Democratizing Investments in CPG Companies

The world is moving toward being decentralized in every area from the internet to big business. What that means is that the way we do things will change, and in some cases, those things are already vastly different than the norm we all have grown accustomed to.

Funding and investments are one aspect of the business world that for a long time have operated in silos. But the tide is shifting, and David Koifman is helping to democratize the world of investment through his work at Kickfurther.

Kickfurther is an investment platform that uses the power of crowdfunding to help CPG companies fund their inventory and production runs. Most of the deals on Kickfurther are fully funded and closed within minutes, which proves there is an appetite for this kind of investment in the general market. On this episode of Up Next in Commerce, David explains the model and its benefits to both businesses and investors, and he explains how crowdfunding will continue to make an impact on ecommerce companies in the decentralized future. 

Main Takeaways:

• Democratizing Investment: For too long, companies have been at the mercy of financial institutions to help fund early production runs or other operational costs. And while that solution works for some, we think that new solutions are still needed. Opening up investment opportunities to the general public is a peek into where the world of funding is heading
• Keep Proving Yourself: When a company gets a bank loan and pays it off, the business is seen as more successful and its credit rises. A similar thing happens when a company uses crowdfunding for inventory: by delivering the inventory the crowd has purchased and then opening up a new round of funding, a business is building credibility with a consumer and broad investor audience that it otherwise would not have been able to reach.

For an in-depth look at this episode, check out the full transcript below. Quotes have been edited for clarity and length.

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Transcript:

Stephanie:

Welcome back to Up Next in Commerce. This is Stephanie Postles. And today we're talking to David Koifman, the head of growth at Kickfurther. David, welcome to the show.

David:

Hey Stephanie. Great to be on the show.

Stephanie:

I'm glad to have you. So I was looking through your background and I was hoping we could start there because I saw that you've been in sales and partnerships and business development, and it seems like you've had a wide ranging career. So I wanted to hear a little bit about what you did before Kickfurther, and what brought you here.

David:

Before Kickfurther? I was in marketing right out of college. And then I went into the world of startups in financial technology. I began as a sales rep and grew within a small organization to a much larger organization, led the team, and basically built out sales account management partnerships. And then we were getting to a stage of growth where I wasn't feeling the excitement that I initially felt and joined the team at Kickfurther to do it all over again. So I've been here three and a half years. It's been awesome. We've grown tremendously, and I'm very excited about the next few years to see where it will go.

Stephanie:

Awesome. So you've always, always had the startup bug, where you're looking for that crazy hectic environment, fast growth.

David:

Yeah. It's like I see myself as a sales guy who doesn't like just selling. What I like is building the sales process, building the team, understanding the customer. So a little bit more beyond just knowing individual customers and building a book of business.

Stephanie:

Yep. Got it. So tell me a bit about what Kickfurther does.

David:

So Kickfurther solves a unique problem that every consumer goods business faces in their early stages of growth. You'll see a lot of companies are funding on platforms like Kickstarter, Indiegogo. These are crowdfunding platforms where businesses raise money to fund their first production run. Production run is when a business is producing inventory. Inventory is the product that they sell. So as that business completes their crowdfunding campaign or determines that they have product market fit, they will need to come back and order more product. Sometimes, they're buying that product from a supplier, maybe a manufacturer in China or here in the U.S., somebody that produces a finished product, and then they receive it in their warehouse and they sell through it. Sometimes they're buying a bunch of raw materials and making a product themselves. Usually that's the case in food or some health and beauty applications.

David:

But the bottom line is that costs a lot of money, and the faster the business grows, the more they have to invest into inventory upfront. You have to pay for that inventory, it takes months to produce, and then you get it into a warehouse and then you start selling it to customers. And then your customers start paying you. So there could be a long amount of time from when you need to outlay that cash to produce the inventory until you're able to recoup that revenue and put it into the next production run. So as businesses grow, they encounter this cash flow pinch, and Kickfurther solves that pinch. We have developed a marketplace on kickfurther.com, where we will vet companies and structure deals. And then a community of users will come to those deals and participate in purchasing the inventory for that business. The business will then produce the inventory, sell it, and pay back Kickfurther and the users who participated in the deal; we'll make some money and get to do it all over again.

