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It Takes a Village to Raise a Restaurant

Local restaurateurs look to crowdfunding instead of banks

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When Jenean and Johann Claus bought The Venue in downtown Boise, they knew that music alone wouldn't be enough to keep the business viable, especially not the all-ages shows the performance space specializes in.

The plan from day one was to open a cafe inside the space to augment revenues. It's a plan that looks especially tasty with the pending opening of Concordia Law School across the street.

But instead of making the rounds to local banks looking for a startup loan, the Clauses took a cue from the bands that play at their business and tried to crowdfund the project via Kickstarter.

"I have seen restaurants in Portland, [Ore.] and California succeed," said Johann Claus. "They were just restaurants. We were really excited, because we have around 4,000 fans on Facebook. And there's another community on Ticketfly of around 1,000 people that have bought tickets."

For those unfamiliar with the term, crowdfunding is a peer-to-peer lending system that operates through online social networking. A project manager makes a profile similar to a business plan on a crowdfunding website like Kickstarter or Indiegogo and then pushes it out through social networking to raise the capital needed for the project.

Campaigns offer incentives, often gifts or pre-sales of the product they are developing, to encourage contributions. It manages to wrap market testing, promotion and fundraising into a single process. The Venue, for example, was offering perks ranging from food at the to-be-built cafe or tickets for upcoming concerts.

Though it's a well established mechanism in the tech and art worlds, more and more restaurateurs are now turning to crowdfunding instead of banks. Why? For the same reason Slick Willie Sutton said he robbed banks: It's where the money is.

"In the last five or 10 years, restaurant financing is very tough," said Dave Short, the senior commercial loan officer at D.L. Evans Bank.

According to Short, restaurants--already considered a volatile venture--are being scrutinized closer than ever in these tough economic times. He said that D.L. Evans gets four or five loan applications a year from prospective restaurateurs, most of them seeking somewhere between $50,000-$100,000. One in 10 might be approved.

Those aren't encouraging numbers.

Ironically, Short said that a successful crowdfunding campaign would likely increase a restaurant's chances of getting a loan because it shows both interest and effective management. He also said the biggest challenge restaurants face is being under capitalized to weather the rocky waters at the outset to eventually become financially successful.

But the alternate supply of locally sourced cheddar isn't the only reason restaurateurs are going around banks. It shouldn't come as a surprise to anyone who has followed the news of the last year, but bankers are becoming fairly unpopular in some circles.

For example, the Clauses saw their project as an extension of the DIY ethos of the music they feature at The Venue and a way to involve the community in its success.

"I think you should be able to ask a fanbase for support, [especially] in a punk, DIY community, instead of having to go to those blood-sucking banksters and ask them for money," said Claus.

But not all of The Venue's fanbase agreed.

"To have us pay for your cafe is weak," a commenter named Lion Idus wrote on a Facebook post The Venue made about the campaign. "I won't support a place that wants me to pay for a cafe so we can pay for a sandwich at a show."

Claus admits that crowdfunding a restaurant is a little different from artists soliciting funds for a project, but says all they were really doing was asking people to buy concert tickets in advance, which isn't that far off from what they already do.

Another local crowdfunding restaurateur is Roaalee Hall, the woman behind Smylee's Holistic Bistro, a raw and vegan cafe that she plans to open in Meridian this fall.

"I don't necessarily agree with the way that business is handled these days, and I'm trying to do things differently," said Hall, who has a degree in entrepreneurship and used to manage Boise's iconic Koffee Klatsch.

"The whole reason why the whole economy went wacko in 2008 isn't just the housing market, it's the way business is handled," said Hall. "You can't just throw money at a thing. You have to think through, 'What does that money buy?' If I won the lottery today, I would still have to ask how the community wants to support my business. That to me is stronger than just, 'I have money and I want to make this happen.'"

Hall is doing her best to rethink every part of how a restaurant is run, from its management structure to its funding. And a major part of that is crowdfunding's ability to serve as a litmus test. If a campaign is successful, she knows the community is invested. If not, maybe it's time to come up with an alternate strategy.

It's all wonderful in theory. However, in practice, most local restaurants attempting to crowdfund have not been successful.

Salt Tears Coffeehouse and Noshery on State Street only raised $3,301 of its $50,000 goal when it used Kickstarter in 2010. Claus' Kickstarter campaign fell pretty far short as well, raising only $1,971 of its $15,000 goal. And Smylee's Holistic Bistro landed even harder, raising only $654 of its $60,000 goal.

These numbers are not uncommon. Though stories are written about the wild successes spawned from crowdfunding, statistics from kickstarter.com show only a 44-percent success rate for projects. Additionally, most projects that fail don't surpass the 20-percent mark for their goal. Eighty two percent of those that reach the 20-percent threshold are successful.

Claus said his campaign's Kickstarter failure was largely his own fault for not selling it properly, calling their execution "club-footed," but he also said that he just doesn't think Boise gets it yet.

"If we did a Kickstarter project a year from now, it probably would work," he said. "But it's just such a novel concept. This crowdfunding, wikinomics, is so new that people just didn't understand."

But some locals clearly do. Bogus Brewing raised $30,993 on Kickstarter earlier this year.

"A big reason I wanted to do Kickstarter is it's an easy test of the community. Is this is a good idea, or should I not be doing it?" said Collin Rudeen, owner of Bogus Brewing.

Rudeen discovered people were really into his idea and was contacted by everyone from lawyers to architects volunteering services, which is good because even though Rudeen raised $30,000, it isn't enough.

"Kickstarter was a great way to get some operating expenses to get to the point where I can go to a bank and get some private investors," said Rudeen.

So why does Rudeen think he succeeded where others failed?

"Beer is sexy, you know," he said. "It's hard to get the same kind of excitement about a burger or a soup. There's things people can get behind like organic or local, but it's easy to get excited about beer."

But for those that didn't make it, plans aren't being halted. Smylee's is pursuing grant money and The Venue has begun rapping with the bankstas.

"We're already three-fifths of the way there," said Claus. "I'm not going to pull the plug until we've exhausted every resource to get this place up and running."

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