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Tag: sage growth capital

Funding helps startups expand, protect intellectual property

photo of melt organic cheese
Melt Organic will be releasing two plant-based cheese spreads in the fall. Photo courtesy of Melt Organic

Two Boise startups have received more funding.

Melt Organic, which produces plant-based dairy products, received $350,000 from Sage Growth Capital, while Retrolux, a cloud-based software company for the lighting industry, received an unspecified amount from Ideaship to fund intellectual property development.

Sage Growth Capital, which launched July 1, 2019, is considered a revenue-based fund, which means investors are paid back out of the revenue the companies generate. The advantage of such a system is that repayments are flexible because they go up or down based on sales performance as opposed to a venture capital fund, where investors typically take a share of equity and participate in the company.

Thus far, Sage Growth has made one investment, $200,000 in Killer Creamery.

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Kevin Learned

“It’s a small town, and we’ve all known each other for a long time,” said managing partner Kevin Learned, one of the founders of the Boise Angel Alliance, which funded the original company behind Melt in 2014. “We had discussions with Scott Fischer (Melt CEO) before we started Sage, about whether this type of financing might make sense.”

Foundation cheese

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Scott Fischer

Melt, which already makes a line of plant-based butter products, will use the funding to help it develop its line of plant-based cheese products, Fischer said.

“Sage had the right funding vehicle for us at a time when we needed cash to grow,” Fischer said.

The company had intended to launch the cheese line at the Natural Products Expo West conference in Anaheim, California, in March, which was canceled due to the COVID-19 coronavirus. But the products are still on track: Two cheese spreads due in the fall, made of Idaho garbanzo beans and red lentils, with two hard cheeses to follow in the spring. Two of the products are a mozzarella style, while the other two are a cheddar style, Fischer said.

The company has been working on the “foundation cheeses” from which the other products will be made for almost a year in its laboratory, Fischer said.

“It took the longest amount of time to not have off flavors,” Fischer said. “Now we’ve got flavors that we can make into an infinite number of products.”

The fall products, which he described as a pub cheese spread, will be garlic herb from the mozzarella-style base and spicy jalapeno from the red lentil cheddar base, he said.

Melt has signed a contract with Chef’s Warehouse, a specialty food distributor, Fischer said.

“It’s a distributor to high-end restaurants,” he said. “When restaurants begin to open up, our butter will be sold in all of those.”

Melt also has private-label deals with six of the top 10 grocers in the country, he added.

Meanwhile, Learned noted that Sage isn’t limiting itself to dairy, or even food products.

“We’re delighted to help our food businesses scale, but it’s not our only investment,” he said.

The company has raised $2.1 million and has committed $650,000 of that, leaving it $1.45 million more to invest, he said. The firm has a term sheet out to another company that he hopes will result in another investment, he said.

Intellectual property

Retrolux announced it has received an investment from Ideaship, a patent leveraged venture capital firm that provides patent development support for early-stage startups. Ideaship is a collaboration between Global Technology Transfer Group (GTT Group) and Panasonic Intellectual Property Corporation of America. The amount of the investment was not revealed.

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Leif Elgethun

“Retrolux is thrilled to receive an investment and strategic IP services from Ideaship. We’re confident this partnership will accelerate our innovation strategy while increasing the quality and value of the growing intellectual property we’ve developed and are committed to expand over time,” said Leif Elgethun, co-founder and CEO of Retrolux, in a statement. “We’ve excited to work with Global Technology Transfer Group, Panasonic and Stoel Rives LLP to strengthen our strategy and prosecute patents for high value innovations.”

 

 

 

 

Fund teaches entrepreneurs about funding strategies

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Entrepreneurs have to understand how financing works, said the panel. From left: Roberta Garvin, Karen Appelgren and Molly Otter

A Boise investment fund is telling startups how to fail, in hopes that they will succeed.

