INDUSTRY USE CASES

KFSU LTD

KFSU is a company dedicated to developing and providing ingredients that make a positive contribution to community health and wellbeing, sustainably. These products are natural, functional ingredients and are sold via a distributor network in Australia, Canada, the USA, Japan, Mexico, South America and New Zealand.

The key word is natural, and the manufacturing processes followed are free of chemicals, leading to the preservation of nutrients that occur naturally but that are destroyed in traditional manufacturing processes. The market is estimated by Euromonitor International to be worth $1,000 billion by 2018, with a 15% CAGR.

“Funding R&D has been essential to progress towards marketable products.”.

Background

The company started up in 2001 and research was carried out to develop a product called Phytocel. Development of the product required a lot of experimentation and trial and error to bring it to market and subsequently to find additional applications for it.

Opportunities were identified in the areas of baking, gluten-free products and processed meats. The business has a small base of customers and a growing number of sales opportunities, as further research and development and trials identify new uses for the product.

The Problem Faced?

Cashflow was an issue hampering the company’s research and development program. While KFSU had been around for a while, and had previously raised $12M dollars through equity funding, government grants and their own money the company did not want to go down these routes again.

KFSU did some research into funding opportunities. While the company had sought equity investment in the past, there was not a great desire to take that approach again, due to its complexity and the need to give up equity, essentially to deal with a cash flow issue. It was also proving difficult to get a bank loan. In the words of Edwards:

“We were at that period where we hadn’t quite got enough sales going to grab a normal bank loan – as they want to see cash positive sales.”

Accelerating Development Through Improved Cash Flow.

When Gordon Edwards approached Fundsquire, the R&D Cash Flow Loans seemed like a great fit – KFSU was carrying out research and development and able to get R&D tax offsets from the government. R&D tax offsets are designed to encourage innovation as studies show that R&D is good for the economy. This means companies can get a sizeable chunk of their R&D expenditure back. R&D Cash Flow Loans allow companies to borrow against funds they will be due to get back from the government as a result of undertaking research and development.

The problem with R&D tax offsets is that the money is refunded at a later date, in most cases long after the work was completed.

However, Fundsquire’s innovative scheme brings that payment forward to finance against tax refunds that will be received at a later date. As Edwards pointed out:

“Fundsquire has allowed us to spend more than we ordinarily would. This funding has been a big force multiplier…with this funding we could increase R&D so we got more cash back which allowed us to further increase the R&D…it was a bit of a win-win situation to be quite honest.”

“We were at that period where we hadn’t quite got enough sales going to grab a normal bank loan – as they want to see cash positive sales.”

On working with Fundsquire.

Gordon Edwards liked working with Fundsquire because everything was clear cut and above board. While there was paperwork to be done to get access to funding, with Fundsquire Edwards felt that he knew what he was paying for and what he would get back from it. Another significant benefit was financial. As he explained:

“Most of the other facilities want an upfront fee, and depending on the size of your draw down, that can be astronomical.”

Overall, Gordon Edwards reported an expert and professional service while working with Fundsquire, and the partnership was based on trust.

Gaining access to Funding through using Fundsquire’s R&D Cash Flow loans has made a tremendous difference to KFSU’s research and development activities and getting products to market faster. Specifically, KFSU was able to accelerate a gluten-free bakery trial, working with the Department of Primary Industry and Fisheries.

As a result of this the company could prove that with half a cent input of productivity cost savings of 10% could be realised. Importantly, this also allowed the company to attract two new customers. The resultant products can also be trialled at the largest fine foods trade show in Australia, and the largest bakery trade show in the world in Las Vegas. As Gordon expressed:

“We are moving into a particular market which is under-serviced earlier than we anticipated and we will also be cash positive earlier too…we got 6-12 months ahead on our trials thanks to this funding.”

Final Words

KFSU suggests that all companies undertaking research and development that want easier access to cash contact Fundsquire. This is because the process was one of the easiest fund raising exercises the company ever went through. Everything happened when Fundsquire said it would. As Edwards said:

“Starting a company is not easy and starting a company you want to make a decent size of is even harder. I wish I’d known about Fundsquire earlier. Certainly I think the company would be further along than it already is.”

KFSU has been funded by Fundsquire for FY2016 and FY2017. This has removed the stress for the company and has allowed forward planning. Gordon Edwards knows he has a set amount of money coming in each month and can focus on growing the business and building sales rather than chasing finance.

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