Small business: Mike Murphy - raising money for your business

Mike Murphy, managing director of coffee roaster and cafe business Kokako. Photo / Ted Baghurst, NZH

Mike Murphy, founder, managing director of Kokako, the Grey Lynn based organic coffee roastery and cafe business

Why are you looking now for external finance/shareholders?

We want to grow our business and continue to innovate and as most people in business understand it takes capital to grow. Our existing shareholders have already committed funds to Kokako and as such we are looking for an entity or investment party that can contribute not just capital but talent too.

What were you hoping to achieve with your Investor Memorandum you prepared?

Our Investor Memorandum sought to provide an overview of the business highlighting our milestones and achievements, our place in the coffee market, our certifications and innovations, our product range and distribution, existing stakeholders, marketing, media and brand collateral. We also talked about personnel, sales, revenue and profitability and sustainability, both financial and environmental. We then set out the investment scope and provided an in-depth appendix to support the document.

It's important to note that we provided a disclaimer in the document outlining to interested parties that the document provided an overview only and should not be used to make investment decisions, but rather to gauge interest in our business prior to the prospective investor taking the next steps in due diligence.

Who helped you put the document together?

I've been involved in the food and beverage industry for over 20 years so have played a part in writing and compiling documents such as this before. These skills have helped me to build a document for Kokako which presents the company and its values in the right way. This extends to the design, with the help of one of our shareholders Jonathan Templeman of Design Dairy, and even the size of the document and paper stock chosen. The document had to extol the virtues of the Kokako brand.

I took a look at the online prospectus for Moa Beer which was released about the same time as ours in late 2012 and admired their use of strong imagery and design. We approached ours in a similar way. It can't be all text and numbers.

How do you feel about the possibly of diluting your shareholding in Kokako?

For our business it's about facing some realities - we made some decisions to expand and diversify in the 2008 recession which we are still paying for. Having now re-structured our business and divested our food business we have a really strong coffee focus at the quality end of the market, but you could say we still have a hangover from those past decisions to try expand even though we were always undercapitalised. The reality is there is always going to be a glass ceiling when it comes to bank funding and in New Zealand there are limited pools of funding for businesses like ours. Sometimes I think that if Kokako was an IT-related business, we'd attract more investor interest with less regard for financial scrutiny. It amazes me the amount of money some IT-related businesses can raise even if they are not profitable.

What sort of experience would you like a new shareholder to have?

We'd like to find an investor who can add value to Kokako not just with funding but also potentially with distribution giving us access to new markets, stricter governance and reporting and ideally someone who has some finance or accounting experience.

Do you have a board, will this help you find a new part-owner?

We have monthly shareholders meetings. We don't have an official board though, but that would be good. I'm not sure if a board would help us find an investor.

How have you gone about identifying potential interested parties?

We have approached some parties we already work with who have strong synergies with Kokako and others in the food and beverage sector. We have a strong presence as a sustainable business and as such we have attracted interested parties from this sector.

How often do you think you will be looking for external finance with a business
like yours?

Hopefully not again after this round of capital raising. I know it takes at least three to five years to build a business to a level where there is some consistency in sales and robustness in the diversity of customers. Our brand is known now better than it ever has been and many consumers recognise us for our values of quality, sustainability, service and design. Having a wholesale coffee business and retail café also helps.

After this investment round both myself and existing shareholders want to have the company at a point where we have a good debt to equity ratio and we are able to fund future growth through profit.

How would you like your current negotiations to conclude?

With a new investor or strategic investor who understands our brand and is forward thinking, rather than looking back at some of the mistakes we've made in the past. They will recognise the inherent value of our goodwill and brand and invest in the future of Kokako.

Sometimes it takes a life change such as redundancy or the loss of a loved one which triggers the move to start up your own business. Tell us your stories. Email me, Gill South, at the link below.