Food Venture Financing News - Weekly Issue No. 2
In This Issue:
- COVID-19 and Food Venture Financing
- Links to Topical Food Venture Financing Content
- Disaster Relief Efforts in Our Industry
COVID-19 and Food Venture Financing
The Coronavirus Aid, Relief, and Economic Security (CARES) Act will provide $350 billion of 100% federally guaranteed loans for small businesses that maintain their payroll. Additional payroll tax credits and tax payment deferrals will be available to help small businesses keep employees on their payroll. Loans will be fast-tracked through the SBA with limited underwriting. Eligible borrowers should work with their lenders to get as close to the front of the line as possible. For more information, please see this comparison chart of SBA EIDL and SBA PPP. Funding may start to become available within the next few weeks. This will provide non-dilutive working capital to many emerging food & beverage brands. Please see Dan Hardin's summary for additional insights.
Supply vs. Demand
Some of the well-established emerging brands we work with have reported 2x normal sales during the surge in grocery purchasing in the last two weeks. Online purchasing is accelerating at an unprecedented pace. In most cases the supply chain seems to be keeping up with food sector demand at the moment. Many food companies are considering creating redundancy in their supply chains in anticipation of future production bottlenecks and/or are requesting better terms from their vendors. The current thinking is that up to six months of inventory may be required in some categories to address potential ingredient bottlenecks. Some food service distribution is pivoting into grocery. New product launches are likely to be severely curtailed in the near term.
Food venture investors will be initially focused on their existing investment portfolios in the current environment. Those investors will have difficulty determining valuations for new investments outside their current portfolios in the near term. Existing term sheets for brands not dependent upon foodservice channels are still likely to get funded, though expect extra caution in diligence, definitive terms, and structured valuation approaches. Companies in need of outside capital should consider seeking bridge notes, SAFE offerings, or convertible debt (with no fixed valuation) from their existing investors until the pandemic begins to subside.
Many well-funded emerging food brands are seeking to maintain cash reserves for up to 12 months. Some are drawing down on their lines of credit to do so. Smaller brands are seeking merchant financing from credit card companies like Amex. PayPal and Quickbooks also provide small business loans. All of these loans will require personal guarantees. Commercial lending institutions that are active in our industry are evaluating the CARES Act to develop their strategies.
Links to Topical Food Venture Financing Content
- COVID-19 and the investment landscape for early stage brands: ‘There are a lot of folks out there very skittish right now’
- Food, beverage & CPG players ask legislators, regulators for relief from negative impact of Covid-19
- The Effects of COVID-19 Will Ripple through Food Systems
- Raising capital in a pandemic: ‘There is plenty of dry powder looking to get to work in this market’
- Coronavirus will change the grocery industry forever
- Coronavirus (COVID-19): Small Business Guidance & Loan Resources
- Payment Protection Program FAQs for Small Businesses
Please note that Naturally Bay Area, the Hirschberg Entrepreneurship Institute, Natural Products Consulting, K2 Financing, and The Intertwine Group will be hosting a free webinar on Wednesday, April 1 from 3-5pm ET on "Financing Your Business Through Turbulent Times While Not Running Out of Cash." Please contact us if you would like to be added to the invitation list.
Disaster Relief Efforts in Our Industry
Visit the links below to learn more about organizations that are working on COVID-19 relief efforts:
At Davis Wright Tremaine LLP (DWT), we are proud to have one of the largest Food & Beverage legal practices in the country, with over 40 attorneys representing food innovators, entrepreneurs, and investors at every level of the food chain, from Farm to Label.
Please contact our Food and Beverage team if we can assist you in any way in these unprecedented times.
The facts, laws, and regulations regarding COVID-19 are developing rapidly. Since the date of publication, there may be new or additional information not referenced in this advisory. Please consult with your legal counsel for guidance.
DWT will continue to provide up-to-date insights and virtual events regarding COVID-19 concerns. Our most recent insights, as well as information about recorded and upcoming virtual events, are available at www.dwt.com/COVID-19.