I launched Rejuvenation Water in early 2016, using my savings and a Virgin Start Up Loan. Raising funding has been a continuous process over our first two years – we’ve raised £400,000 in equity funding and just launched our third seed round.
For me, the third funding round is the most integral and I’ll explain why. But first, let me start from the beginning.
Ambitious food and beverage companies like ours need to build a commercial infrastructure to maintain sustainable growth. It’s unlikely that a business starting from zero is ever going to achieve sales that will offset the overheads immediately. With initial slim margins and the required ongoing investment, there will be a monthly cash burn.
Also, the most likely exit for a business like Rejuvenation Water is a trade sale to one of the industry’s giants, due to their ability to distribute to 100% of the market.
Reaching breakeven point
I commonly get asked about breakeven points for Rejuvenation Water but, for me, this isn’t important. As emotionally attached as I am to my business, the aim from the outset was to grow it as quickly and sustainably as possible and to hit volumes whereby we create a compelling case for a trade sale.
Breakeven will naturally be achieved as a by-product of this growth. Until that point, we will continue to invest in our entry, activation and expansion into domestic channels and international markets. This provides a requirement for investment to fund the cash burn and to provide working capital for growth.
Each funding round has provided its own unique challenges but the third funding round is pivotal for an FMCG company and here’s why.
The third funding round is where the business needs to come to market with material commercial traction.
From the very outset, at our soft launch, we had investor interest. However, when you launch legal structure isn’t a high priority as you focus on seeding the brand. This means that when we were approached by an investor at a trade show in September 2015, it took until April 2016 to close the investment.
After appointing a law firm to draw up the share agreement, and with the end of the 2016-17 tax year coming ever closer, we managed to acquire our first £90,000 investment. At the time, I was working with my sales manager from my Vauxhall apartment. I would stretch the company’s overdraft to the limit and hadn’t paid myself a penny since quitting my job in October 2015. Closing this round was met with a sense of relief, but we didn’t have any time for reflection.
Small Enterprise Investment Scheme (SEIS) is the mechanism that makes the first round of funding attractive. It means investors only risk 25% of their capital via tax relief, whilst providing 50% of the investment back to the investor via income or capital gains.
We later closed another £50,000 of SEIS funding with an angel investor.
Our second round of seed funding
You must show that you’ve developed the potential shown from the initial round. And that you hold a growth trajectory that will bear fruit for the investor over the coming years.
The Enterprise Investment Scheme (EIS) is a mechanism that helps here. While the SEIS limits risk to 25% and rebates 50%, the EIS limits risk to 55% and rebates 30% of the initial investment.
In this round, we decided to use crowdfunding. This provided us with a way to raise money and gain brand exposure. We’d just agreed on a launch with Holland & Barrett and John Lewis and we were seeking to leverage this growth trajectory in this round.
After 30 days on Crowdcube, we managed to close almost £190,000 from 258 investors.
Working on our latest seed round
This takes us to today when we’ve just launched our third funding round on Seedrs.
The third funding round is typically a sticking point for most businesses. The first takes care of itself with the SEIS tax breaks available. Initial traction and the potential of 100-plus multiple returns attract investors to the second round.
The third funding round is where the business needs to come to market with material commercial traction. Investors need to see sufficient momentum to show the business is making an impact and has a long-term future. A track record of investing previous funding wisely is also integral to attract investment and re-investment.
I believe we are launching this funding round with a compelling growth story and a very strong growth trajectory. Since our second funding round, we’ve grown our distribution by over 800%, launching into the likes of Waitrose, Costco, Ocado and Holland & Barrett alongside growth into five international markets. We expect to grow revenues by over 1,000% for 2018-19 whilst increasing our gross margins by 50%.
The next 60 days is certainly going to be an adventure! You can follow the progress of our raise here.
The Pitch works with Crowdcube to provide free advice to startups thinking about raising funding. Click here to find out more about the competition.