How To Crowdfund Your Restaurant

What is Crowdfunding?

Crowdfunding is when a business or an individual pitches an idea online and appeals for funding to bring the idea to fruition.

A dedicated webpage is created to give potential backers as much information as possible, with the goal being to raise a large amount of money via smaller donations.

The people who invest and support your idea are likely expecting some form of a return somewhere down the line - from shares in the business to 'rewards' like a private dinner cooked by a chef.

Whether it's a new concept, an expansion, a new roof or you're simply trying to survive - crowdfunding is a great way to generate the capital you need.

Article: Once you have secured funding and got your business up and running, you'll need to keep the books balanced. Our guide to restaurant accounting for beginners will make sure you know what you need to do.

Types of Crowdfunding

There are three categories for crowdfunding:

• Equity Crowdfunding
• Debt (Peer2Peer) Crowdfunding
• Reward Crowdfunding

What is Equity Crowdfunding?

Equity funding entails the exchange of money for shares in the business.

Scottish craft beer giants, BrewDog, are a classic example of equity crowdfunding with their 'Equity For Punks' scheme. People have invested in 5 waves of crowdfunding, and although backers have received shares - they've also received special 'rewards' like early access to new beer, merchandise and an invite to the AGM (Annual General Mayhem) event.

Brewdog backers are also big fans of the product, so rewarding investors this way keeps them satisfied and emotionally invested in the brand. It's also sure to be more cost-effective as well.

What is Debt Crowdfunding?

Debt crowdfunding (sometimes known as peer-to-peer lending) is when investors lend money to a project but recoup the money back over time with interest.

Hen, an ethical and 'honest' chicken restaurant based in Brighton, took to Crowdcube to secure investment for additional sites via debt crowdfunding. Aiming to raise £100,000, they secured £140,000 from 139 investors.

What is Reward Crowdfunding?

Reward crowdfunding - probably the most popular form of crowdfunding in the hospitality industry - is when people donate money and receive rewards from the business. For restaurants or food businesses, this will usually be complementary meals or private bookings.

TIP: There is often a community spirit involved where a business is backed by supporters in its locality. People may donate money to help a local boy done good, because they've enjoyed an experience at a sister site and want an outlet nearby, or because they're a current customer and want the business to keep thriving.

How do I start a crowdfunding campaign?

From Kickstarter to Crowdcube, there are numerous crowdfunding platforms where you can build your campaign. Whatever website you go for, once you're set up the next step is always the same: promotion!

Using your website and social media platforms, sell your story as well as your concept. People will invest in an idea but they're also investing in you. Let them know who you are, your experience, your concept and why they should be part of it. Be clear about what you're trying to achieve.

Then you'll need to set a fundraising goal - a set figure which people know you're trying to achieve. It's a good idea to look at similar projects that have been successful to ensure you aren't selling yourself short or setting the bar too high.

To achieve your crowdfunding goal, people need to know about your campaign. Make use of social media, promote in your existing premises if you have one and let people know what your vision is.

On your page you should have a video, conveying your message in a personable way.

Local media is a great way to drum up interest for your campaigns. Regional journalists are always on the hunt for a scoop with a sense of community behind it, and your efforts to set up a business in the local area can be just what they're looking for.

TIP: A news story about your campaign will be posted on their website, in print and via social media channels - giving you maximum exposure. All it takes is a phone call to a reporter and an hour to conduct an interview, which is well worth your time!

Tiering Your Crowdfunding Rewards

If you give people options and tier potential donation amounts, you can encourage people to part with more of their cash.

For example, it's great if someone wants to contribute £5,000 in exchange for 80 shares in your business. But why not give them a reason to donate £7,000 instead? For that extra £2,000 maybe they get 100 shares and 3 complimentary meals? Or donate £10,000 and receive 150 shares and 5 comped meals!

You'll also need to create an attractive proposition to your everyday customer too. Not everyone has a lot of disposable income to invest, so encouraging smaller amounts will boost your number of investors and - crucially - ensure more people have an emotional and financial attachment to your business.

With this in mind, a £25 donation could be rewarded with an advanced booking. £50 could be an advanced booking for 2 plus a name on the founders' wall. For £100, customers can receive an advanced booking for 5 plus an invite to opening night.

TIP: Present these options and the further down the list they go, the more attractive it becomes to donate a little bit extra than planned. And these aren't underhand tactics either, you're just simply providing legitimate incentive.

How Long Should a Crowdfunding Campaign Last?

There isn't any definite answer, but Kickstarter advises a 30-day campaign offers your best chance for success. This is because if your campaign is significantly longer, it can lose steam as fatigue sets in.

A shorter period creates a sense of urgency that encourages people to invest now rather than putting it off. This momentum can also translate into how your business fares.

If you fail to reach funding, investors usually receive all their money back. The all-or-nothing approach not only encourages backers to help you reach the goal, but it also gives assurances that their money won't be wasted.

TIP: A 30-day campaign that hits the goal after 20 days gets people talking and creates a buzz around your concept. This means you could raise a lot more than your original goal, may see good social media buzz and have people eager to visit you because of the hype.

Best Crowdfunding Websites UK

There are numerous crowdfunding sites you can choose from. It can depend what type of funding you're looking for though - for example whether equity or reward crowdfunding.

