3. Crowdfunding

Crowdfunding involves using a site like Wefunder or Kickstarter to recruit the public to fund a restaurant idea. With Kickstarter, entrepreneurs set a monetary goal that – if met – charges everyone who backed the project with the amount of money they pledged. In return, those individuals are typically rewarded with gifts scaling in value alongside the size of their donations. Wefunder on the other hand, is equity crowdfunding, so your investors are rewarded - financially - through a payback structure (often a revenue or profit share, or a simple loan agreement).

This approach to community-based fundraising is beneficial to both businesses and their patrons, according to Jeff Dion, Founder Partnerships Lead at Wefunder. “We want founders to be able to have as many roads to raising capital on their terms, and in the timeframe in which they wish to,” says Dion. “We also want investors to be able to invest in whatever business they want, whether that's the next major startup, or for $100, their local coffee shop.” 

While not all crowdfunding initiatives are successful, they can work (and have worked) in the restaurant industry -- “80% of raises are successful on Wefunder,” according to Dion. Harlan County Beer Company was a recent example of a successful revenue share fundraise on Wefunder. This Appalachian brewery raised $193K from 262 investors. In another example, Rhode Island-based Buttonwoods Brewery sought out $10,000 from the public with a 2017 Kickstarter campaign to get the taproom off the ground. Fast forward to 2021, and Buttonwoods is a thriving brewery in the greater Providence area. 

Pros of Crowdfunding

Equity crowdfunding platforms like Wefunder are flexible models for acquiring funding. For example, on Wefunder, the business owner sets a minimum goal that must be met but then a maximum goal that does not need to be met. Campaigns can be open for up to six months, giving plenty of time for investors to find the business, invest and is key to achieving crowdfunding success. According to Dion, “if the goal is met, crowdfunding creates an army of brand ambassadors for the business.” 

Wefunder, for example, allows community members to invest as little as $100 in a business they want to see succeed, and only charges a fee of 7.5% on the amount raised. Compared to other methods, crowdfunding fees are minimal. 

As for Kickstarter, restaurateurs get to keep control of the entire company in exchange for inexpensive swag – and they don’t have to relinquish a percentage of ownership. Crowdfunding is also easier for restaurants that “already have paying customers and people who follow them,” according to Dion, due to their existing base of patrons and supporters. 

Cons of Crowdfunding

Crowdfunding sites like Kickstarter run on an all-or-nothing model, meaning fundraisers that are not 100% met within 60 days receive none of the money pledged. This model can cause entrepreneurs to set lower-than-needed targets or risk failing in their quest for their desired amount of money.

Tip for Existing Restaurants

Crowdfunding is a legitimate fundraising strategy for restaurants in 2021 – particularly established ones – so any restaurateurs who are legitimately ready to raise funds, and want to explore this strategy, are encouraged to reach out to Wefunder’s Jeff Dion at jeff@wefunder.com.

4. Restaurant Investors

Restaurateurs can seek cash investments from venture capital (VC) firms or individual investors (aka “angel investors”). In exchange for financing the restaurant, investors typically ask for a percentage of ownership in the business based on the investor’s valuation of the restaurant’s worth. For example, if the restaurant needs $100,000 in funding and an investor provides that in exchange for 20% of the business, that investor sees the value of the restaurant as $500,000.

There are a few different ways to value a restaurant business’s worth, some of which are explained in this article.

Pros of Investors

Restaurant investors tend to have experience in helping a hospitality business succeed. Plus, with an ownership stake in the restaurant, these investors are incentivized to ensure the business grows and thrives, since the more money the restaurant makes, the more their share of the business is worth. 

Cons of Investors

Most restaurants operate on a thin profit margin – particularly in the early days of the business – so diluting the restaurateur’s share of ownership is not the most desirable option. Investments in single-location restaurants may also be undesirable for investors, as according to Wefunder’s Jeff Dion, “equity routes have usually been challenging for restaurants – at least smaller restaurants or newer restaurants – to raise, because it's a funding strategy for businesses that have the potential to scale massively.”

5. Friends and Family

If all else fails, hopeful restaurant owners can reach out to their friends, family, and even former restaurant coworkers for help funding their venture. While this route might be seen as the scrappiest road to success, enlisting trusted colleges and loved ones to help build the business is still a viable option. 

Pros of Friends and Family Funding

Family-owned restaurants are no rarity, and for good reason: the partner is invested not only in the success of the business, but also the business owner. Also, while these mom-and-pop establishments are typically single-location restaurants, it’s entirely possible for them to expand past a small-town setting. After all, Panda Express – the nation’s largest Asian restaurant chain – remains family-owned to this day. 

Cons of Friends and Family Funding

Mixing business with pleasure can be a recipe for disaster. If the business does not succeed, it could damage personal relationships and create a financially-driven rift between the entrepreneur and anyone who invested in the restaurant. 

Tips for Getting Restaurant Funding Faster

a person holding a sign

There are plenty of sources for restaurant financing – but all of them can be squandered if an investor responds to a request with a stern “no.” 

Before meeting with a potential investor, there are a few best practices to adhere to in order to maximize the chances of securing capital. 

1. Have a Finished Restaurant Business Plan

The restaurant business plan is the most crucial document for opening a new restaurant. Investors – whether friends or strangers – will want to know that every factor has been considered by the entrepreneur.his is where the business plan comes in. 

The business plan outlines a restaurant’s market overview, strategic initiatives and detailed financial projections to explain how and when a restaurant will become profitable. Without a finished business plan, an idea for a restaurant business is just that – an idea. 

Restaurateurs can build their business plan with this free template from BentoBox

2. Practice The Pitch

Whether it’s a formal presentation with investors, a meet-and-greet with a bank lender, or an introductory discussion with former co-workers, they all share the same starting point – the pitch.  The pitch is a quick 45-90 second overview of the state of the business (or potential business). It’s what someone looking for funding should be ready to say without hesitation if an investor or lender starts off the meeting by saying “So, tell me a little bit about the restaurant.”

In this situation, the worst thing one can do is ramble on, repeat themselves unnecessarily or worse – draw a blank. A response like that can show a lack of ambition, confidence or direction, and will almost certainly set a bad tone for the rest of the interaction. 

Instead, entrepreneurs should come prepared to succinctly and enthusiastically explain their restaurant, why they chose to pursue restaurant ownership, what makes the concept unique and what they are seeking as an investment. It’s worth rehearsing the pitch with close colleagues and business partners for feedback, as well as practicing the pitch several times. After all, practice makes perfect. 

3. Prepare Answers for Common Questions

“How will you obtain a sufficient share of this densely populated market?”

“When will I see a return on my investment?”

“How did you arrive at that estimate?”

If the answer to any of the above questions is “I’m not sure,” the chances of securing restaurant funding decrease dramatically. Therefore, it’s a best practice to think of some of the questions potential investors may ask before they sign a check, then proactively develop clear and complete answers. 

Having an answer to as many potential questions shows investors and lenders that entrepreneurs have done their homework. If not, it could mean the difference between securing restaurant financing and not. 

Funding Your Restaurant

From seed money to open up a first location to investment financing for a planned franchise, restaurant funding is a key ingredient for a restaurant to grow. Fortunately, with no shortage of funding opportunities, restaurateurs have an opportunity to capitalize on the growing demand for dining out. 

Existing restaurants can also seize the continued popularity of online ordering with a custom restaurant website with BentoBox. Click here to get a demo of BentoBox and learn how to bring your restaurant’s storefront online. 

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