Powerful Yogurt has been making high-protein drinks and snacks for people with active lifestyles since its launch in March 2013.
For its first four years of business, angel funding was the company’s only source of outside capital. But as it entered 2017, growth was skyrocketing, and Powerful Yogurt found it needed more capital to keep up with demand. The company faced an important decision: whether to seek equity or debt funding.
According to Powerful Yogurt’s founder and CEO Carlos Ramirez, the choice was clear. “When all you need is working capital, like we did, I think credit is the right option,” Ramirez says. “Equity funding has its time and place, but it’s not for everything. If you’re an entrepreneur, it’s very important to understand that every time you raise equity your company gets diluted.”
The CPG gray area
Thanks to its impressive growth — Powerful Yogurt had been doubling sales year-over-year — the company had no shortage of credit providers to choose from. But when Ramirez started to dig into the details of various offerings, he wasn’t always impressed.
On one hand, they were approached by a number of smaller lenders that simply didn’t pass the smell test. “We would get contacted by a loan provider we’d never heard of, and very quickly figure out that they were just not credible,” Ramirez says. “There’s a lot of stuff out there that’s almost like fraud.”
But traditional big-name bank lenders came with their own drawbacks. “We were in this gray area: We were big enough to get the attention of traditional banks, but they just didn’t understand our business. They’d say they could lend a certain amount, but it would be very high maintenance. They’d want things like personal referrals, and personal guarantees from other people affiliated with the company,” Ramirez says. “We’re past that point. We’re running a real business here: we have distribution, our product is sold in Wal-Mart. They didn’t grasp our scale.”
A fresh approach
CircleUp Credit Advisors offered something different. “As soon as I talked to CircleUp Credit, it was like night and day,” Ramirez says. “CircleUp was very understanding of the business we have, more than anyone else we talked to.”
Thanks to CircleUp’s years of expertise working closely with CPG companies, CircleUp Credit Advisors was able to quickly and accurately assess Powerful Yogurt’s operations and offer a revolving line of credit specifically tailored to the needs of a high-growth CPG company.
When determining a company’s creditworthiness, CircleUp Credit Advisors starts by using its internal data science platform Helio, which tracks over one million early-stage consumer and retail brands across the U.S. and evaluates them across a wide variety of product categories. Helio allows CircleUp Credit Advisors to have a significantly shorter loan application and evaluation process than other lenders who rely on lower tech methods. Meanwhile, CircleUp’s familiarity with the consumer product industry means that the focus is on metrics unique to the CPG space, such as trade spend, purchase orders, and distribution partners rather than EBITDA and personal assets.
After Powerful Yogurt began drawing on its financing line with CircleUp Credit Advisors, Ramirez said the change he saw was two-fold. First, the company had more flexibility to increase its production and keep up with growing demand. Second, it was able to start considering what it might want out of an equity fundraising round — and start approaching the process thoughtfully.
Credit now, stronger equity later
For Powerful Yogurt, opening a credit line wasn’t an alternative to an equity funding strategy, but a complement to it. Since access to credit solves any working capital crunches the company might have encountered, any equity funding it takes on will solely be used for the bigger picture — to grow the company and invest in marketing and scale.
“If you need working capital for your business, it’s easy to make the mistake just to raise money quickly and not think about who you are getting on board. But you’re married to your investors forever,” Ramirez says. “We now have more time to really think, and evaluate our partners for the long-term.
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