Best Laid Plan: The Dos, Don'ts, and Pitfalls of Crowdfunding

by Katherine Sacks
September 2013

Chapters

  • Proven Success
  • The Basics
  • Create Valuable, Smart Rewards
  • Drive your Campaign Every Day
  • Build Buzz and Community First
  • Have a Back-Up Plan
  • The Pros
  • And Some Cons
  • It’s Not All About the Benjamins

In the fairytale of dishwasher turned superstar chef, an earnest, hardworking sudster transitions to the line, earns her cooking stripes, and fortuitously makes friends with an investor or two. The Dream is just within reach. The version of events leading to opening and owning a restaurant in today’s post-moderm fairytale remains pretty much the same, with one important caveat. Instead of having a couple of principal, heavily influential backers, young enterprising chefs may have thousands of less influential but more passionate small-time “investors” or enthusiasts. Crowd sourced financing, aka crowdfunding, has made the happy ending possible for many aspiring restaurant owners that would have never been able to get a foot hold in the previous model. You’ve seen friends and co-workers launch campaigns on crowdfunding websites, reaching and often exceeding fundraising goals. Now you’re asking, “should I get crowdfunded?”

While most restaurant funding is still done through private investment, loans from family and friends, and credit cards; crowd sourcing platforms like Kickstarter, Indiegogo, Fundable, GoFundMe, Razoo and the brand new, food specific platform Foodstart allow restaurants to bring in money via devoted fans and interested supporters, equity free.

To get the inside scoop, we spoke with four restaurateurs that successfully used Kickstarter to help launch projects.  

Proven Success
Most successful crowd-sourced fundraising campaigns start with an established concept. Zach and Christina Meloy ran their PushStart Kitchen supper club in Atlanta, Georgia for two years, building up a wide network of clientele before launching their Kickstarter campaign. Hoping that the 4,000 subscribers to their newsletter would provide a robust fundraising base, the duo eventually raised $71,950—$21,950 more than their goal. The money financed the bulk of their 1,300-square foot, 40-seat restaurant.

2013 San Francisco Bay Area Rising Star Richie Nakano’s Hapa Ramen has been a popular part of the Ferry Building farmers market since 2010, earning the chef a devoted following. His strong social media presence, network of chefs, and relationships within the Bay Area’a tech community helped his Hapa campaign meet its goal. And fellow San Franciscan Iso Rabbins, had one of the most successful food KickStarter campaigns to date, raising $156,502 in 2012, thanks in part to an established community of regulars at his forageSF events. In Durham, North Carolina, Justin and Katie Meddis of Rose's Meat Market & Sweet Shop, far exceeded their goal with the help of the gifts and rewards offered to donors for the different levels of donations.

But not every effective campaign begins with an established idea. When 2013 San Francisco Bay Area Rising Star Restaurateur Matt Semmelhack geared up for the opening of AQ, the team chose Kickstarter as a way to give future-guests a sense of involvement in the build-out. They also gained regular customers along the way, says Semmelhack, who raised just under $30,000, or 4 percent of their total financing. And Rising Star Chefs Evan and Sarah Rich, who had already signed a lease on their now popular Rich Table, launched a small KickStarter campaign with a goal of $15,000 to help raise funds for the design and renovation process.

The Basics
Since the site’s launch in 2009, more than 4,000 food projects have been set-up on Kickstarter, but less than 1,600 have been successful. What sets the success stories apart from the rest? A solid plan. “Plan it out, really, really plan it out,” says Nakano. “Determine the right goals and time period for your project and identifiy your established networks.” Nakano’s team went for high risk, high reward planning, choosing a high goal of $50,000 over a short fundraising term—two weeks. It gave the project a sense of urgency and excitement. The Meloy’s hoped to completely finance their restaurant through Kickstarter, launching a $50,000 campaign. But additional costs will likely be covered by private investments. For Semmelhack, because the campaign was used primarily to raise awareness for the restaurant, a lower goal of $25,000 was appropriate.

Create Valuable, Smart Rewards
When building your campaign, make sure to plan your rewards carefully. “Be careful how much you give away,” says Semmelhack. “Some of the rewards that are offered [to encourage certain levels of donation] virtually negate any financial gains. Don't give away the farm.”  

And while you need to consider your end goals, you also have to make the rewards enticing to a large audience, ideally attracting any people outside of your immediate area, Casting a broad net may put your project over the top. “Make the rewards valuable. Not money wise, but things that will show people how hard you are willing to work,” says Meloy. “Show how much you really want this and how much their help will matter.”  

