Originally seen as the alternative finance solution for start-ups who are refused funding from banks, crowdfunding has also become a popular option for mainstream and established companies. Read this blog to find out how to crowdfund for a restaurant.
- Tips on how to crowdfund for a restaurant
- Choose the right platform, prepare in detail and create a compelling pitch
- Blog by Stephensons catering equipment suppliers
With a large chunk of the financial outgoings required at the start, restaurants are exceptionally top heavy. Kitchen equipment, rent, crockery, cutlery, starting inventory, licenses and a monetary float are all required before a restaurant can open. As such, crowdfunding has become an increasingly common solution.
So what is crowdfunding?
The UK Crowdfunding Association describe crowdfunding as, ‘a way of raising finance by asking a large number of people each for a small amount of money. Until recently, financing a business, project or venture involved asking a few people for large sums of money. Crowdfunding switches this idea around, using the internet to talk to thousands – if not millions – of potential funders.’
Choose the right type of crowdfunding
- Reward crowdfunding: Sites like Crowdfunder.co.uk exchange donations for special rewards, such as a free meal when the restaurant opens. This crowdfunding method allows investors to experience the success of the restaurant first hand and get something back for their financial outlay.
- Debt crowdfunding: This type of crowdfunding allows for money to be lent without the need for a bank loan. Instead, investors expect their money to be returned with interest at a later date.
- Equity crowdfunding: In equity crowdfunding, money is exchanged for a stake in the restaurant. As with any other similar investment, the value of the purchased shares can go up or down depending on the success of the restaurant.
If you want to launch a crowdfunding campaign, you’d better get started yesterday, according to The Wall Street Journal. Successful crowdfunding campaigns take months of preparation and work. The perception that crowdfunding removes much of the legwork required to set up a restaurant is wrong; campaigns require an extraordinary amount of work before they even reach a crowdfunding site.
Speaking to CNBC Claire Merquita, General Manager of Pozible, said, “People should build their networks before they launch, go to relevant events, build up a social following and let everyone know their campaign is coming. Preparation ensures you’re getting off to a strong start and not scrambling for ideas.”
Create a compelling and accurate pitch
Often in the form of a video, a crowdfunding pitch is your opportunity to sell your restaurant idea to potential investors. If you do not have good video editing skills, it is worth paying a professional to make sure your pitch does your idea justice.
Ensure your video is as good as possible to attract attention. It is also essential that your video includes accurate business information; mistakes can cast a shadow on your pitch and confuse potential investors.
The unique selling point of your pitch will be YOU! Let your personality and passion shine through. Claire Merquita told CNBC, “Crowdfunding supporters are looking for a great story, something to capture their imagination that ties in with what’s relevant in their lives.”
Is it worth it?
Now you know more about how to crowdfund for a restaurant, it’s worth considering the effort required to be successful. Crowdfunding for a restaurant is a time consuming and draining process that does not guarantee investment.
Bon Appétit say, ‘The campaign might not work out. It might take more time and energy than expected and cost you a good chunk of the money you wind up raising. But it might introduce you to investors you never had access to.’
An unsuccessful campaign can also damage the restaurant’s brand and have a long-term negative impact. On the other hand, a crowdfunding campaign can increase awareness even if the financial target is not met.
Opentable say, “Although crowdfunding is a time-intensive endeavor, it will reap more than just financial rewards. For one, it frees you from having to take investor money. A successful campaign will create a base of early supporters because they are invested in your project.”
The restaurant industry is notoriously risky and restaurants are exceptionally difficult to fund from the outset. Crowdfunding platforms can alleviate the start up costs and also indicate whether the restaurant will be popular when it opens.
Crowdfunding success is difficult to attain, but with a carefully planned strategy, compelling pitch and airtight business plan you can maximise your potential.