Can I ask my customers to invest in our company in exchange for products?


4

My wife and I own a tea company; neither one of us has good credit so we have not been able to get loans or credit cards or people to invest in our company

We have had about 550 customers so far in our 3 years in business.

We thought:

How about sending a newsletter asking our customers to join the (Name of the Company) Investor Club for $299 in exchange of a 1lb of our tea per month (normally priced at $45)? Our cost to satisfy their orders per month would be $155 per customer/investor, including shipping

If 10% were to agree, we would have $15000 right away that we could use to buy more ingredients at a cheaper price + spend money on getting more customers through mediums that have been proven to work.

Thanks in advance!

Finance

asked May 25 '11 at 02:15
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Raghavendra
21 points
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  • What country are you doing business in? – Kenneth Vogt 9 years ago
  • @Kenneth Vogt I guess it is in India. – Ross 9 years ago
  • I could guess that too but to give a useful answer it makes a big difference what the facts are. @Raghavendra doesn't have to guess, he knows where he is. ;-) – Kenneth Vogt 9 years ago
  • @Kenneth Vogt is asking what country you are in because the terminology you may choose to use for this "offering" will have a direct implication on whether or not it is governed by securities laws in your respective country. – Joseph Barisonzi 9 years ago

2 Answers


10

Yes, going to your customer as a source of operating capital is a time honored and proven way to raise the resource you need to grow and expand. Whether it is a gift card that collects the money upfront, or preselling cars before they are even manufactured -- bypassing the "money changers in the temple" has been part of business marketing and growth strategies forever.

If you stay within the context of "preselling" your product rather than offering either ownership or the perception of "ownership" you will be well within your rights.

If however you choose to use the words "invest", "investment club", "ownership" or anything else that in anyway seems to imply that the folks that are pre-purchasing your product are receiving *any*thing more than product-- then you run a very real risk of running afoul your countries securities laws. Don't do it.

If you would like some great examples of how other companies, organizations and individuals are using this type of direct appeal as a source of operating capital -- go and check out places like Kickstarter. (@Rob posted a great list in this answer )

What you will see on these other sites are some best practices in this model. Notice that they offer different tiers of access and benefits in exchange for increased amounts of initial capital.

Rather than send out a generic newsletter -- I would take the time with 550 customer to personalize them to how much money each would particularly save if they purchased 12 lbs of tea upfront. (Additionally figure out how much you will save in product sourcing costs and how you can pass this on as an additional value to club members)

Perhaps the basic "Pound of Tea" per month club is as you describe. But one level above include a tea tasting at a local establishment? Perhaps you can include for members a commitment to a monthly "tea lovers" newsletter for tea-ophiles. Perhaps you could include a special brewing pot for those that purchase the club membership before a specific date.

answered May 25 '11 at 04:13
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Joseph Barisonzi
12,141 points
  • Good details - there's no need to call this an investment. It's just a good move in general and a lot more businesses should be looking at similar ideas! – Richardg 9 years ago

3

You have cash flow problems. The way I would solve them is to offer the customers a cheaper price, if they prepaid the supply of tea for half a year or a whole year. If you have a physical shop, you could create a card, which they could buy so they feel that they get something physical in return for the money they pay (make it golden if you want to). Every time they come by to buy some tea you could make a stamp on the card to show that a part of it has been used.

You might get further inspiration by looking at this question.

answered May 25 '11 at 03:17
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David
1,567 points
  • Hi David, seems like your suggestion is exactly what we are asking about...customers pay much less for our tea if they pre-pay a year in advance. – Raghavendra 9 years ago

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