What is crowdfunding and how could it help start my restaurant?

Share

What is crowdfunding and how could it help start my restaurant?

If you’re a food lover, it can be tempting to open up your own restaurant. It offers you the opportunity to be your own boss and to have creative freedom over everything — from the menu to the interior design. However, it’s easy to be put off straight away by how expensive it is to set up. You’ll need to account for the premises, purchase cooking equipment and furnishings, and pay staff, to name just a few.

Traditionally, people starting restaurants would startup funds with their own savings or expensive loans. These high stakes are why so many give up on their dreams, giving up their passions in favour of stability. Luckily, there’s a popular new way of acquiring funds fast: crowdfunding. Here, we’ll explain what this type of funding is, and how it can help you set up your own restaurant.

The new way to fund your restaurant: crowdfunding

Crowdfunding raises funds for your business by collecting small contributions from many backers. This is typically done via an online crowdfunding platform, an approach made popular by artists and musicians in the early-to-mid 2000s. Now it’s used to fund all sorts of business ventures, personal projects and charitable causes — and restaurants are no exception.

There are three common types of crowdfunding:

  • Reward-based
  • Equity-based
  • Donation-based

In all crowdfunding models, the person seeking funds sets a funding goal. The amount set for the funding goal must be reached for all the money pledged to be released to the restaurant owner. Then the business must fulfil its pledge, and give rewards or equity to its backers.

Which type of crowdfunding is best for restaurants?

Typically, restaurant crowdfunding will be either reward-based or equity-based.

In reward-based crowdfunding, backers receive a reward: the size of which depends on their level of investment. The larger the investment, the better the reward. Common incentives that restaurants will offer include meals, opening night invitations, cooking classes and tabs.

In equity-based crowdfunding, backers get equity in your restaurant. This is positive, as it will attract a different kind of backer: one that sees your restaurant as a longer term business opportunity. The downside is that it means these backers have a share of your business.

Some savvy restaurateurs run a reward-based crowdfunding campaign and an equity-based crowdfunding campaign at the same time, to attract a mix of future customers and investors.

Donation-based crowdfunding is not usually applicable to restaurants, but you might consider it if your restaurant is going to be a charitable or social enterprise.  

Popular business crowdfunding platforms in the UK include:

These platforms seem similar, but differ in some important details, like the level of fees charged on contributions. We suggest you compare the options carefully before you commit.

What makes a good crowdfunding campaign?

The key to a successful crowdfunding campaign is a good crowdfunding page: the webpage where people go to pledge their money to you. To create the best possible pitch for investment, you should include high-quality text, images and video to tell the world what your restaurant will be all about.

These elements should work together to tell your story. Who are you? What are your passions, and why are you now taking the next step to open a restaurant?

You should also communicate how the restaurant will add unique value to the community. Will you introduce a new cuisine to the area? Or operate in an innovative way? Backers are hungry for fresh experiences in their area, so highlight why your business is different from the rest.

Be transparent about your financial situation and business plan. Many people don’t know how much opening a restaurant costs, so let prospective backers know exactly how much you need overall, and how crowdfunding will feed into the funding mix. This point is especially important in equity-based crowdfunding.

In reward-based crowdfunding, it’s also crucial to offer an enticing array of rewards for backers. While some friends and family might contribute out of kindness, most people will require a strong incentive. Be sure to include some high-end rewards for big backers, you never know who might be following your progress!

Crowdfunding vs. traditional approaches to restaurant funding

Crowdfunding has several advantages over traditional funding methods. One reason is it secures high levels of funding all at once, without causing much risk to your personal finances. It’s also a great marketing tool, bringing attention to your restaurant before launch. Perhaps best of all, it doesn’t come with the burden of interest that a bank loan would.

The downside to crowdfunding it is often difficult and competitive, with no guarantee of success. According to the crowdfunding provider Kickstarter, only 36.29% of its fundraisers are successful (as of August 2018).

New restaurant businesses may find this very challenging, as you will be juggling crowdfunding with other tasks like company formation and branding.

What next?

Crowdfunding is a great way to fund your restaurant. And though funding is a key part of starting a successful business, you’ll also need to handle some other formal parts: like registering as a limited company, or setting up a business bank account. It can be difficult to know where to start, though, and so we’re here to help with the process. If you’re interested in finding out more, just head over here for more information.

The following two tabs change content below.

Lauren Felstead

is a Marketing Executive at MadeSimple. When she’s not in the office, you can find her at home in pyjamas trying to catch up with everything on Netflix, often with a cat and chocolate by her side. Other loves include reading every magazine going and music concerts.
Share