Stephanie:

Yeah. Very cool. It reminded me of, I saw quite a few real estate investment platforms like this too, where you get the fund, the next three or whatever it may be. So it seems like they're popping up in different ways to have a Kickstarter approach, but also getting people in the market who have the funds to be able to fund this inventory or investments or whatever it may be. So is that the main way that Kickfurther is different, where it's sourcing investment from the community instead of traditional lenders or actual investors?

David:

Yeah. So I mean, what we're doing is using the power of crowds rather than financial institutions. There's a lot of solutions out there that take money. They borrow money from banks and other financial institutions, and then present it to businesses and take a cut. And what we're doing is creating that opportunity for any individual on the internet, somebody who has money sitting in their bank account, and they want to use that money to make money by participating in a purchase of inventory for a consumer goods business. And so what we do is, it's not a loan. It's not an investment, it's actually a consignment agreement. So what we're doing is purchasing inventory for a business and consigning it to them to sell on our behalf. And as the business sells that inventory, then that triggers the consignment, and then we invoice them for it and they buy it back plus their cost of funding.

Stephanie:

Got it. Okay. So how do you make sure that you're bringing on companies onto your platform that won't make you nervous, where it's like, are you actually going to sell all this inventory? Because I'm not trying to cover that cost.

David:

Yeah. Well, there's a pretty thorough diligence process that we go through for every business that goes on the platform. We evaluate everything from their revenues to their supply chain, to how they distribute that product. And it's all verified through documentation. So it's not like anybody can come to us and say, Hey, we need money," and then just go up on the platform. There's a diligence process, just like there would be going to a bank or any other financial institution. I would say our uniqueness is we look at supply chain and distribution, and we assess risk in a very specific way. It's different from a bank. So some of our customers, everybody wants to go to a bank. Bank money is the cheapest. You want to go to a bank and get a line of credit and fund your business that way.

David:

However, if you're a small business, whether you're a restaurant or a clothing store, the bank looks at you the same. They say, how long have you been in business? Are you profitable? How much have you sold? Whereas we're looking at a very specific sector of small businesses that are consumer goods, businesses with supply chains. And we understand the intricacies of that supply chain and then how they get that product to their warehouse, get that product from the warehouse to the customers, and collect that money through their distribution channels. And so we use that information to determine who has access to capital on Kickfurther.

Stephanie:

Got it. Yeah, what's cool is that you guys are acting as like the trusted source, so that the community doesn't have to do as much due diligence, or I don't know if they do any at all, but you're acting as like the mediator, to be like, "We've done all the research. We know this company, and it's for the most part trustworthy," and then people can come in and fund that based off of your research and due diligence.

David:

We do verify all the information that's presented about the company. The individuals still do decide which deals they participate in. And that's based on what they read in the public profile. Some of them will go investigate more. Some of them will actually ask questions on the platform. So you have the ability as a participant to ask the owner or CEO questions before you participate, or during the deal, about distribution or how they're making products, or what if they're worried about competition? Any topic is welcome. There's a lot of additional diligence that an individual can conduct before they make the decision to participate.

Stephanie:

Cool. And is there a risk rating of, okay, this company is more of a startup one, this is going to be their first time raising money here; we're going to give them a risk rating of this? so maybe you have a higher payoff because of that if they end up selling all the inventory, or how do you guys think about the risk-based approach when it comes to getting investment?

David:

It's not as simple as just boiling it down to a one to 10 scale or something like that. But there's a lot of categories which each one of the customers that we fund will be shown in. And so you can look at how many years in business, what their revenue range is, how many different wholesale buyers they have, how many times they've gone through the supply chain and produced with their supplier. So there's a number of different elements that, that are categorized in terms of risk.