Sage Growth Capital, a revenue-based fund paid back from revenues of the companies it invests in, held a seminar, Funding Fails, at Trailhead on March 10. The goal is to offer such classes quarterly, a subset of the “Angel University” of eight courses the organization currently offers nationwide, said partner Kevin Learned.

“To entrepreneurs, you can’t not educate yourself in the financing of a business,” Learned said. “If those terms are confusing to you, you’re not ready to apply to any of these types of financing.”

Funding panel

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Kevin Learned

Sage launched the class when it was trying to find companies to invest in.

“Since Sage started looking at deals last August, we’ve looked at 41 deals, and done one,” Learned said.

While it’s not unusual in the capital business to look at a lot of deals to find “jewels,” he was surprised they could only find one. “We wanted to talk about why not.”

The panel consisted of Molly Otter, managing partner from Sage, to talk about its revenue-based model; Roberta Garvin, vice president of Boise Angel Alliance, to talk about angel investing and Karen Appelgren, vice president and director of the business resource center at Zions Bank in Boise, to talk about bank deals. About 35 people attended, only four or five of whom he already knew, he said.

Some factors are common among all three funding types, Learned said. For example, any new business should have bookkeeping, either through software or a staffer, right from the start, Learned said.

“You have to make this investment,” he said.

Investors ask for financial statements “and you get a blank stare,” he said. “If a company doesn’t have them, you have no confidence in the entrepreneur.”

Similarly, companies should engage the services of a business attorney, Learned said.

“We all see cases when you try to do it on the cheap with agreements they got on the internet someplace,” he said.

Finally, entrepreneurs need to create a thoughtful plan to be cash flow-positive, Learned said. To get money from a bank, the bank has to see that your company will be cash flow-positive in the next year. For angel investing, it could be two or three years in the future, he said.

“We have to know that the business will be cash flow-positive, or it will ultimately go out of business,” Learned said.

Warning signs

By following these guidelines, entrepreneurs are more likely to be able to get funding when the time comes and avoid red flags, Learned said.

For example, one common concern from investors is a balance sheet that is overleveraged, Learned said.

“Entrepreneurs are taking on debt without being thoughtful,” he said. “It’s tempting to take cash wherever it works out, but you have to be thoughtful to finance a startup business.”

Investors want to ensure that the money they invest is going to make the business grow, not to pay off some other creditor, Learned said. Entrepreneurs with 18% credit card debt or notes due in 90 days scare off investors, he said.

“Entrepreneurs want to pretend it’ll work out, but you can’t put money in there with the chance that convertible noteholders could demand payment,” he said.

In addition, some entrepreneurs don’t understand the cost of raising capital when they sell stock.

“’Free money, wahoo! I gave up 20% of my company and got $1 million!’” Learned said. “But when you have a liquidity event, investors expect to be paid back 10 to 20 times their investment.”

The class isn’t just philanthropic, Learned said.

“It’s good for us to have a test audience,” he said, noting that the organization is holding national webinars for angel investors. “It gives us an opportunity to share our expertise with the community and try out our explanations.”

Sage Growth Capital makes killer ice cream investment

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Killer Creamery makes keto ice cream with no sugar. Photo courtesy of Idaho Department of Commerce

Sage Growth Capital, an Idaho-based investment fund specializing in companies that do not fit traditional models, has made its first investment: $200,000 in Killer Creamery.

Killer Creamery, based in Boise and headed by Louis Armstrong, makes 12 flavors of keto ice cream using medium-chain triglyceride (MCT) oil from coconut and sweeteners such as stevia instead of sugar. The company’s products are sold in a variety of grocery stores on the West Coast, including Albertsons, the Boise Co-Op, Fred Meyer and WinCo in Idaho. In addition, it can be ordered online.

Killer Creamery was one of the Idaho companies that John Williamson, director of Idaho operations with venturecapital.org, a Salt Lake City-based nonprofit venture accelerator and executive in residence for the College of Business and Economics at Boise State University, took to the Investors Choice event in Salt Lake City earlier this year. At that time, the company said that it expected to earn $2.4 million in revenue this year and to become profitable in 2020.

