Growing companies play a key role in reviving an ailing economy, experts say.
And Click, a Clovis-based creator of an espresso protein drink, has all the elements of a startup poised to take off. The business, founded by Greg and Beth Smith two years ago, licensed its product to a Canadian company that sells it in hundreds of stores, and the company appears to have lined up an investor to help it expand in the United States.
But like any new business, it faces many hurdles with the recession a veritable mountain on the horizon. It's "almost like you won the Lotto but you can't find the ticket," Beth Smith said of seeing the success in another country.
Succeeding takes determination — and cash, something now in extremely short supply.
Banks like to see a history of solid financial performance, said Tim Stearns, director of the Lyles Center for Innovation and Entrepreneurship at California State University, Fresno.
They also want collateral — ownership of a plant or building, he said.
Dan Doyle, president of Central Valley Community Bank, agreed. Start ups "don't have any track record," he said. "We can't just lend on idea, because we have all the risk."
Startups instead seek investment from family and friends or informal "angel investors" looking for a good investment, Stearns said.
"The role of angel investors has always been critical to the startup," he said.
But those are tough to find.
The Smiths' drink mix — a combination of a Starbucks-style coffee drink and the energy-boosting protein drinks favored by health buffs — hit trade shows and three Fresno-area Costco stores with a splash soon after they developed the formula.
The couple then licensed the product to the Canadian manufacturer that sells it in hundreds of stores. But their push in domestic markets fizzled, despite brisk sales and backing by the Lyles Center for Innovation and Entrepreneurship at California State University, Fresno.
The Smiths said they needed at least $50,000 to $100,000 to expand their product into up to 10 more Costco stores in California.
But they already had tapped friends and family, and banks wouldn’t lend additional cash. Other investors weren't interested, as many were nursing their own economic wounds from the stock market and real estate investments. And venture capital funds typically wanted bigger projects.
For months the couple searched for investors. This week, they said they were in the process of finalizing an investment that would allow them to expand to more Costco stores.
Inspiration The drink was inspired by health-conscious customers of GEMS Fitness for Women, which they founded in 2003 after fleeing the Bay Area for a slower lifestyle.
They had moved to Clovis in 2001, with Beth Smith leaving a job overseeing 300 people at Levi Strauss & Co. and Greg Smith leaving a job as national sales director at the publisher of Prevention Magazine, Men's Health and other publications.
Greg Smith won the Greater Fresno Area Chamber of Commerce's Rising Star Entrepreneur award in 2007. He continues to work at his job as admissions director at Wellspring Academy — formerly the Academy of the Sierras — in Reedley.
The Lyles Center helped the Smiths fine tune their drink and the business. The drink now is sold at Valley Costco stores and at independent markets, trade shows and several online stores.
To expand, the Smiths needed money to pay for the raw materials to make the drink, which a contractor manufactures in Utah. Click also must seek new markets and hire samplers to pitch the drink to shoppers in stores.
Canada callsThe Smiths saw potential in Canada, lining up a deal with a food company there.
The Canadian company’s licensing agreement allows it to distribute Click in all GNC stores, along with a large drugstore chain and in 282 Zellers stores, considered a Canadian version of Target.
The company sales team is devoting all its time to Click — with three vehicles wrapped in the Click logo to promote the drink.
The Smiths get royalties, but the checks are just beginning to come in.
The hunt for money
Jon Gregory, who deals with investors as president and CEO of Chico-based Golden Capital Network, said everybody is hurting.
Wealthy people who have invested in the stock market and real estate are worth between 20% and 50% less than they were a year ago, he said.
"People are going to be a little bit more skittish," he said.Stearns agreed.
"Even if you can show them [investors] a really high probability of this working, they're still reluctant," he said. "Two years ago they weren't."
Gregory said angel investor groups tend to invest near their own communities and are beginning to focus on larger investments.
Venture capital groups, likewise, focus on much larger investments — often hundreds of millions of dollars, he said.
"What that leaves then is a vacuum for promising early-stage companies that really are the key to economic recovery in California," he said.
Gregory said he is in the early stages of starting an angel network that would focus on startups in the Central Valley, but that organization still is looking for a regional director.