Stephanie:

Got it, cool. And what is the average return for someone? If I were to go in there and invest right now in a deal, is there an average range of what you make over one year or that a longer time horizon?

David:

So the deals range in duration from two to 10 months. So the way we compare deals is on a profit per month basis, and businesses will offer anywhere from one to two percent per month. And so you can annualize that in a way where, if you participate in a deal and then that money comes back to you, then you can redeploy it into another deal. And if you continue doing that, let's say 1.5% a month will translate to about 18% per year.

Stephanie:

Got it, cool. So what kind of struggles do you see ecommerce brands having right now when it comes to ... Obviously not having money to fund inventory is the high level problem, but maybe what kind of sticky situations do you see brands getting in by either waiting too long to get funding or not even thinking about it. What are some stories that you have around the whole inventory funding?

David:

Yeah, I think the biggest thing to do is to be proactive and understand what solutions are out there and how to use them before that need comes around. Because being desperate is the worst time to be looking. And if you've run out of inventory as a business owner, you're missing out on opportunities to sell. So like you could have a really successful Q4, and then you get to Q1 and people still want to buy your stuff, but you're all out. And then you placed an order with your supplier, and the supplier takes two months to produce. And then maybe you're in a position where you have to air freight instead of going on the water and you have to pay a lot more money to get it there faster. So there's all sorts of obstacles that come into play. And that's ecommerce.

David:

A lot of the businesses that we work with are multi-channel sales. So they're selling ecommerce and then they're selling to target or Best Buy or REI. And those companies will place orders, if you don't deliver those orders when you say you will, then you're probably going to lose that opportunity or at least jeopardize it in the future. So it's important to make sure that you have the inventory ready when you're going to need it. And you also don't want to have way too much. So if you buy a lot, and then you don't sell at the rate that you expected, you have a lot of cash sitting in the form of inventory in your warehouse. Sometimes it's going to go bad, if it's a crude product or it's just cash that you want to spend on advertising to sell the product, but you can't because you don't have it.

Stephanie:

Cool. So if I'm a new brand and I'm looking to crowdfund my inventory, what are some best practices that attract the investors in the crowd? What kind of things do you see connecting with people? How would I write up a good post right now to attract funding for someone to help with my inventory?

David:

The most important things are that you've done it before. So we don't work with businesses that are doing their first production run. We did in our very early days, and, as you can imagine, it's much higher risk. So we only work with businesses that have at least $150,000 in sales. And once they've demonstrated that, it's good to talk about how you work with your suppliers, what sort of things you do to ensure that you're going to receive the product that you want to receive within the timeframe that you plan on receiving it. So being conservative with time estimates, making sure that you have testing in place so that once your supplier says the product is ready, that somebody goes in and looks at it and you don't get a bunch of broken stuff.

David:

And then once it arrives, it's important that you have reliable distribution. People want to see good reviews. People want to see lots of reviews. And I would say, if there's somebody who's selling to a wholesale customer and they just have one customer who is placing large orders, that's pretty high risk. Because if that customer decides they don't want to buy anymore, who are they going to sell that product to? So those are the kinds of things that users on Kickfurther are taking a look at, reading through the profile, to decide if they're going to participate. One thing I will say that we haven't touched on is how fast these deals fund. So it's good for us at this point. It means that there's an imbalance in the marketplace in our favor. So the deal flow that we put up gets funded oftentimes in minutes.

Stephanie:

Yeah, I know. I noticed that, because I'm like, "Hmm, maybe let's see if I should investigate these deals." And I think it looked like everything was sold out, or it was all met to the limit. At least the two I was looking at. And it seemed like it happened really quick, where I'm like, "Hmm, this is competitive."

David:

Yeah. It's super competitive. So we have the ability to scale our deal flow pretty substantially without having a concern for deals funding fast enough. And as a user, if you're thinking about participating, you're going to get emails, you got to act on it fast. And so we put deals up. They have about 24 hours before they launch. And they always launch at 5:00 PM Eastern Standard Time. And if that, there's hundreds of people that are clicking, trying to get into deals like within a minute or two of 5:00 PM, when they usually fill up.

