor like, ‘Why is it so good?’ Thus, question your investment more.”

First of all, it has to be an attractive valuation or else they won’t consider investing most of the time. It shouldn’t be a foolishly low valuation. That’s what I think is your point. What is a foolishly low valuation versus an attractive valuation versus not investor favorable valuation? That is more art than science but think about all of this in the context of how much you are raising. If you are raising $250,000, pushing to get yourself a 6.5% instead of a 4.5% cap in your note is not saving that much dilution along the line because you are not raising that much money on that value. If you are raising $2 million on that value, it would be a different story.

To the fatigue point, the Angels see so many opportunities all the time that it has to be both a product and a founder. The latter being very important the earlier stage you are, or founders that you believe in and an attractive value proposition. Let’s say, one great opportunity is letting me come in at a 2.5% cap and it’s only a $250,000 round. One wants a 10% cap and put aside all the other dilution because it is just a fantasy story for illustration. If that company ends up selling for $100 million in the $10 million cap example, the value has only gone up ten times.

That is a good return, but if that’s the home run in my Angel portfolio, it is not insane. If it is a $2 million valuation cap, it is 50 times valuation increase versus 10 times valuation increase. You can see how much different that is as a return for the investor. The additional dilution to you while there are some, if you are not raising a ton of money, is not an insane amount of dilution. If you are struggling to raise money, then ten is not the right number anyway.

Where mistakes are made is that you can’t look at your current raise as an isolated event. One of the things that we work with brands on is the five-year growth hypothesis. It is a five-year arc of what you are going to need capital so that you can chart out and plot out dilution. You can recognize, “I can be a little bit more aggressive in my willingness to sell equity in the earliest days. Over time, if I do what I believe I can do and I can drive that proof and traction, I’m going to get subsequently better valuations. I still have plenty of equity to sell and I know my strategy.”

If you think of it just as an isolated event, you start getting so turf protective of that initial equity. For example, if you need to raise $750,000 and you start thinking about the cap as an isolated event, you are going to get caught up on getting from a 6% to a 10% or a 3% to a 5%. If you realize you are going to raise $750,000 and then you look at your plan, and 12 to 18 months later, you are going to raise somewhere around 2% or 3% and then you see another raise maybe three years down the road of series-A of 5% to 10%. Suddenly, that $750,000 doesn’t look nearly as impactful because it is not on your overall dilution.

You can see it with a little bit better downfield vision, be okay and get more comfortable around attracting that early investor. That’s why I also say to raise enough money to give yourself time, but don’t raise so much money early. Raise the money you need to prove the things that you need to prove to de-risk the business more so that the next time you raise, you can point to what you have de-risked.

It sucks because everyone hates raising money. Everyone wants to close around, catch their breath, and be living free and clear from a raise. That is not reality. When you sign up for this, you are going to be dialing for dollars for as long as you are involved in this likely unless you are self-funded or taking a different path, which is bootstrapping, which is something I want to talk about as well.

Ryan’s follow-up is, “Would you also be curious what you are seeing for established seed-stage brands at this moment?” It differs. It has a lot to do with the category. Ryan, as an entrant into the beverage category, you got one of the harder roads to climb in terms of winning investors, especially savvy industry investors because many of them have become somewhat cynical about the category. It is an expensive category to play in, especially cold case beverages. This is my opinion, Chuck. You can call bullshit on it, which I’m sure you would love to. Drawing benchmarks or averages, it doesn’t matter. It is what you can find the right investor for.

What is a solid seed-stage company? I don’t even know. Do we mean you are in a certain revenue threshold? Do we mean a certain amount of investor demand? Do we mean you de-risk the product in some way? There are brands that are less than $2 million in revenue, sometimes way less, getting offers for funds.

A $20 million or $25 million valuation for the fund to put $3 million or $4 million in because the category opportunity, the product margin, and the founders have convinced the venture firm. The folks who are at a $2 million run rate are struggling to continue to raise money because they are in a category that has its challenges, is tired, or doesn’t have a lot of room for growth or innovation.