Popular crowdfunding websites for you to research include:

• Kickstarter
• Crowdcube
• Indiegogo
• GoFundMe
• Crowdfunder

Whatever site you choose, their websites will clearly guide you on how to get your campaign up and running. Every site is a little different, so rest assured there will be detailed instructions on how to proceed.

If you use a renowned platform, they'll probably take care of you at every step of the crowdfunding process. This often includes legalities, ensuring regulations are adhered to and the investment is secure.

From anti-money laundering checks to issuing share certificates, there is significant legal work to be done behind the scenes - a reputable and experienced crowdfunding platform can take care of this for you.

The original crowdfunding website, Kickstarter, is dedicated to projects that provide a service. No equity can be offered, so it's really all about supporting a project that will benefit the community.

TIP: When you open your new place, you can save cash by shopping in our Clearance and Special Offers section. As old ranges make way for fresh new products, you have a great opportunity to get great deals on reliable, high quality equipment.

Examples of Successful Crowdfunding Campaigns

On Crowdcube's website it shows you the average financial target and average total raised in multiple categories.

For the food and beverage sector, the average target (between £50-£100k) is £86,688. But the average total raised is far greater, coming in at £129,838. This is broken down as: 248 investors, £523 average investment and £22,281 the largest investment.

Clearly, there are plenty of people willing to suport ventures in this sector. With such a track record of success, there's undoubtedly great potential in crowdfunding if you do it right.

Here are some high-profile cases.

BrewDog - via Crowdcube and own website

Since its inception in 2007 with just 2 employees and a dog, Brewdog has become a multinational brewery with a strong high street presence, featuring over 35 bars in the UK under its brand umbrella.

BrewDog began crowdfunding in 2009 with its Equity For Punks scheme, and has continued with five waves of funding over the years that have led the business to expansion in the US, Asia and Australia.

Although investors receive shares a key selling point is the rewards on offer - such as early access to new beers and an invite to their AGM (Annual General Mayhem) event. Perfect for drinkers who truly love their beer!

Shares in the business cost (as of July 2018) £23.75 each, and the minimum investment is 2 shares for £47.50

Pinion - via Kickstarter

In May 2018, with multiple crowdfunding successes behind him, restaurateur Gary Usher reached his £50,000 target in less than an hour. In total, £86,624 was raised thanks to 1,193 supporters.

The Pinion concept, a 55-cover bistro located in a Merseyside town, resonated with locals keen to see regeneration in the area.

With 5 sites around Liverpool, Usher is bringing venues to the area that people enjoy - making crowdfunding mutually beneficial enterprise.

Barrafina - via Crowdcube

In June 2018, Harts Group raised over £1.6 million in one morning for an additional Barrafina site in London. It reached the £750,000 target in just two hours, eventually generating over £2 million from over 600 investors.

Will I Need Private Investors?

Whether you need private, wealthy investors depends on your goals and how much cash you have raised. It's unlikely your crowdfunding will solve all your problems if you're starting from scratch (a renovation or expansion may certainly be covered), so you'll probably still need to invest your savings, profits, ask friends and family - or even invite private investors on board.

It's been said private investors are attracted to projects that have been backed significantly by crowdfunding as this shows there is appetite for the business to succeed in its local community.

Therefore crowdfunding becomes doubly important in attracting investment. As well as the immediate cash injections, you receive additional interest from wealthy backers. Of course, it's for you to decide whether you want their help, as this will often result in you losing an element of control over what happens to the money.

TIP: For a restaurant, the cuisine or the experience is the attraction - you'll have to attract backers who want to use your service, rather than hoping to make money from it.

Crowdfunding and Taxes

There's no escaping it, tax and VAT is a complicated issue and it'll require external research on your part. Consider speaking to an accountant or financial adviser on the subject before you press ahead with your crowdfunding initiative. Donations to businesses are likely to be subject to income or corporation tax, so due diligence is needed.

Although the financial risk is not yours when you crowdfund, that doesn't necessarily mean you can put your feet up and watch the cash roll in without any obligations.

UK tax laws state that if a donation leads to a 'gift' of goods or services, then a tax is applied because there is essentially a transaction between the two parties. That means a restaurant offering comped meals is essentially receiving advanced payment, therefore VAT needs to be considered.

For debt crowdfunding, it's likely you'll need to withhold 20% income tax on interest gained and contact HMRC.

Regarding equity crowdfunding, dividends received by an investor are subject to income tax. However, most crowdfunded restaurants won't become large enough for dividends to be payable. Shares will be purchased either to support your enterprise or in the hopes of future gains upon selling the shares.

TIP: You should check the government's website for a full breakdown of tax laws relating to crowdfunding and how it applies to your individual situation.

Is Crowdfunding Right For My Business?

If you believe in your concept and your ability to deliver success, crowdfunding could be just what you need to move forward.

Be sensible and there's minimal downside to crowdfunding - and that's what makes it so popular. If it fails - you lose nothing. If it works, you get the investment to drive your business forward.

However, you should be cautious regarding the rewards or equity you offer. Don't stretch your future business too far by offering the world to people who invest and potentially finding yourself unable to deliver on this down the line.

With little to lose, crowdfunding can help get you to the next level. It has to be worth considering!