Stephanie:

Wild. I think you need more deals then for people to get in on.

David:

Yep. That's my job. I've been working hard on it. So we we've grown quite a bit. We have aggressive growth goals for 2021, and so far we're on track. It's early, but it's an exciting time to be at Kickfurther.

Stephanie:

That's great. So what brands are you trying to get on the platform right now? Who are you trying to convince to get on there?

David:

There's a lot of repeat customers, and we have really good retention. We average over four deals per customer, but they're all across the board. We're pretty product agnostic. We serve anybody who either buys or makes physical goods and then sells them with the exception of regulated things like alcohol, tobacco, firearms, THC, anything that's temperature controlled or perishable. Because of the consignment agreement nature of the contract, the inventory is our collateral in these deals. So we don't want it to go bad. And we want to make sure that it is available to anybody who participated in the consignment, they have to be able to purchase it.

Stephanie:

Yep. Oh, got it. So if the inventory doesn't sell out, you guys essentially have it in a warehouse, and me as an investor could be like, "I want one of those t-shirts then." Is that how to think about it?

David:

Yes, that is a way to think about it. So if the business is unable to sell the inventory, and they're unable to pay back Kickfurther and their users for the cost of it, then Kickfurther, based on our contract, will require a delivery of that inventory to us, at which point we'll attempt to sell it, and all the proceeds of that resale goes to the participants in that agreement.

Stephanie:

Have you had to do that yet?

David:

We have had to do that. We've been around for seven years. So it's happened, but these days it's very infrequent, and that's why these deals fund so fast as people who are participating on Kickfurther have great returns and they tell their friends about it and they the deals. So the performance, overall, is strong.

Stephanie:

Yeah, got it. So when I'm thinking about, as a business myself, getting credit and working with banks, you're building up your business credit worthiness. When you get traditional loans, I know we had to take on a couple of last year and it does help being like, "Oh yeah, we took on this size loan, we paid it off." How do you view crowdfunding in that kind of sense? Is it building up a business's credit worthiness or is it so siloed still at this point that it doesn't actually build up the financial view of the business

David:

In some ways, it does, and in some ways it doesn't. It isn't considered debt to them. So it doesn't operate the same as taking out a loan and paying it back. But there's a lot of transactions that still occur that show the business is selling and making money. So their business credit will improve as a result of that. But yeah, it's kind of a mixed situation.

Stephanie:

Yeah, yeah. That seems tricky. Because it seems like a really good avenue to not only help the businesses, but then also bring in a lot more players. It seems like it's much more decentralized, which is great. The whole world's moving in that way, but if you can't really use it, be like, "Oh, look at these three different loans I have right now, the market funded them." I feel like the world needs to move to that place, the more of that crowdfunding and the decentralized approach is coming to the forefront.

David:

Well, the world is moving in that direction, but what's really cool is Kickfurther moves in that direction with the clients themselves. So as we establish a relationship with a business and they come back for repeat deals, we increase their limits substantially. And they have access to lower rates. Basically, they're earning credibility with this community. So let's say they offer one and a half percent per month on their first deal and they complete on time, and then they come back, they can offer less. It's really in the hands of the business owner what they want to offer, and the community, the marketplace, will decided if that business has earned that rate and are able to fund it at a lower cost. So as a customer at Kickfurther, as your revenues grow, you'll be able to take on more funding with Kickfurther, buy more inventory, and do it at a lower cost.

Stephanie:

Got it, okay. So you're building up that credit worthiness, just in a different hub, but you're doing that by just performing well and, yeah, that makes more sense.

David:

We will work with businesses who are starting at 150,000 in annual sales, and all the way up to 30 million. So there's quite a range of growth in service by Kickfurther. There's businesses that, once they reach a certain stage, either they're not accelerating as much as they used to and they have the cash flows to fund their own inventory and continue producing, or there's other businesses that have been long and around long enough where they are now exciting to banks and other financial institutions that have very low cost lending.