When you hear this from us, it is not a criticism of your product or what you are doing. When you get feedback as to why people may be less interested or provide a less big valuation, you just got to receive it, even if you don’t agree with it. Someone may tell you that your product is not innovative. That is a reason they are not willing to invest until you have far more traction as far as being demonstrated in consumer demand than another product that they may think is so innovative that they don’t need as much evidence on consumer traction because they think it will come because of the innovativeness.

You can’t get bogged down in arguing with investors over that. You got to receive the feedback and truly think about it. Is there truly anything innovative about your product? If there is not, it doesn’t mean you can’t be successful. It doesn’t mean you have a harder sales job in getting people to invest. You need more positive data points and more attraction.

I have talked to a lot of investors about this. Ninety percent of their noes have nothing to do with the brand or the founder that they are talking to. It has to do with things like it doesn’t fit in their portfolio, they have something else that is similar, or they don’t feel as comfortable about the space or the category. They don’t know it as well, they have data that tells them differently, or they have LPs who don’t like the space and don’t want to see investment. There are all kinds of other reasons. Investors have a hard time. I don’t mean to make it sound like it’s woe is me for an investor, but they are saying no 95% of the time or more.

It sucks because it is no fun to say no to entrepreneurs who are sitting there and hanging on every word. A lot of times, they will try to keep that as a soft no, or cloak it in as many euphemisms as they possibly can. You are in search of an absolute why you are saying no and there may not be one. Sometimes, it is just gut or excitement and so forth. You take the feedback, criticism, and you search for the nugget of truth. The two biggest mistakes that entrepreneurs are making is not getting into the mental state that this is a hard slog. You are going to hear 100 to 1 rejection than yeses.

The other two is that they are not understanding the risk and time that they present to an investor and are not enticing or incenting that investor to take on that risk and tie up that money for that time because they are being too prideful around valuation, too protective, or too worried about what comes next. The third, we talked about this in one episode, is that no one is being persistent enough in keeping the follow-up going, staying in communication, and continuing to pursue and nurture these relationships because a no is only a no at that moment or a not yet.

You need to continue to stay on the radar and stay with them. Ask them for introductions, connect you with LPs, other friends or do whatever. Many folks get that first meeting and get that, “You are not quite a fit. You are too early.” That’s it. They put them on their quarterly or monthly update broadcast email, but they are not doing anything to nurture the relationship at a more personal level by sending out routine emails, “Just checking in. I would love to get back on the phone with you sometime and fill you in on what is going on.” Those types of things go a long way.

This is less funds and more Angels, which is so difficult. It is difficult to get their time. Angels are significantly investing in the person and not the product. Without being insincere or anything like that, it is also about building a good personal relationship with them over numerous touches. If any of us knew which one of these products at such an early stage are going to be the next $100 million company, we would all be a lot more successful than we are. Even the best funds don’t have greater than 50% success rates or something. It is lower than that.

If we all knew who would be successful, this would be easy. No one knows. The best early-stage investors do have some idea based on category trends, products and founders, but a lot of it comes down to, “Do I trust this person? Will they work hard? Will they be a good steward of the money? Do they understand that if this is a success we should all win?”

Gut still plays a big role in this. Often, you shake your head when you see 2-time or 3- time entrepreneurs getting money for less brands that seem less proven or categories that seem less exciting. It comes back to, “They have done it before.” To a fund, they are a little bit more confident, so they have the individual credit. I want to make sure we cover some other things too. One of which is about professionalizing and preparing your business to raise money.

Some of the things that brands miss are around regulatory and compliance, trademark, the things that they need to be doing to protect themselves and set themselves up professionally. Coming to you from the legal perspective, what are you seeing brands missing? They are waiting until the last moment to address this or until they suddenly have an issue and they got to deal with it. You are giving like, “Here are the 10, 5 or 3 things to go back with and address now while it is cheaper and earlier than later.”

