Restaurants Finance with Crowdfunding | Food Newsfeed
Eric Luciano

Inviting Investment

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Crowdfunding enables restaurateurs to raise money from friends and fans they haven’t even met.
By Daniel P. Smith January 2014 Finance
Crowdfunding Campaigns

Successful restaurant ventures, with money raised ranging from $5,000 to more than $50,000, speak to the viability of raising money virtually.

SUteiShi

New York City Destroyed by Hurricane Sandy, this Big Apple eatery raised over $50,000 on Indiegogo in November 2012 to jumpstart its reconstruction. Owners used the cash to hire contractors, sign a new 10-year lease, and install a second bathroom.

The Hog's Apothecary

Oakland, California This American-style beer hall and gastropub raised over $20,000 on Indiegogo in 2013, capital that owners Bradford Earle and John Streit devoted to the restaurant's finishing touches, such as custom-welded lights, bar stools, and stainless tap systems.

Littleneck

Brooklyn, New York Seeking funds to purchase eco-friendly kitchen equipment, reclaimed wood, countertops, light fixtures, and dining room furniture, Brooklyn start-up Littleneck turned to Kickstarter in the summer of 2011. Hoping to raise $8,000, the New England–style clam shack earned $13,000 from 162 backers.

The Owl

Greenville, South Carolina After a successful first year, The Owl launched its Indiegogo campaign to add seating, build a deck, and buy a new sign. Though the restaurant fell short of its $12,000 goal, restaurant owners Justi and Aaron Manter put the $5,274 raised toward opening in a new location early this year.

When Steve Postal opened the doors to Commonwealth in Cambridge, Massachusetts, last November, he did so with a mighty assist from 220 financial backers.

Postal, in fact, represents a growing legion of full-service chefs and restaurateurs turning to crowdfunding platforms such as Kickstarter, Indiegogo, and Foodstart to propel restaurant development.

The Boston-based chef created Commonwealth’s Kickstarter campaign in August 2013 with the hopes of raising $50,000, a small slice of his $2 million start-up costs. Thirty days later, Postal had raised nearly $70,000 from those aforementioned 220 supporters, funds he used to install shelving, purchase kitchen equipment, and acquire start-up inventory.

“A lot of people want to pitch in to something they believe in or show their support, but can’t write the big checks. Crowdfunding gives them that chance and is a win-win for all involved,” Postal says.

Once a space dominated by artists, musicians, and filmmakers, crowdfunding continues expanding into the restaurant industry. First embraced by food trucks, caterers, and quick-service establishments, crowdfunding has traveled up the industry ladder and is now hitting the full-service category—the most cost-intensive of all restaurant endeavors—with increasing force.

“Restaurants are getting more expensive to open and you can only charge customers so much to make up the difference,” Postal says. “With that, I only see crowdfunding growing.”

By providing restaurant owners quick access to capital, crowdfunding has emerged a unique, welcome alternative to traditional restaurant financing, such as securing bank loans, maxing out credit cards, or raising capital from family, friends, and investors.

“With crowdfunding, restaurant owners are taking the power back into their own hands and letting the crowd directly fund their business,” Indiegogo representative Alexis Blais says.

Crowdfunding Simplified

An online collaborative funding tool, crowdfunding provides enterprises a chance to raise thousands of dollars from dozens of individuals. Unlike traditional investors who seek a financial return on their investment, crowdfunding donors receive distinctive perks ranging from handwritten thank-you notes and free desserts to private dinners and menu items named in their honor.

According to Massolution’s 2013 Crowdfunding Industry Report, crowdfunding platforms raised $2.7 billion for more than 1 million campaigns in 2012, an 81 percent increase over the previous year. Massolution, a research, advisory, and implementation firm that specializes in crowdsourcing business models, forecasts that crowdfunding volume will exceed $5 billion in 2013.

The emergence of crowdfunding in the restaurant space and the cash infusion a campaign brings are helping many new eateries launch as well as spurring the evolution and growth of established ventures.

“Restaurant funding often comes from a basket of sources, and now crowdfunding is becoming a bigger piece of that,” says Alex Sheshunoff, founder and president of Foodstart, a foodservice-specific crowdfunding platform created in late 2012.

Seemingly a tool best suited for hipster-filled urban environments, crowdfunding, Sheshunoff says, offers tremendous potential for restaurants in small and mid-sized towns where people are hungry for new dining options and excited to see a new restaurant enter the market.

Helen Vizard, a singing bartender and owner of Redd’s Fueling Station in Santa Rosa Beach, Florida, is one example of crowdfunding’s emerging might.

Vizard turned to crowdfunding as she looked to renovate the downtrodden restaurant and bar space she and her husband began leasing in June 2013. Soon after taking possession, Vizard signed up with Foodstart with a $9,000 goal, an amount earmarked for redecorating, HVAC repairs, and new signage—with “a little left over to get through the lean months” in the restaurant’s tourist-heavy Gulf Coast region.

With perks ranging from a $20 bar tab to a bottle of the restaurant’s popular hot sauce, Vizard’s campaign raised nearly $10,000.

“Without a proven track record, getting a bank loan can be nearly impossible,” Vizard says. “I raised money from all over the country, from friends and fans who believed in the concept and believed in me.”

As opposed to traditional financing, the funds collected from crowdfunding require no collateral, no interest, and no financial payback.