Stephanie:

Yep. Is there any guidance or any point where you're like, "Oh, you should probably just reinvest revenue or profits instead of getting a loan." Do you ever give guidance on that? Because I could see a lot of businesses always being like, "Oh, at such a low rate, why don't I get loans?" But then quite a few businesses have a lot of cash on their balance sheet too, and they don't know how to fully deploy it, but they're just so used to getting low interest loans. Is there any point where you've actually advised a company like, "You guys are good. Maybe you should reinvest profits." Or do you even see it from that angle?

David:

I don't think anybody's coming to us if they don't want additional capital. And I am always very transparent with everybody, and [inaudible] make sure you know, what your options are. We don't make money off convincing you to do one deal. We want that long-term engagement [inaudible] coming back. But I think the reason people come to Kickfurther is they have an opportunity with a buyer, or sales are growing so fast and in a channel where they want to launch a new product, they just don't have the cash to be able to do that. And that's why they're looking for funding solutions. And maybe they go to their equity investor and they say, "Hey, I need some additional capital to be able to take advantage of this opportunity." And the VC says, "You know what, why don't you seek some non-dilutive capital for that? That's a much better use of, why give up five or 10% of your ownership just so you can produce the next run when you're going to have to do another one and another one and another one after that?"

Stephanie:

Yep, yeah. That makes sense. So, since you're deep in the crowdfunding space, I'm sure you just see opportunities all around. So much stuff could be crowd crowdfunded. Where do you see that world headed? What kind of new opportunities do you see popping up in that space? Or what do you think is missing right now, where crowd funding could be meeting a need?

David:

I think there's a lot of money and power in crowds. And there's the ability to cut out middlemen and big entities that have been around for a long time and empower individuals to help these business owners grow. It's also not just the money that's coming from them. Why are people deciding to participate in these deals? A lot of them believe that they have an advantage and they have the knowledge in the space. So maybe they want to help the business owner. I've had plenty of users come to me and say, "Hey, I actually work in this space. And I have a couple of distribution opportunities that I'd like to connect with your client about." And I'll make a direct introduction, and all of a sudden they acquire a new sales channel. Or somebody who's got a lot of money and they want to do a side deal. Yeah, I am looking for equity investors, let me connect these two people.

David:

So those kinds of things happen rather frequently. And that's not going to happen when you're working with a sales rep at a bank. Because everything's coming from the bank's bank account. And actually the money that the bank is using is just coming from account holders and their deposits. So if you're storing money in a bank, the bank is using that money to lend to businesses and whoever else. So we're cutting that out of the mix. And I think it's good for everybody involved.

Stephanie:

Yeah, I think it's a good reminder too, about diversifying investments and why finding opportunities. Yeah, you don't want to just keep your money in a bank and let inflation just wither it away to nothing. So, yeah. It's cool to hear about opportunities like this that are very different, but will definitely help diversify your portfolio.

David:

Yeah. And it's really fun, from our standpoint, to work with all these young business owners. I mean like the business is young, not the individuals per se, but some of them just started a few months ago and they've had some real success. Some of them, it's a family business that's been around for a couple of generations, and all of a sudden they're discovering that ecommerce is a way to skyrocket the business. They have a really good product; they just haven't put it in front of the right audience. And they're figuring out how to make this happen financially, and we're there to help them. And it's just really great to be side by side with them as a partner and see that growth.

Stephanie:

Yep. Yeah. It seems like there's also could be a lot of international opportunities. I know that's a lot more risky once you start going that route and finding people who are doing much smaller scale ventures and being able to help back that, then turn into a bigger thing. But I have read a few stories of finding people doing amazing things in other countries, but they just don't have any kind of funding. Or they can't buy inventory for even 10 things to sell. And yeah, it seems like there's a lot of opportunity around the world, but of course it'd be much more risky trying to vet those projects and companies.