The biggest one is branding and trademark protection because that is the hardest to successfully change later. The last thing you want to do is, “We are starting to get some real traction, I need to change the name of my brand,” that you will lose a year of work or more. We are talking early stage. I hope most of you who are farther along have already done this. At the end of the day, the value in your company is the brand, and then the relationship between the brand and consumers. Almost anyone can buy anyone. The big strategics can recreate your product. They are almost never buying your product and the ability to manufacture your product. They are buying the brand and the identity built with consumers around the brand.

When people talk about a trademark, it is a legal term for a brand. It is making sure you have the rights to that brand. It is a pretty low-hanging simple fruit at a very early stage. You need to do a full trademark search and file with the USPTO. Why do I say the first one of those things, full trademark search rather than just file with USPTO? Two reasons. One, the US is a first-to-use country when it comes to trademark or brand rights. It’s not a first-to-file. Even if someone hasn’t filed with the USPTO and you think, “I searched the USPTO and no one is using this brand.” It doesn’t mean someone doesn’t have brand rights.

A trademark search scours all sorts of things. The easiest example is some of the things you would find in a Google search. The other reason is when you file for your brand, given the current timing, you may not get it from the USPTO for a year or more. You will have spent so much time and energy building the brand in that year. The last thing you want is to have filed for a brand that will be rejected a year from now because you have lost a year of brand-building work. You need to know before you file that you are going to get that brand.

I know a lot of folks fall in love with their first idea of the brand when it comes to their product. If you are not going to get it, you need to fall in love, move on, and come up with another brand name because it is even more painful to switch a year from now. Aside from what I think is obvious, you can’t make a bunch of magical claims about what your product does even if you think it is true.

Even if you think the extract of this particular fruit when turned into a juice has all these magical effects in treating common diseases or whatnot. You can’t put all over your product like, “This clears gout.” Stay away from claims. The labeling regulatory stuff tends to be things you can fix later as you get more successful, whereas not having to appropriately make sure that you are going to get your brand can have long-term negative effects.

You need to think about things within your company about hiring practices and employee agreements. You need to be professionalized, clean, and have all of your stuff in order. I have seen this too often and that is you get everything going. You got the investor ready. You got a term sheet, and they are in the due diligence process. They start digging in and see all these things that are missing and lack clarity. I have seen that kill deals.

I have also seen it at least extend the time frame out and the cost of it out. Being professional is part of being an entrepreneur. You should be talking to folks including your attorney and say, “Give me a prioritized checklist of what I need to check off. I won’t be able to do it all at once, but I will work my way down. I will plan and budget for it. I will work my way through it based on the risk assessment.”

Giving confidence to an investor that you think through the consequences of all of your actions is important. That doesn’t mean you are going to get everything perfect. I don’t think I have met an entrepreneur yet, even in some of our most successful ones that have gotten everything right. You never do. No one ever does.

Folks who say, “I don’t feel like getting a bunch of advice on this co-manufacturing agreement that I’m going to enter, who then end up in a co-manufacturing agreement that doesn’t give them ownership of their IP or let the co-manufacturer unilaterally change price, and yet we are still locked in for five years to send them all our product.” Simple things like that. If an investor digs in, it is going to kill their confidence in you and the company if they feel like, “How could you sign something like this? Did you think it through?”

We’re seeing a lot of that. Some of them are predatory. It is not just co-mans. It is across the board. That’s a big call-out. Have any of your agreements reviewed. Get somebody who is going to look through it and be able to tell you, “Here is what you are signing and here are the things that you need to be aware of. You either need to accept those things or renegotiate those things.”

Before you put your name on a piece of paper, understand clearly what you are doing and ask the question, “What might this mean for future rounds? What might this mean if an investor looks at that?” That includes early fundraising where you might agree to add advisory shares, performance equity or things along those lines. That stuff all needs to be specified and clear. It shows a level of professionalism that is backable for investors.

I can imagine someone reading this and they are like, “Elliot has his much better in every way friend and brother come on into the show. He is a lawyer and all of a sudden, they are talking about how it is so important to get some of these things done with a lawyer.” I get some inherent skepticism that may come from hearing that. There are mistakes you can deal with and there are mistakes that are very hard to deal with. You have to be an exceptional brand to get over the hurdles that can scare away an investor.