“Just try paying a bank back in free desserts,” Sheshunoff jokes.

With crowdfunding, a smaller portion of a restaurant project might seem most achievable, but Blais contends that a restaurant can potentially raise all of its start-up costs via crowdfunding. She adds, however, that any campaign’s success depends on a compelling pitch and providing people with a reason to care.

“Crowdfunding gives everyone the opportunity to decide on which projects they want to see funded—no matter how big or small,” Blais says.

Notably, the once all-or-nothing staple of crowdfunding is beginning to dissipate. While most of crowdfunding’s earliest practitioners had to reach their entire goal to collect any money, platforms like Indiegogo and Foodstart are waiving that requirement in many instances.

Maiden Lane in New York City, for instance, created a campaign to raise $20,000 to renovate its basement, install draft beer lines, and expand its seafood selections. Although the restaurant’s campaign only netted $3,555, Blais says the restaurant was still able to purchase new canned seafood products from Europe and start its own curing and pickling program thanks to Indiegogo’s “Flexible Funding.”

“Even if the [goal amount isn’t] fully raised…a restaurant could still use what it was able to raise to sign a lease or purchase initial equipment and get started,” Blais says.

Similarly, Foodstart will also release any pledged funds, provided the restaurant is operational and can redeem its promised perks.

While cash is, of course, the most tangible benefit of crowdfunding’s allure, online platforms offer plenty of other intriguing advantages.

For instance, a crowdfunding campaign helps any restaurant create a broad group of customers who feel invested in the establishment, fostering valuable connections between the restaurant and its supporters, many of whom visit the restaurant to see what they helped build.

“Crowdfunding creates a whole group of people who feel they got in early and helped a concept get off the ground,” Sheshunoff says. “For a lot of people, that’s a rewarding feeling, and they want to see the restaurant succeed.”

Crowdfunding also provides restaurant owners valuable insights, including data analytics, as they build and refine their concept or even market test an idea.

“If your mother won’t support your plan with $50, then it might not be a concept worth developing,” says Sheshunoff, whose foodservice-specific platform also connects restaurants with a vetted network of industry professionals, including attorneys and lenders, who specialize in foodservice.

Path to Success

While crowdfunding holds considerable appeal, it is not for everyone. The effort requires focused energy and commitment as well as an acceptance of the public forum.

“A great crowdfunding campaign will take hard work and thoughtfulness,” says Alexis Blais, Indiegogo spokesperson, adding that success is almost directly correlated to the effort of campaign owners.

Crowdfunding insiders offer five tips for restaurateurs looking to launch a winning campaign:

1. Personalize the campaign. People want to fund people, not just ideas or businesses. It’s imperative that crowdfunding restaurateurs share their personal stories, detail why their project is important, and describe the project’s local impact.“Backers give their money to a project they feel connected to, and that’s almost always because of the people involved,” says Alex Sheshunoff, president of Foodstart. “Share your story and vision, and why this is so important to you.”

2. Create A Video. According to Indiegogo’s Blais, campaigns with videos raise, on average, 115 percent more money than those that skip the media tool. Generally, the content trumps the production value, as people are backing the personal story above all else. Owner/operator Steve Postal credits Commonwealth’s video, one produced by his neighbor and shared more than 550 times, with generating buzz and interest in his upstart Kendall Square spot.

“People can relate to clean, tight video,” he says.

3. Provide Consistent Communication. Indiegogo reports that campaigns providing updates at least once every five days raise about 218 percent more than those that don’t update as often. Campaign owners should be proactive and keep supporters posted on the campaign’s progress by sharing regular updates on construction, new available perks, milestones reached, and more—all of which keeps backers and potential contributors engaged.

“Bring people into the process so they’re a part of it,” Sheshunoff says.

4. Promote—And Promote some more. Campaign owners must consistently push the crowdfunding initiative out to friends, family, colleagues, and other potential supporters.

“Crowdfunding has a specific ask, and you need to bring people into this program early and often,” Sheshunoff says, adding that social media is an invaluable tool for crowdfunding as they allow campaign owners to reach out to first, second, and third connections.

Postal amplified his promotional efforts with Commonwealth by penning a weekly blog on Eater Boston for eight months. In that, he shared Commonwealth’s journey from idea to reality, including a frank discussion of the restaurant’s crowdfunding campaign. Postal’s blog—an undoubtedly time-consuming endeavor—produced rare, yet fascinating results: About 30 percent of Commonwealth’s backers were unknown to Postal.

5. ABove All, Hustle. In the vast majority of crowdfunding efforts, few contributions arrive from crowdfunding donors trolling the Internet for interesting projects worthy of their cash. Earning it with sweat and toil, many agree, is the best shot at success.

Helen Vizard, owner of Redd’s Fueling Station, says she approached her Foodstart campaign as a full-time endeavor, rarely letting a waking hour pass without doing something to advance the effort. “This is a job and we treated it as such; that’s a big reason we were successful,” she says.

Similarly, Postal committed himself to the endeavor: establishing a spirited, persuasive campaign; providing regular updates; answering any questions that came his way; and consistently pushing the campaign out to new and established networks. “There’s no question this is a lot of work,” Postal says of crowdfunding. “Even so, I’d totally do it again. The benefits are just that great.”