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Crowdfunding a potential source of financing for restaurants

Restaurants in Arkansas are utilizing a new source for alternative funding: crowdfunding.

May 21, 2015

Restaurants in Arkansas are utilizing a new source for alternative funding: Crowdfunding, according to the Arkansas Businessnews.

Restauranteurs see the funding as a way to finance special projects and marketing rather than something likely to replace traditional capital, the article said.

Potential owners use platforms such a Kickstarter and Indiegogo, used more for artists' projects, to secure funding, but now one business is touting itself as "the first equity crowdfunding platform for food and beverage businesses."

FoodStart, another crowdfunding platform for restaurants, launched in April 2013, but may now no longer be operating, Arkansas Business reported.

Capi Peck, co-owner of Little Rock's Trio's Restaurant and president of the Arkansas Restaurant Association, said in the article, "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 asked "What happens after the buzz dies down?" she asked. She fears new restaurateurs will ignore the crucial step of writing and researching a business plan, as required for traditional bank loans. Owners have to further decide the reward donors will receive for their funding.

"Are they going to get free dessert forever or are they going to just be included in investor-only private events?" Peck asked. "People come to me a lot and ask for advice, and my advice is 'Do your homework.'"