The process began with a survey last fall (see “Tasty Minstrel to Sell Shares”), and then the launch of the campaign earlier this year with a funding goal range of $50,000 to $1,000,000. The raise concluded with $165,006 raised from 280 investors.
This is the first crowdfunded equity raise we’ve covered, and we wanted to learn more, so we interviewed Tasty Minstrel CEO Michael Mindes, who shared some of his insights from the process.
ICv2: The final number was well over the minimum raise in the range, but only a fraction of the maximum – what was your feeling about the amount raised?
Mindes: I feel really good about the over $165,000 that was invested into TMG. There is a lot that we can do with this money to help grow TMG, but it will certainly not include hiring, and that is a good thing. I personally feel that too many companies try to force growth by continually adding more as opposed to improving what they do with what they already have.
$300,000 probably would have been optimal, and that is what I was looking for originally. If we go back for future equity crowdfunding, then I will not ask for more funding than I already know what to do with. I would have known how to utilize the $300,000 intelligently, but not all the way up to the $1,000,000 mark that we were allowing. So, now that the funding is finished, I am quite glad that we didn't get the maximum we were asking for.
Can you give us any idea of what the company will net after the platform costs, the perks, and legal or other expenses you incurred?
The platform costs are 7%, so that is $11,550 in cost right there. We needed legal and accounting costs associated with the financial review and SEC disclosures which cost around $5,000. On top of that, we needed to restate our LLC's operating agreement to handle the sale of equity, which is another $2,500 approximately. I haven't dug into the exact costs per person for fulfilling perks, but we worked to keep those costs under 5%, so another $8,250 maximum expected. With all of those accounted for, net to TMG should be around $138,000.
How did you come up with the valuation you used for the raise, and now that it’s over do you think that was the right number?
I utilized a multiple of revenue to start with that I felt was reasonable, and then attached a premium that I felt both investors would be willing to agree and that I would be happy to accept. Given that we received $165,000 in investment on a promising early stage company with revenues, gross profits, but no net profits, then yes, I think that the valuation that I set was the right number. The market might not have jumped as enthusiastically at the offering as I would have liked, but it was also not fully rejected. This is the first time that we brought on any investment, so we were not going to have outsized IPO-style results... For example, Facebook didn't have their outsized IPO results until after successfully raising many rounds of financing and continuously growing.
Given those factors, how do you evaluate this crowdfunding option vs. other ways to raise money?
I like it for myself and for TMG. That is because I do not feel a need to own 100% of TMG, and I do not have personal ambitions for accumulating a lot of stuff. I love the work that I do, and the folks that TMG employs, and this is a way that we can continue to grow as a company which benefits both of those loves. It might not be good for everybody, and in fact without being decently established in the marketplace, I would expect most folks to have a hard time bringing the investment in.