Developing attractive rewards means getting creative. The Riches created a contributor collage, displaying the names of high-value backers in the restaurant. Both Nakano and Rabins created t-shirts for their campaigns, a tangible item which also helped fulfill rewards for non-local backers. Many campaigns offer a “chef for the day” experience, which as Semmelhack puts it, “doesn't actually cost us anything except for our chef's time,” which he was happy to give to an enthusiastic patron.

Drive your Campaign Every Day
Most importantly, don’t be lazy about your project. “People send out an initial email, a follow-up email a week later, and a tweet about it one time. But people don’t drive their projects constantly,” says Nakano.

After you determine the basics of your plan, develop a strong campaign page to help drive the project. During their PushStart supper clubs, the Meloys had already made 100 videos, the perfect fodder for their Kickstarter campaign. Nakano reached out to “Top Chef” friends, farmers, and people from the tech industry, asking them to record video testimonials about Happa Ramen, which they used to update the project site everyday for their 14-day campaign. Not only did this provide a stream of new content--allowing the chefs to regularly promote info on social media channels and through e-mail--but it showed visitors a wide range of reasons to invest.

Build Buzz and Community First
The most successful campaigns have established, supportive communities, whether it’s in online networks or from previous projects. “If you have a good community, go for it, if not, spend time creating that buzz first,” says Rabins. For a crowdfunded projects, social media outlets are an obvious source of promotion. But go beyond Twitter.. “Make a list of everyone you know, everyone they know, every reporter, and every organization and business in the country that is interested in your kind of project, and reach out to them during the campaign,” he suggests.

Look to media outlets, and friends who can help connect you, to help spread the word. “Social media was extremely valuable,” says Semmelhack, “but we were lucky enough to have our story picked up by EaterSF, Grubstreet, and others, which was a huge help in widening the circle of people that saw the campaign.”

Have a Back-Up Plan
Make sure your plan is rock solid, including a contingency plan, suggests Nakano. “We had a pop-up on the last day, and if things weren’t looking great, we would have asked the guests to contribute,” he says. He emphasizes thinking of everything, including possibly planning to have private investors cover a portion of the Kickstarter, in order to guarantee your goal is met, and your brand image comes out thriving.

The Pros
When you crowd source your funds, you’re going straight to the people, and getting legitimate feedback from future customers. “With Kickstarter you are getting more genuine feelings from people,” says Nakano. “They really just want to help your project. People who didn’t live in the country or live across the country backed our project, which felt great”

Beyond the immediate financial benefits, successful campaigns often continue to receive support from backers. “For AQ, we saw huge benefits because our Kickstarter backers would tell their friends and network and bring them to the restaurant,” says Semmelhack. “They feel more involved and more invested because of their Kickstarter connection. They are some of our best customers.”

And a successful campaign is like a proven track record. “It’s a great thing to show investors going forward,” says Nakano. “Our site is a little pilot reel with credible people talking about the restaurant.”

And Some Cons
Although Nakano project was a success, he’s acutely aware of the risks, and hesitant to suggest chefs get on board. “I think there are more pitfalls then positives,” he says. “Generally speaking, if a restaurant person asks me about Kickstarter, I’ll probably tell them not to do it. Depending on who they are and what kind of restaurant it is. Nine times out of 10, I would tell them not to do it.”

For the Meddises of Rose's Meat Market & Sweet Shop, one of the unforeseen challenges was finding the time and resources to fulfill the reward packages they promised donors. Fresh off the campaign, they struggled to balance a brand new business with the commitments they had made. Even though it sounds very doable when you promise your time, it can be a consuming process that takes you away from your business when you most need to be there.

It’s Not All About the Benjamins 
“If you don’t hit your goal and don’t raise your money, not only did you waste your time, but it can hurt your brand,” he explains. “Selling your restaurant idea can be really difficult. Finding appropriate rewards is really difficult, especially at the high levels. Figuring out how to offer the rewards for people who don’t live near you can be difficult. When you are selling a restaurant, you are selling an idea, and that’s hard to do.”

Although Kickstarter has popularity and name recognition in the corwdfunding arena, the risks are somewhat less well known. If you don’t reach your goal, you forgo any money earned, Nakano explains. “Indiegogo lets you keep every dollar of what you raise. If you only raise $5,000, you get to keep that money.” Most platforms also take a cut of the cash, so make sure to set a goal that accounts for the platforms share, and that will be worth the time and effort. Set achievable goals.

Crowdfunding—the activity and the term are new. The restaurant industry is a risky business. This much we know, that much isn’t knew. After determining whether or not your situation makes sense for crowd funding, make a stellar, multifaceted, thoughtful plan . “We would have been destroyed if we didn't get funded,” says Meloy, “but at the same time that would have been a good indicator that we shouldn't be opening a business.” Good luck and get funded!