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Louis Armstrong

Managing partner Molly Otter had said in an Oct. 9 panel during Boise Startup Week that the firm had invested in an ice cream company that she wouldn’t name.

Sage Growth Capital, which launched July 1, is considered a revenue-based fund, which means investors are paid back out of the revenue the companies generate. The advantage of such a system is that repayments are flexible because they go up or down based on sales performance as opposed to a venture capital fund, where investors typically take a share of equity and participate in the company.

Sage had said at the time that it was in due diligence with several companies and that some of them were food businesses.

In addition to Otter — formerly chief investment officer of Lighter Capital in Seattle, where she worked in revenue-based lending — the fund’s managing partners are Kevin Learned, a partner with Loon Creek Capital in Boise, and Denise Dunlap, a co-founder and managing partner with Loon Creek.

More startup funding opportunities coming to Idaho

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Idaho entrepreneurs should have more funding options in coming months, according to this Boise Startup Week panel. Photo by Sharon Fisher

Idaho entrepreneurs should have more funding opportunities as new organizations are drawn to the region’s business success.

Pioneer Square Labs (PSL) – a Seattle-based startup studio and venture capital fund – was looking at Idaho companies as well as presenting at Boise Startup Week, said T.A. McCann, managing director, during his panel session, “Labs, Studios, & Funds: What it Means to Accelerate a Startup,”

McCann said he doesn’t have any Idaho investments yet.

PSL has both an investment arm and an incubator arm and considers Boise part of the northwest region, he said.

When considering an investment, the company looks primarily for a fit with the founder and the firm, as well as personally, McCann said. PSL invests primarily in software with investments of $500,000 to $2 million, he said.

Different members of his organization have different specialties, but he is particularly interested in quantified health applications, McCann said. For example, he recently invested $2 million in Sentinel Healthcare, a Seattle-based remote patient monitoring product. He invested in the product because he is interested in that field and the business owner – a “doctorpreneur” – understands the customer even though he might be unfamiliar with some functional aspects of running a business, he said.

McCann said he likes it when an entrepreneur has either “domain expertise” in their technical area or “functional expertise” in running a business, but didn’t necessarily expect them to have both. He is particularly interested in startups that already have a good idea of their ideal customer profile and market, their entry point to that market, whom their first few customers will be and why that company is a good solution for that market.

McCann also spent some time during his panel session talking about the concept of a “lead score” or assigning values to each potential lead for the business to ensure the company is focusing on the most likely prospects.

Other panel members included Mike Self, managing partner of StageDotO Ventures, and Molly Otter, investment partner of Sage Growth Capital, each of which have announced investments in Idaho in recent months. Sage Growth has just made its first investment in Idaho, an ice cream company Otter didn’t name.

The other participant on the panel, Sarah Dolen, works in investments and operations for “Area 120,” a Google-owned organization that invests in employee projects. Google famously allocates 20% of employees’ time for their own projects for the company. Dolen has not yet invested in any Idaho companies, she said.

Other funding opportunities

In other potential funding opportunities, Women Entrepreneurs Realizing Opportunities for Capital (WeRoc), which will be held Oct. 24 in Sandy, Utah, at the Miller Business Resource Center, may hold future sessions in Boise, said Jolene Anderson, chapter president of the Boise/ID Keiretsu Forum, who is involved with the event. She and others are pushing for that, she said.

The event, now in its third year, is funded by Venturecapital.org, a Utah based nonprofit organization that assists, coaches and mentors entrepreneurs who are interested in raising investment capital. The event is intended to target women entrepreneurs looking to overcome the hurdles of raising equity for their companies and influencers and investors who focus on investing in women-led companies.

