Christopher Gale and Justine Moldenhauer | YF Funding
The executives leading the joint venture of Young Foodies and Spayne Lindsay & Co discuss investment trends and best practice to secure funding for start-ups
Christopher Gale and Justine Moldenhauer spearhead YF Funding, a corporate finance advisor attracting investors with ‘smart capital’ to invest in and mentor challenger brands. The company is a joint venture between Young Foodies, a community network of budding UK food and drink brands, and consumer financial advisory firm Spayne Lindsay & Co.
YF Funding entered the market in January 2019 to support small business owners looking to raise capital at their most critical growth phase, with fundraising opportunities of £250,000 to £5 million-plus.
Since its inception, YF Funding has seen hundreds of brands looking for investment, but the team claims to be very selective about the number of clients it presents to its investment network. Since launching, the team has supported 20 companies to raise external investment.
Gale explains that YF Funding was set up to reduce the friction in the fundraising process through the use of an easy-to-use tech-enabled investment platform. “Brands looking for investment can get in touch with a member of the YF Funding team by enquiring on the ‘Investment and M&A’ section of the Young Foodies website,” he says.
As well as supporting fundraising seed rounds from £250,000 upwards, YF Funding offers a bespoke ‘hands-on’ corporate finance advisory service for scale-up businesses looking to raise £2 million-plus of growth capital or looking for professional advice on buy-side or sell-side transactions.
More than 400 investors are part of YF Funding’s network, and Gale says the community includes high-net-worth individuals, venture capital funds, family offices and corporate venture capital investors.
“Our investors are passionate about consumer brands and have experience working in or managing fast-paced consumer businesses,” he says. “While some of our investors are passive, most investors are willing to contribute their time as well as their capital to supporting early-stage businesses on their growth journey.”
“Interest in investing in early-stage businesses remains, due to the vibrancy of the challenger brand community in the UK”Christopher Gale, director YF Funding
Gale reveals that equity investment across the food and drink industry has grown exponentially over the past few years, increasing from £628 million in 2017 to £1.29 billion in 2019.
“Investment appetite has undoubtedly been impacted this year by Covid-19,” says Gale. “However, interest in investing in early-stage businesses remains, due to the vibrancy of the challenger brand community in the UK and the effectiveness of the tax-advantaged schemes available for early-stage investing, such as EIS, SEIS and VCT.”
Health and wellbeing, and convenience are two of the overarching trends in the food and drink space globally, and is a trend YF Funding has also followed with the companies it has worked with over the past year.
“Specifically, there has been investment activity in plant-based and vegan categories, particularly meat alternatives,” says Gale. He says other trending investments are alcohol alternatives, gut health, allergen-free, be it gluten, dairy or soy, and nootropics and nutraceuticals.
Whether it is a capital raise or a transaction between companies, Gale reveals that the most common query from start-ups and investors alike is about understanding how much a business is worth.
“We encourage both investors and entrepreneurs to do their research and approach valuation from an informed position, considering comparable fundraising transactions in the market to benchmark the valuation of an investment opportunity,” he explains.
“Online direct-to-consumer businesses have flourished during the lockdown period, particularly subscription ready meal and meal-kit brands”Christopher Gale, director YF Funding
In the context of the Covid-19 pandemic, Gale believes that the most attractive brands to investors are those that have a diversified business model, with the ability to pivot their business to online sales in response to changing consumer buying behaviours.
“Online direct-to-consumer businesses have flourished during the lockdown period, particularly subscription ready meal and meal-kit brands such as Allplants and Pasta Evangelists,” he says.
Top fundraising tips
Moldenhauer previously worked as associate director at Spayne Lindsay, so she knows one or two things about advising companies and investors in the investment arena. She reveals her top five tips for fundraising.
“Be aware of the different sources of capital available to you at the different stages of your funding journey,” she says. “For example, businesses tend to approach venture capital funds when they are far too early-stage and should instead raise an angel round.”
Moldenhauer’s second tip is not to treat your business in isolation. “Speak to other entrepreneurs and be aware of the fundraising activity of the competitors in the market,” she says. “Research their growth stories to understand what routes for growth are available to your business.”
“It’s also important not to underestimate the time it can take to raise external funding, as it can often take longer than you think”Justine Moldenhauer, head of YF Funding
She also suggests that start-ups research investors before approaching them. She explains: “Look at their investment focus and make sure there is a good fit with your business and that there is no conflict of interest with their current portfolio.”
For Moldenhauer, it’s also important not to underestimate the time it can take to raise external funding, as it can often take longer than you think.
“A seed round can take three-to-six months and a Series A round can take six months-plus to complete,” she says. Moldenhauer recommends start-ups start planning their next funding round early on, when the business doesn’t need the capital, to ensure it has enough runway to complete the fundraising process.
The final tip is to be aware of the range of techniques that investors will use to value early-stage businesses and take advice on valuation where necessary.
Advise to investors
Moldenhauer recognises that key to investing in the food and drink space is diversification, by adopting a portfolio approach to minimise exposure to risk.
She also recommends investors make use of the various tax-advantaged schemes available in the UK, where possible.
When it comes to conducting due diligence, Moldenhauer advises having a particular focus on the key people driving the future success of the business.
Moldenhauer believes joining an angel network to syndicate on deals alongside other like-minded investors is also good practice. She advises investors to choose an industry or business model where they have prior experience and understand what level of involvement and support the investee company requires from you besides capital.
Looking ahead, Gales and Moldenhauer admit YF Funding is focused on the UK, but the company would be open to supporting international businesses looking for investment to enter the UK market.
“We also work with pan-European and trans-Atlantic venture capital investors who are interested in investing in UK-based businesses,” Gale concludes.