Via Allen Olson, the NYT reports that the food industry is beginning to draw some solid speculative capital these days. Venture capital firms are getting behind food companies like Unreal, Lyrical Foods, and Beyond Meat. Good news. One of the biggest problems my clients face is access to capital whether they grow food or process it. Either their businesses are so new they lack the track record to establish credit with commercial lenders, or commercial lenders – particularly from the farm credit system – lack faith in new business models like micro-green production.

If you’ve got some cash you want to put into a food business, don’t just look at financial information like production costs and sales data. My advice is to do a thorough regulatory compliance audit in addition to the financials. Food is probably the most comprehensively and intrusively regulated industry in the United States, and you never know what you might find in such an audit. A food business may produce a great tasting cookie with solid sales, but still be non-compliant with the Food Safety Modernization Act, lack adequate insurance coverage for a recall event, or improperly use labeling claims like “Gluten Free” or “Great Source of Omega 3”. If a business has already taken these things into consideration, it is a very good sign that it is professionally run and a decent bet. If not, you could be investing in a company destined for a hefty fine, a revoked license, or a civil liability judgement.

And if a food business seeks to raise capital using the financiers discussed in the Times article, it’d be dumb to walk into a pitch meeting without these kinds of considerations on-book.

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