Access to Capital for Entrepreneurs: Fin Gourmet and The Object Enthusiast
Why funding needs change by stage, and why the right source is the one that fits the business model.
- Sector
- Food processing; craft pottery
- Source
- Week 6 tutorial resource (Kauffman Foundation report)
The case in brief
The Kauffman Foundation report examines barriers entrepreneurs face in accessing capital in the United States. It finds that most entrepreneurs rely on personal and family savings, that at least 83% do not use bank loans or venture capital at start-up, and that access is affected by geography, gender, race and wealth.
Lula Luu, who escaped Vietnam and later earned a PhD in nutrition, started Fin Gourmet in 2010 as a not-for-profit jobs programme for Gulf shrimpers during their off-season, focused on Asian carp. After the BP oil spill she turned it into a for-profit company, building it at night for two years. Fin hires people marginalised by race, income, geography and circumstance, sells surimi-based products and boneless fillets to high-end customers, and sells the rest of the fish for pet treats, fish meal and fertiliser.
When Fin sought growth finance, local community banks had closed, large banks saw a two-year-old firm as too risky and VCs said it was not high-growth enough. Village Capital designed a royalty-based round instead.
Emily Reinhardt worked as a waitress after graduating from university, until a former professor and mentor gave her his pottery wheel and kiln. Her business, The Object Enthusiast, grew until demand exceeded capacity; a 2017 microloan from AltCap funded her first full-time employee and a bigger studio.
Key facts
- Report
- Hwang, Desai and Baird (2019), Ewing Marion Kauffman Foundation
- Fin Gourmet financing
- Investors receive 5% of top-line revenue until they reach a 3x return
- Emily Reinhardt’s first capital
- Donated pottery wheel and kiln worth USD 5,000
- Emily Reinhardt’s microloan
- AltCap, 2017; revenues doubled in one year
- Top US start-up sources (2016)
- Personal/family savings 64.4%; bank loans 16.5%; personal credit cards 9.1%; VC 0.5%
Analysis through module theory
Triple liability
Fin shows the liability of newness at work: large banks judged a two-year-old firm too risky. Its rural location added a practical barrier, as community banks had closed.
Sources of funding
Both founders started with internal and informal resources (their own work, a gift in kind) before any external capital. External finance came only when a provider designed terms to fit: a revenue share for Fin, a microloan for Emily.
Finance as lifeblood
For Emily, finance unlocked growth that demand already justified. For Fin, the timing mattered: the report notes the first repayment would have worked better in the second or third year, since capital takes time to produce hires and revenue.
Discussion questions
- 1.Which funding source in each story best fitted the business at that stage, and why?
- 2.Why were bank loans and venture capital a poor fit for Fin Gourmet?
- 3.What non-monetary value can capital bring to an entrepreneur?
Takeaways
- Most entrepreneurs never use banks or VC at start-up; the funding menu is wider than those two.
- The best funding source is the one whose terms (repayment, ownership, timing) fit the business model and stage.
- Capital can signal belief in the founder as well as pay for growth.