Restaurants, breweries and similar businesses in Arkansas increasingly are finding crowdfunding a valuable source of alternative financing.
And though crowdfunding isn’t likely to replace traditional sources of business capital — bank and government loans, investor infusions — Arkansans see it as a way not only to finance special projects but as an important tool to promote buzz and buy-in, essential components of a successful startup.
The situation in Arkansas mirrors that across the United States. “Once a space dominated by artists, musicians, and filmmakers, crowdfunding continues expanding into the restaurant industry,” FSR magazine, a publication aimed at full-service restaurants, noted last year. “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.”
Kent Walker of Little Rock is not a restaurateur, but he has a tasting room in which customers can sample his cheeses, and he sells his products to a number of restaurants and stores around the state.
He launched a campaign in February on Kickstarter, one of the best-known crowdfunding sites, to raise $10,000 to remodel the tasting room at Kent Walker Artisan Cheese’s new location at 323 S. Cross St. Walker makes cheese at the facility, sells his products there and holds wine and cheese tastings as well as tours.
The full remodel of the facility cost him about $80,000, he said. Investors put up the majority of the amount, but the money raised through Kickstarter — $13,198 by the end of the campaign in March — was crucial, as was the publicity.
“It’s really nice because it’s a funding tool, but it’s kind of amazing that at the exact same time it’s advertising, and we’ve gotten so much word of mouth and so many people talking about our business just from doing that,” Walker said.
The greatest value of the crowdfunding campaigns on platforms like Kickstarter may lie more in the engagement they generate among donors. When the 168 contributors come to Kent Walker Artisan Cheese to pick up their rewards — cheese, of course, along with a chance to actually make cheese — they’re likely to become customers and tell their friends about their investment.
As for the money itself, “it was really good for that last bit, when you’re at 90 percent construction and you’ve got cost overruns and things that every project has, but you’re funding is really tight at that point,” he said. “So it was a real good breath of fresh air to do that final push to get the construction done.”
Over the four years that he’s been in business, Walker and his investors have put about $250,000 into Kent Walker Artisan Cheese, and he says the company is on the road to profitability. “Essentially what we’ve done is we’ve spread out our startup year over four years, because I don’t have a trust fund,” Walker said.
In addition to the popular Kickstarter and Indiegogo platforms, which tend to be used more for artistic ventures, at least one business has arisen that caters strictly to the full-service restaurant industry: EquityEats of Washington.
It describes itself as “the first equity crowdfunding platform for food and beverage businesses. Restaurants and bars are a perfect fit for equity crowdfunding. Restaurants build, shape, and transform communities, while entrepreneurs gain passionate ‘investomers’ (investors + customers) who supply capital.”
Equity crowdfunding currently is open only to “accredited investors,” as defined by the federal Securities & Exchange Commission, who receive a financial stake in an enterprise rather than the rewards (products) that Kickstarter campaigns provide donors.
FoodStart, a crowdfunding platform for restaurants, breweries and other food- and beverage-related enterprises that launched in April 2013, is another platform that’s received publicity. (However, recent attempts to visit the site, FoodStart.com, indicate it may be defunct. The digital-tech startup world can be brutal.)
Jesse Core, owner of Core Brewing & Distilling Co. in Springdale, agreed that crowdfunding has a place in the fundraising firmament. Core last year used the equity crowdfunding platform EquityNet of Fayetteville to raise about $20,000.
“I think crowdfunding is a very good option and also EquityNet is a good group of guys and a good platform,” Core said. “Their platform gets investors and entrepreneurs together.”
Capi Peck is co-owner of Little Rock’s Trio’s Restaurant and president of the Arkansas Restaurant Association. She started Trio’s in 1986, using money provided by family and business partners.
Peck sees crowdfunding as having a place in the food-service sector, particularly because, she said, obtaining a bank loan is increasingly difficult because of the high failure rate of restaurants. “It’s just risky and banks are often hesitant to loan money, especially to a startup concept,” she said.
“I think that Kickstarter and FoodStart and those sorts of crowdfunding mechanisms are more for very small ventures like food trucks and cafes and bakeries that don’t need a lot of capital, because it’s really expensive to open up an independent restaurant,” Peck said. “I think when you take a look at some of the more successful projects on Kickstarter, only a handful have raised more than $100,000. And $100,000 isn’t going to get you much of anything unless you’re doing something like a food truck.”
Peck also voiced concerns about restaurant crowdfunding. “What happens after the buzz dies down?” she asked. Promotion is grand but execution keeps a restaurant in business.
In addition, she fears that budding restaurateurs may skip the “very important” step of writing and researching a real business plan. “That’s an exercise that a traditional bank loan would require, with a lot of research,” Peck said.
Finally, how much will the rewards promised crowdfunding donors cost? “Are they going to get free dessert forever or are they going to just be included in investor-only private events?” she asked. Margins are thin in the restaurant business.
“People come to me a lot and ask for advice, and my advice is ‘Do your homework,’” Peck said.
Justin Patterson, co-owner of Southern Gourmasian, which started as a food truck but now has a brick-and-mortar location at 219 W. Capital Ave. in Little Rock, raised $16,125 through Kickstarter late last year to do finish-out at the new restaurant. The majority of his investment, however, was in the form of proceeds from the business and a $150,000 loan from Arkansas Capital Corp.
And Patterson said he wouldn’t recommend Kickstarter, citing backers’ frustration with the site’s interface. “In the future, we will definitely look toward private investors,” Patterson said.
Ian Beard of Stone’s Throw Brewing in Little Rock, which raised $23,215 in a Kickstarter campaign two years ago, said that he and his business partners no longer need crowdfunding. They now “have access to traditional forms of funding since we have a verifiable stream of income and own more than just our name — specifically bank loans, although we could tap into other sources like investors if we wanted to go that route.
“There are plenty of startups that could use the boost that crowdfunding offers, and we’d rather that the crowdfunded dollars go to those places that really need it now that we have greater access to a variety of funding sources.”