How to Finance a Restaurant Startup through CrowdfundingSites like Kickstarter and Pieshell enable a thousand of your biggest fans to fund your eatery.
Opening a restaurant is nearly Herculean task. And if you need financing, good luck. Banks aren’t jumping to loan money to first time restaurateurs. There are several other ways to finance a restaurant startup, from angel investors to personal loans. But here’s one you may not have considered: crowdfunding.
Crowdfunding campaigns on sites like Kickstarter and Indiegogo let you woo the interest of many different backers, who typically give small amounts of money each. With rewards-based crowdfunding, investors don’t get equity in your business. Instead, they invest in an idea because they want to see it come to market. And they usually get a reward for investing, such as a free product or discount.
Crowdfunding is increasingly being used to fund restaurants. It’s not unusual to see restaurant campaigns on Kickstarter. Wannabe restaurateurs even have their own section on the site, which currently has about 54 live projects that include wineries, sandwich shops and organic cafes.
Kickstarter isn’t your only option. PieShell is designed exclusively for crowdfunding food and beverage businesses.
Why a site dedicated specifically to food? In the words of PieShell founder Cheryl Clements, “Food has a challenge. There’s a perception is you can always find it somewhere else. It’s not like an iPhone, where there’s just one item and that’s what you’re backing. So with restaurants it’s not necessarily as much about the product as much as your story.”
PieShell is optimized for restaurateurs to engage in storytelling in a way that more mainstream crowdfunding sites are not.
And that’s Clement’s recommendation: If you’re going to try to crowdsource your restaurant, be sure to have a great story and be prepared to tell it. People aren’t backing your idea because they are dying to try your split pea soup. They back you because they fall in love with your story and want you to become a part of their neighborhood.
Crowdfunding appears to be paying off. The most successful Kickstarter-funded restaurant to date, Superior Motors, earned $310,225 in 2014, exceeding the $250,000 goal. As for PieShell, the site launched last fall and has since promoted seven restaurant campaigns, all of which met their funding goals.
Rewarding your backers
Whatever rewards you offer, your backers should perceive these gifts as having a value that’s at least equal to the amount of money they invest. In the restaurant space, the easiest and most obvious reward to offer is a gift certificate that’s effective after the restaurant opens. Not only is it valuable to the backer, but it’s not especially costly to you.
“If the restaurateur offers a $50 gift card and their food costs are 30 percent, then the business owner has just $15 of hard costs,” said Cheree Warrick, a consultant who writes business plans for restaurateurs.
That’s not your only option, though. Clements recommended thinking outside the box. “What can you do to make them feel like they’re a part of something special?” She described one restaurateur who burned the names of everyone who contributed into a wooden table in the restaurant.
Build your fans first
The road to a successful crowdfunding campaign begins long before you launch the campaign. Most important, you need to work on building a significant fan base. Said Warrick, “The average crowdfunder gives $50. Therefore, a business owner should have at least 2,000 loyal fans to raise $100,000 for the restaurant. It’s important to do the math.”
Warrick sometimes suggests that the prospective owner start off with a food truck or catering company and use that business to build a following. “Serve a thousand people. Get feedback on your food. Are the same people coming back over and over again? If so, build an email list and engage social media followings.” Those fans may eventually become your backers.
PieShell considers the whole process of onboarding a project as an incubation, and it works closely with restaurateurs to ensure they follow best practices — for instance, raising 25 percent of the goal before the campaign officially launches to give it the best chance for success.
“If someone crowdfunds and fails, the perception isn’t that their crowdfunding campaign wasn’t successful. It’s that their business wasn’t viable.”