David:

It is definitely a challenge. It's something that we're considering doing down the road. You probably start with Canada and some EU companies, but there's different regulations in different countries. And also, if we get into a bad situation with a client, we have to pursue them legally. So working in a foreign legal system is very costly, and we try to help businesses out, and so our margins are pretty slim. So being able to afford that kind of activity is probably a ways down the road for us.

Stephanie:

Yeah. So what are you guys looking forward to for the next, maybe, two to three years? What are you planning for? You said you were going to be growing really quickly this year. What kind of things are you putting in place right now and where do you want to be in the next couple of years with Kickfurther?

David:

I'd say we want to be a household name for inventory funding. A lot of people are starting their own businesses. And we want to create an opportunity for them to grow at the rate that they're able to grow and have access to capital. And so our goal is to put our name out there in a way where it becomes recognizable to all business owners who are in the right space for us.

Stephanie:

Yep. Very cool. Yeah, Amazon be a good space, but then sometimes those one-off products that are being sourced and sold on there. So maybe that's not the best space. I'm not sure

David:

Those people are business owners and growing too. So if you have one product that's selling really well, and that's what you want to focus on, sure, that's great.

Stephanie:

Cool. All right. Well, let's shift over to the lightning round. The lightning round is brought to you by Salesforce Commerce Cloud. This is where I'm going to ask you a question and you have a minute or less to answer. Are you ready, David?

David:

I'm ready.

Stephanie:

All right. What one thing will have the biggest impact on ecommerce in the next year?

David:

Probably the state of the world. So the ability that people have to shop and travel and continue to live their lives the way they did before lockdowns and quarantine.

Stephanie:

Yep. All right, cool. If you had a podcast, what would it be about, and who would your first guest be?

David:

I don't think I would have a podcast.

Stephanie:

What would you have then, a clubhouse? What would you have then?

David:

A clubhouse. I think that, honestly, I was a little bit foreign to this whole world of supply chain and inventory finance when it came to Kickfurther, and I've discovered a passion for helping these business owners. So I think the clubhouse that I would have would be one where business owners get together and talk about different solutions that help their business grow, and what vendors they use and what are best practices, just an exchange of information across business owners and vendors.

Stephanie:

I like that, because yeah, I think even thinking about, "What manufacturer should I use? And how do I even source those people?" Still always feels like a black box and it's referrals. Or you have to know someone and that'd be a good one.

David:

We make quite an effort to make those resources available to our customers. So, as we go through our diligence process, we cover a lot of topics, and oftentimes customers will identify pain points, and we will say, "If you're interested in these, this is a partner of ours, or we've got a few different options or people you can talk to, to learn more about the solutions in this space."

Stephanie:

Yep. Cool. What's up next on your reading list?

David:

Can't Hurt Me by David Goggins.

Stephanie:

Okay. Nice. Where are you traveling to next when it's easier to travel again?

David:

In two weeks, I'm traveling to Salt Lake City to go skiing, but that's a drive for me.

Stephanie:

Yeah.

David:

Big skier. And whenever the snow comes, I'm out there.

Stephanie:

I love that. All right. And then the last one, what is your favorite piece of tech that you're using right now? It can be personally or with the business.

David:

Don't hate me, but it's my iPhone 12 Pro.

Stephanie:

What's to hate? I have the same thing. It's my favorite. It has the best camera

David:

I bought it for the camera, but it's really fast. It's a computer in my pocket that does pretty much everything my actual computer does.

Stephanie:

Yeah.

David:

Super valuable piece of tech.

Stephanie:

Yep. I agree. All right, David, thanks so much for joining the show. Where can people find out more about you and Kickfurther?

David:

Kickfurther.com is the best place. You can find me on LinkedIn, David Koifman, and I look forward to connecting with anybody who's interested. Also, if you're a business owner listening and you're interested in funding with us, you can go to our website, fill out an application, or you can just email me david@kickfurther.com.

Stephanie:

Yeah.

David:

Thanks so much, Stephanie.

Stephanie:

Cool.

David:

It's good to be on here.

Stephanie:

Yeah, thanks, David. All right. See you.

David:

Take care.