The organization is thinking of alternating years between Utah and Idaho, said John, Williamson, director of Idaho operations with Venturecapital.org and executive in residence for the College of Business and Economics at Boise State University.

This year, of seven organizations presenting, two are from Idaho, according to a press release: Chillow, a roommate-selecting application, and Free to Feed, which helps mothers detect allergens in breast milk.

Williamson said venturecapital.org is also considering holding an Idaho version of its Investors Choice event – an annual funding event in Utah that typically draws a large Idaho contingent.

New type of capital investment fund comes to Idaho

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Organizations of interest to Sage Growth Capital include companies like these food processing firms, which exhibited at Trailmix last year. Photo by Liz Patterson Harbauer

Three Idaho investors are creating a fund to invest in regional companies, particularly ones in Idaho led by women or people of color.

“We are looking for companies that do not fit the traditional bank lending or venture capital (VC) models,” said Denise Dunlap, managing partner for Sage Growth Capital in Boise. “There’s a lot of companies in Idaho that don’t want to take equity investors or wouldn’t qualify for a loan, but they still need growth capital.”

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Nic Miller

Nic Miller, executive director of the Venture College at Boise State University, said Sage Capital will be a great resource for local entrepreneurs.

“This new and innovative source of capital is yet another positive sign for Boise and Idaho’s entrepreneurial community,” he said. “The team at Sage Capital is highly qualified and well-positioned to provide another option for growth capital, which many companies in our state need.”

What is a revenue-based fund?

Unlike VC funds, Sage Growth Capital members won’t help run the companies they invest in, such as by taking a seat on the board of directors.

“Entrepreneurs like that fact,” Dunlap said. “They want to grow a company and own it. With a VC, they expect to be on the board.”

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Denise Dunlap

Instead, Sage Growth Capital is considered a revenue-based fund, which means investors are paid back out of the revenue the companies generate. The advantage of such a system is that repayments are flexible because they go up or down based on sales performance, Dunlap said.

“If you get a bank loan, the principal and interest don’t change,” she said.

The fund hasn’t invested in any companies yet, but is in due diligence on three and in discussions with several others, Dunlap said. She couldn’t name the companies but said some of them were food businesses, including a food processing equipment manufacturer, as well as several software companies and a couple of services businesses.

“We are looking to invest in companies that traditional VCs wouldn’t look at, like manufacturing companies or services businesses,” Dunlap said. “The prime thing we want to see is that they have revenue and some sort of stable growth margins.”

Typically that would be a minimum of $300,000 in revenue, she said.

Who’s involved in the fund?

Sage Capital launched on July 1 and has been talking with about 20 companies so far, Dunlap said.

“It’s all been word of mouth,” she said.

Part of that has been an educational process, she said.

“They’re used to bank financing, VC and angel funds, but they are not totally used to revenue-based finance,” she said.

The other two partners are Kevin Learned, a partner with Loon Creek Capital in Boise, and Molly Otter, formerly chief investment officer of Lighter Capital in Seattle, where she worked in revenue-based lending.

“She understands how to underwrite and negotiate revenue-based deals better than anyone in the country,” Dunlap said.

The fund won’t restrict itself to Idaho companies, but it would prefer to do so, Dunlap said.

“We also want to find companies and entrepreneurs who are typically underserved by the traditional market,” she said. “Companies with women founders and people of color, or serving markets that are economically distressed – we will give preference to those kind of companies.”

That model is similar to organizations such as MoFi, a community development financial institution that also lends to small businesses, but Sage Growth Capital expects to make above-market returns, Dunlap said. The organization also doesn’t have a mission to support impact investing or nonprofit investing, she added.

Sage Growth Capital is holding two events for companies interested in applying:

  • Sept. 17 at 4 p.m. at Trailhead, 500 S. 8th St., for entrepreneurs
  • Sept. 26 at 4:30 p.m. at First Interstate Bank, 401 W. Front St. second floor, for company advisors such as bankers, consultants and advisors