It doesn’t have to be a lawyer. Even if it wasn’t me, if you would talk to Will Madden, he is not a lawyer but he would have said to you, “Here are the five things you should not be doing in a co-manufacturing agreement because it will kill you for a long time.” The mistakes that will harm you are the mistakes you want to get advice on and avoid as much as possible.

The other is always to get references. Talk to other entrepreneurs who have worked with them. That is so key. I’m not plugging Chuck whatsoever because his ego does not need that plugging. What are your thoughts around Fancy and Expo?

That is hard because I miss seeing everybody. I’m in a situation where I had the vaccine and I had COVID. I got so many antibodies. It is worth the trip and depending on who you are and your perception, the minimal to far more than minimal risk, whether that is worth. It depends on whether it is worth it for everybody else. The decisions almost become collective. I would love to go to Fancy and see my friends, you and everybody. If almost nobody is going to go, I don’t need another trip to Vegas. I’m certainly going to Expo. Unless something happens where we have some other crazy breakout, I am committed to going to Expo.

Both are our personal choice. Screw all the pressure, go, not go, all that stuff. You guys decide what is best for you, your teams, and be comfortable with that decision. For me, I would tap into the old Saturday Night Live dating skit, lowered expectations, and do that. Lower the expectations. Take some of the pressure off. The show is going to be smaller. There are going to be fewer retailers and investors there. It only takes one good meeting to make it worth your while. This has not changed.

For those of you who go to any of these kinds of events filled with the “If we build it, they will come” mentality, you are blowing it plain and simple. This is a marketing effort. This is an effort that should have started in December for Fancy. It should have started already for the Expo. That is reaching out and trying to court, get and confirm meetings with the people you want to see at those shows. That is the way to make these useful. It is about the opportunity for aggregation. The serendipitous stops at the booth or meetings are great and wonderful but that should not be what you build your show or investment on. It should be by going after it with some level of pre-planning and so forth.

I know that for those who attended it, and I did Expo East, the entrepreneurs who attended and had booths there will tell you just that. It was a different show. The crowd was smaller. For most that I spoke with, they felt that it met those expectations or exceeded them. They had more time for more productive meetings because there wasn’t quite the same level of craziness.

It comes down to, “Do you feel comfortable?” It is easy to not go because we all woke a little bit institutionally lazy. It is pretty easy to stay home and hunker down. If you can answer that question first, “Am I saying no because it is easier to say no?” If you are good with going, go with effort and with some focus.

Let’s take Expo as an example. In normal years, it is utter fucking madness. It is a total clown show and shit show at the same time. At Expo, I have been on both sides of the usual where everyone has their head-turning in so many directions because they have to meet and speak with so many people that they plan to speak with, plus another 50 people are coming by that they don’t invest remotely quality time with people.

I have been guilty of both talking to someone and being like, “I have got to be somewhere else in ten minutes.” I’m already thinking about that. I have been on the other side of that where I can tell that is what they are thinking. Even if there were half as many people to meet with at Expo, there are still too many people to meet at the Expo and you could qualitatively turn up the dial.

It is 1 or 2 good meetings and it is a great show and opportunity. It is good to see people. I’m going to Expo. I’m still on the fence about Fancy. I said no about Fancy but then I have been there. I said the same for Expo East and went there. I said the same for Nash and went there, BevNET and went there. I will probably make an appearance. Matt Perry is always a ray of sunshine and loves to spread the positive news. He was wanting to make sure everyone knew that KE has canceled their show in New Orleans and had moved to virtual shows. Everybody is going to react in different ways.

This industry needs time to come together. It is important. I have spent a lot of time speaking with the team at New Hope. I haven’t done the same especially with Food Association, but I have with the team at New Hope in Colorado. I know that they are doing everything they can to make sure that it is as safe as possible and compliant with everything that is required within city, county and state guidance. I feel very comfortable going. I have had three shots and COVID so it is a personal choice.

