Torchbearer seeks crowd to fund its hot expansionJim T. Ryan
"That was the best decision we ever made," said David "Vid" Lynch, the condiment company's co-founder and lead sales and operations officer.
Since 2009, Torchbearer's sales have grown tenfold, he said.
It's a far habanero-induced-cry from eight years ago, when Lynch and partners Ben Smith and Tim Wortman grew too many peppers, decided to make hot sauce and then just kept doing it. Essentially, demand is so high that Torchbearer has outgrown its humble beginnings and needs to expand.
"We need to get our own kitchen so we can work around our own schedules," Lynch said.
Torchbearer now rents a fire hall kitchen in East Pennsboro Township to make its sauces, and Lynch's parents do much of the bookkeeping and other office functions from their home. Loyal friends working part time contribute to production and sales, too.
The company needs a kitchen with onsite storage, some new equipment and a bit of office space. It's reaching the point where it could hire two people full time, too. But that costs more money than the company has on hand, Lynch said.
That's where Kickstarter.com comes in. The website run by Kickstarter Inc. helps for-profit groups, such as small food companies, aspiring rock bands and others raise money for their creative endeavors. The groups offer rewards to people for donating to their causes.
Kickstarter is part of the growing movement called crowd funding, which relies on large groups of people investing smaller amounts of money, as opposed to traditional investments relying on small groups of people with large sums of money.
Torchbearer is using Kickstarter to raise an initial $16,000, which will help it buy supplies and produce a full pallet each of its most popular sauces to expand into retail markets around the country. At $60,000, Torchbearer can finance its own kitchen. The lofty goal is $120,000, allowing the company to do all of that and hire two people full time.
"We thought about raising funding last year for the kitchen," Lynch said. "The discussion never quite went away. Kickstarter and crowdfunding was always on the backburner as an option."
Not a bad option so far. Torchbearer launched its crowdfunding endeavor Sept. 12, according to Kickstarter. As of Monday, 101 friends, family, fans and patrons had funded 34 percent, or $5,548 toward the initial project goal. Torchbearer's project is open for patronage until Oct. 24.
Lynch said he's hoping the effort snowballs and they hit their secondary goals, too.
But why use Kickstarter in the first place? Why not just go to the banks for a loan?
Lynch's answer: We did, and we walked away with nothing.
Torchbearer heard every excuse in the book, he said. You're too small. It's too big for our bank. No collateral.
"The problem with the banks right now," he said, "is that they'll pretty much tell you they're not lending to anyone."
Talking to other small businesses, Lynch said, he found they weren't alone on that issue.
"That's demoralizing, too," he said.
Nevin Beyer, who spent 14 years as a financial lender and today is president of Camp Hill-based bonding firm Keystone Surety Associates, said he's familiar with Torchbearer's situation.
Beyer is a board member for the Central Penn Networking Group, to which Lynch also belongs. The group has been a great help in building local business relationships, particularly in launching Torchbearer's mall kiosk sales, which proved fruitful around the holidays, Lynch said.
It's tough for small companies such as Torchbearer to get financing through banks, Beyer said. The primary problem is that they don't have collateral to put up against a loan.
"The value in their business is their recipes and their sweat equity," Beyer said.
Add to that stricter lending standards at banks due to new regulations in the financial sector's post-2008 environment, and the prospects of young companies using traditional financing is slim, he said.
Without collateral, young companies like Torchbearer need alternative funding sources, Beyer said.
Banks are looking for real estate or accounts receivable as a show that small businesses are less-risky investments, said Jonathan Bowser, economic development director for the Cumberland Area Economic Development Corp. Many early-stage companies lack that type of collateral, even if they're on the cusp of attaining their own facilities and have good products with strong sales. They definitely need to look at other options, he said.
"A lot of (Torchbearer's) capital goes back into their sauces, so generally, they don't have extra to buy facilities," said Bowser, who was a commercial loan officer with Dauphin County-based Metro Bank prior to his role with CAEDC.
Still, Torchbearer is at a point where it needs to expand and, if not through traditional lending avenues, it has to raise extra capital other ways, Lynch said.
The company today takes its sauces to more than 80 shows a year, it sells them on the shelves of supermarket chain Whole Foods Market, and mall kiosk sales are demonstrating potential beyond the holidays.
Judging from the heavy, tired eyes of Lynch and parents Tom and Tricia, times are good, but the business needs to grow beyond sweat equity.
"It's more of the same," Lynch said. "Just a lot more of it."
When local condiment upstarts Torchbearer Sauces needed to raise capital for its expansion, the owners went to Kickstarter.com, one of the more popular crowdfunding sites on the Internet. Here's more about Kickstarter:
What is crowdfunding? Crowdfunding is a way for people to raise capital from many investors with smaller amounts of money, where the creator retains control of his or her business or intellectual property.
What is Kickstarter? A funding platform for creative projects, including films, games, music, art, technology and small businesses.
How it works: Creative minds and entrepreneurs post videos and other information about their small companies, bands and projects. They offer unique gifts to donors for their money. Only projects that hit their goals in the allotted time are fully funded. No money changes hands until that point.
Kickstarter launch date: April 28, 2009
People who've pledged money: 2.5 million
Projects launched on the site: 72,433
Amount pledged to all projects: $372 million
Successful projects: 30,354
Amount of successful funding: $315 million
Project success rate: 43.85 percent