Barista Magazine

APR-MAY 2019

Serving People Serving Coffee Since 2005

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• Management projections • Plans for goal implementation For best results, start with a bank where you have an existing business relationship. You should also re- search loans guaranteed by the SBA, which guarantees loans for partners that include banks and other types of traditional and nontraditional lend- ers. Because these loans are guaran- teed, it may be easier to qualify. Cat and Cloud primarily funds its growth with small-business loans and reinvestment of profi ts. But the part- ners have set aside a small percentage of the business for potential investors. Peer-to-Peer Lending To get a peer-to-peer loan, you'll cre- ate an online profi le for your venture on a websites like Prosper and Lend- ing Tree where you'll be considered by investors. The point of these sites is to match small-business owners with entrepreneurs. Once you've been approved, you'll negotiate an interest rate for the in- vestment with the lender, who is often a private individual. It's important to understand the terms of the loan and avoid falling behind on payments. Doing so can increase the fees you're charged and make you ineligible for future peer-to-peer loans. You should also brush up on state regulations about peer-to-peer lending. Personal Investors If you take friends or family into your investment, make sure your bonds are strong enough to survive the business relationship. You could damage your personal investor's fi nances as well as your own if the endeavor is less successful than projected. Sign a promissory note spelling out the terms of the loan as well as a separate agreement if a partnership is on the table. "We look at our investors as a great relationship more than a Shark Tank scenario," says Jared. So far, 1 percent of Cat and Cloud has gone to a longtime friend, and another 1 percent has gone to the con- tractor who builds out their locations—in exchange for build-out funds for the new locations. That said, personal investments should be governed by a contract just like any other type of investment. Cat and Cloud has its invest- ment terms all buttoned up with contracts written by attorneys. "You should always have lawyers review everything, and really take your time and align with investors to assure they want what you want. Otherwise, you could step into a lot of unnecessary problems that will take you away from what matters—running a good business," Jared says. It's worth noting that Cat and Cloud is regularly approached by people interested in investing, but they have no plans to give away more than 5 percent of the business—and the plan is to keep it to 3 percent or less. They've known their current investors for many years, and have no qualms about the agreements they have with each of them. Investors to Avoid Remember that you're entering a long-term relationship, so it's im- portant to scrutinize potential investors as much as they're sizing up your business model. Investigate their track records and management style. Investors who are also frequent litigators should be avoided, for sure. If they think you don't have the money to battle them in court, they may use intimidation to gain more control (and more money) af- ter investing. By the same token, avoid investors who want you to sign a lengthy contract with obscure clauses that can be used in their favor. Also be wary of those who don't actually have the capital to invest in your business, as well as those who don't have business sense themselves. Sometimes these individuals try to get a piece of the pie through fi nder's fees without actually putting up their own cash. In fact, perform due diligence on any investor who charges a fee. The Future is Bright But when will the specialty-coffee market cool down? Not anytime soon, according to industry data. Consumption is on the rise in the U.S., with about 64 percent of adults downing at least one cup of coffee every day, up from 57 percent in 2016, according to the National Coffee Association. And consumers are more willing than ever to spend more on specialty drinks: 48 percent of Millennials drink specialty-coffee beverages every day, according to National Coffee Drinking Trends. All of this means the time is ripe to fi nd investors for your coffee venture. Just be sure you share the same vision for their involvement in your business. ILLUSTRATION BY KATE HABERER "We look at our investors as a great relationship more than a Shark Tank scenario." —Jared Truby, Cat and Cloud Coffee 89

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