A Melbourne-based entrepreneur whose health food business saw its sales soar by 550 per cent in FY21 has backed out of a crowdfunding raise at the last minute, reaching the conclusion that bringing on shareholders could compromise his customer focus.
Riding the wave of a COVID-induced health kick and a spike in high-end mushroom demand following the Netflix documentary Fantastic Fungi, Justin Snyder's Forest Super Foods was all set to launch a crowdfunding raise aiming to secure $1-5 million on Birchal this week following a $10 million valuation.
In the lead-up, Snyder told Business News Australia the funds would have been used for acquisitions in the superfoods space, potential farm investments to diversify supply sources, and an overseas export push to bank on the strong global reputation for Australian-grown food.
"We don't really need the cash. I've always managed to just spend within my means and focus on making sure all the marketing money we spend is providing a really good return, so the money is going to be more about more about mergers and acquisitions," he said at the time.
But over the weekend he had an epiphany.
"It wasn’t an easy decision. I’ve spent the last two months of my life devoting myself to the crowdfunding – I’ve done the 50-page share offer, I've redone all the legal aspects in terms of the company constitution and the share offer agreement, and I've done everything that needs to be done in order to go live," he said today.
"Most of the people who are coming in are customers who trust me as the head of Forest Super Foods and trust my integrity, and they’re not sophisticated investors - they're mums and dads who maybe have a bit of extra money and they want to invest it somewhere.
He said while that investor interest was humbling, it was also a massive responsibility.
"I really think business should be about giving you freedom as well as income. I always feel so lucky because if it’s a beautiful day I know I don’t have to work - I can be in the garden and I’m going to plant out all my tomatoes, or I'm going to spend time in the park with my family," he said.
"But if I'm taking money from these customers, and these mums and dads who are relying on me as an investment, then I’m going to feel guilty about taking a day off and taking time to do whatever it is I want to do."
Lifestyle decisions aside, another key factor behind Snyder's decision was a fear of putting his customer commitment at risk.
"If I run out of spirulina and the only spirulina I can find is of questionable origins, I’m just not going to sell spirulina until I can find one that I’m comfortable with," he said.
"But once you’ve got shareholders, your responsibility is to the shareholders first legally, so it becomes this question of legally maybe I should still be selling that dodgy spirulina because that’s going to still provide profits and revenue for the shareholders.
"All of a sudden the decision-making process becomes very complicated because what’s in the best interest of your shareholders might be in conflict with what’s in the best interests of customers."
Snyder's course of action contrasts with the crowdsourced funding hype of recent months, including Byron Bay-based Zero Co which managed to raise $5 million on Birchal in less than 6.5 hours, becoming the largest crowdfund in Australian history.
The food-preneur has much to be excited about nonetheless for Forest Super Foods' 40-plus product range comprising nutrient-rich whole food botanicals such as maca root and barley grass, medicinal mushrooms such as Lion’s Mane and Reishi, and its signature blends Naked Greens and Relax powders.
The Lion's Mane mushrooms have been a hit this year, buoyed by the Netflix documentary at a time when consumers are seeking out more superfoods.
"When COVID hit people started to really value their health, and people started to get this real shock about how vulnerable we are. People became much more interested in how to improve their health and immunity," Snyder said.
"That had a big driving force in terms of demand for the products, but then on top of that there was a documentary that came out in August on Netflix called Fantastic Fungi and our sales just went completely berserk - like 10x overnight sort of thing because we’re positioned in the market as the Australian-grown mushrooms whereas most of them are coming from China."
As a result the group's sales in August alone were up 660 per cent year-on-year.
"It’s crazy that we were able to sell almost $500,000 worth of stock in August 2021, considering I’m the only full-time worker and I’m supported by two part time staff - we literally had to work night and day for the whole month in order to keep up with demand," Snyder said.
"I couldn’t be prouder of our small team, and a big thank you to the people at Netflix for shining a very important light on the power of these rare mushrooms that Australia is a world leader in producing.
"People from all over the world have sought out our little Aussie company for our Lion's Mane mushroom, Reishi Mushroom and Turkey Tail Mushroom."
All of the company's mushrooms are organic, Australian grown, and freeze-dried rather than spray-dried - a proposition that has struck a chord with consumers, with all sales online and 'virtually no advertising', according to the entrepreneur.
"Australian grown is vitally important because of our clean water and unpolluted environment, especially when most competitors use Chinese grown produce which are processed using questionable practices," he said.
"Mushrooms are extremely absorbent, so a pollution-free environment is required for the best results. An attribute Australia wins hand over fist in compared to China."
However, it was during the company's unprecedented sales period that Snyder was taught a tough lesson in inventory and supply diversification.
"I just wasn’t prepared for that. When I order stock I try to order enough for the next four to six months, but we sold of that [Lion's Mane mushrooms] in August, so the shelves were bare in the warehouse," he said.
"I learned an important lesson in how important it is to invest in stock, rather than having cash sitting in the bank making negative interest, particularly in a business like this where you have a two to three-year shelf life in products.
"That’s really my focus at the moment - making sure we have heaps of stock, making sure we have a number of different suppliers."
The company has come far since its origins in Snyder's spare bedroom in 2012.
"Back then there were only one or two sellers of Super Foods in Australia. I just knew it was going to be a huge industry, which is why I stuck at it knowing that one day people will appreciate the amazing health benefits contained in these natural foods," he said.
Help us deliver quality journalism to you.
As a free and independent news site providing daily updates
during a period of unprecedented challenges for businesses everywhere
we call on your support