We need to contextualize a little bit of the clouds around some of Matt’s comments, which is he is still smarting from the beating that The Cotter Girls and I gave Matt and the Perry Girls, which I’m happy to talk about because he can’t respond.

One of the bigger challenges is he bowls from the wrong side of the alley coming from Australia. He is already at a distinct disadvantage. The Cotter fans are not particularly competitive, that I know.

I’m telling the girls you said that.

A couple of other discussions. At the onset of this, I was talking a bit about the three brands that are raising on WeFunder. You and I have had a lot of conversations around equity crowdfunding. We certainly did it in the early days. I was relatively unexposed and inexperienced as to what it was. When I started digging into it, I saw some complexities and issues in the early days. You, out of the gate, were fairly anti-crowdfunding just because of the cap table complexity and so forth, but with the evolution there and the changes in Regulation C, you’re now being able to raise up to $5 million and be able to take money in from both accredited and unaccredited.

They have solved a lot of the problems for the cap table because they usually wrap it into an SPV and it is a simple one cap table entry and so forth. I’m curious as to your thoughts and watch-outs for equity crowdfunding. I will go frontal first and say that I am very much a proponent of it and I am encouraging all brands to consider it as part of their capital-raising strategy. It is not the panacea and it is not for everyone, but it needs to be considered as part of your capital raising strategy. Your thoughts.

I was exceptionally negative about it. You are going to spend more money on lawyers because it is complicated. You spend more money to probably raise less money. You have the cap table issues, which are mostly dealt with. You also create a perception that you weren’t able to garner enough interest in an Angel realm. We all hope for everybody that when you get more data, you will change your opinions. I guess I would call myself maybe neutral to slightly positive about crowdfunding now.

First of all, I don’t think that the stigma that I believe when we first started looking at this meaningfully exists. It might exist a little bit. I don’t think it meaningfully exists. Part of the reason for that is there have been some successful companies coming out of crowdfunding. The crowdfunding entities like WeFunder have made it simpler, easier and more streamlined.

In other words, addressing some of these, “You will spend more money to raise less money. You’ll have all these people under the cap table.” They have addressed all those problems. Contextualizing all of this with what we started with, which is it is harder to raise money at the early stages than it was years ago, so why not take advantage of this new tool that has improved it?

That is my take on it. First of all, it is also a great way to test your product market and marketing ability to mobilize so you can build evangelical followers and it does democratize the process. It is a great way to get unaccredited investors who love what you are doing involved in some wealth-building activities. Most of the platforms allow larger checks to come in without there being any platform fees. They allow you to raise using your notes, terms and all of those kinds of things. It is a single cap table entry and it creates the opportunity for those who can market and mobilize to do that.

I would encourage everybody to take a hard look at it. Also, to start supporting it and being on those platforms. It doesn’t have to be supporting it through a ton of money. You can put a little bit of money in but also share on your own social. Let people know, “Support our industry, our founder and our brand.” That is how we are going to get more traction and opportunity. The other thing that I would encourage all of you, and we are doing it as well, is there are hundreds of Angel groups across this country.

If you are in a market and there are 2, 3 or 4 of you in that market who are building brands, or even if it’s you alone, get out and get in front of those Angel groups. Let them know. Many of them are so focused on SaaS and all those kinds of things. CPG and especially natural product CPG have proven during this time frame that if there is a resilient sector in this economy, it is this one. The engine keeps going, the growth keeps happening, and consumers want brands that are focused on human health, climate action, and all of those kinds of things.

We need to bring more Angels in. If Angel fatigue is real, then we need more of them and we all should be taking some responsibility in recruiting them. That’s what we are doing for anyone reading or actively reaching out to Angel groups across the country. We are going to be inviting them into investor nights, bootcamps, and workshops to try to expose them, not only to Chuck’s biceps but to the industry, to some of the success stories, to the numbers, to see if we can get some of that money there. That is the other element of this. You got to find your Angels. If you are in a community, I would be hitting up all the financial planners and asking if they have any high net worth clients that might be interested in making investments in things like this. If they do, make some introductions. You have got to find your money.

It is a good opportunity to shout out to Adam Spriggs for what he has done with The Angel Group. He has consolidated a bunch of people or Angels who invest in our space and many of whom work in our space. They have made a lot of good investments. He has done an awesome job with that. I’m seeing it from both perspectives. It supported a lot of promising brands. He has also done it in a way that has made it better for the Angel investors. Therefore, will reduce Angel fatigue because he significantly vets and minimizes the amount of work any Angel needs to do before they see an opportunity.

The one thing we haven’t discussed in this is that if you have not been an Angel and you suddenly want to become an Angel, it is scary on that end. Suddenly, you are dealing with terms, contracts and things that you don’t know and don’t understand. You don’t know how it impacts you and all of those kinds of things. You are trying to decide what a good deal is and what isn’t, what terms make sense, and all of those kinds of things. I know a lot of folks who say, “I want to invest but I don’t know how to. I don’t know where to start.”

Groups like what Adam has set up is a great place to get together, share and discuss that, talk about it and make it a little bit more accessible, so are some of the equity crowdfunding. There are some cool things coming down the pipe like rolling funds. We are going to stay on top of all that stuff. Put on your Swami hat. What do you see for 2022, the good, the bad and the ugly, from your perspective? You have the unique perspective of being across brands at all different stages in the life cycle and simultaneously involved with funds and what is going on in their mind. If you are a clairvoyant, what happens in 2022?

It stays pretty busy in our space with all the challenges that we experienced in 2021. I’ve read something which was a counter-factual opinion about what might happen in 2022. It was a pretty interesting perspective, which was the strategics needed a year a little bit more to sort out what was going on with COVID and so on. A lot of them took a step back with their venture investments and M&A activity. There is a perspective that they will step that back up.

In any case, there is so much money in the fund realm in our space that it would be very difficult to see a meaningful slowdown in venture investing. The people managing these funds only make their carry for investing other people’s money if they invest other people’s money. If they sit on the sideline and don’t make investments because they don’t like the market, they don’t make money.

Given how many funds have been formed and capitalized, we will continue to see a busy space. There is a decent chance that strategics will become more involved in 2022. There is a point, whether it is late 2022 or 2023, where overall we start to see the impact of inflation, prices, and the impact that has on the consumer demand once it flows through into salaries and normalize itself. It will continue to be a good year for our space. Crowdfunding and other opportunities will help the earlier stage brands.

I think the first two quarters are going to be tough and we will see a spiraling upward of opportunity in the back half of 2022. In our next episode, what I want to chat about other than your bicep routine is a little bit about fund economics and terms. There is so much that was bantered about, thrown out there and discussed. I know there are people reading this who don’t understand what carry is. I know that people are reading this and don’t understand how the economics of a fund work, what Angels are looking for or what it means when we talk about the difference between pre and post-money and valuation cap.

We skip all of this and try to make it more complex than it needs to be just because we need to sound cool and we like the job justified. It would be a whole lot more beneficial if we could put some real layman’s terms against this stuff and make sure that there isn’t such a dissymmetry of understanding. Let’s do a little bit of fundraising 101, 201 on the next episode. That’s it. Brothers From Another Mother, episode one, done in the books. Thanks, everyone, for joining. We’ll see you next time.

Important Links

• Chuck Cotter

• WeFunder

• RIFF

• Spinster Sisters

• Tia Lupita

• The Angel Group

• Episode – The 4 Secret Ingredients For Growth And Success

About Chuck Cotter

I advise consumer products brands and investment funds in capital raising, exit, and acquisition transactions. I’ve served as a mentor or judge in dozens of consumer-focused incubators and pitch competitions, including FoodBytes! by Rabobank, ExpoEast, and Naturally Boulder. Our consumer team closed over sixty financing and M&A transactions in the consumer space in the prior year and represents over 100 brands and top-tier funds, where we also serve as outside general counsel. The absolute core of my, and my group’s, philosophy to the practice of law is that clients are not transactions, and we are not merely service providers. We specialize in the consumer space so that we can be more.

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