Equity crowdfunding comes to the Restaurant industry. Check out this article on a new company specializing in this type of startup financing.

I came across this interesting article talking about crowdfunding for equity in the restaurant business.

Crowd funding for equity has been a minefield for startups because selling equity is covered by the complex rules surrounding the securities markets. (stocks and bonds)

Traditional crowdfunding has been for rewards or gifts.  This means the funds actually end up being 'sales' for the company.

In the equity model, the funds end up being equity and the people providing the funds are given shares in the company.

Restaurants poses an interesting industry for this to be growing because of the traditionally high failure rate in this industry.

I like the new term 'investomers.'  Interesting article.

Cheers.


View an earlier blog post about how crowd funding is threatening traditional lenders [HERE]

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CROWDFUNDING COMES TO RESTAURANTS

The way to consumers’ hearts is through their stomachs – likely because unlike almost any other good or service, food is a non-negotiable purchase for 100 percent of human beings. Individuals have different preferences for what they eat that can vary widely – from vegans to those who will only consume the sustenance of their Paleolithic forerunners, but everybody eats multiple times a day.

Yet, that sure-fire demand for a product seems at odds with the sure-fire path to an investor’s checkbook.

An overwhelming majority of restaurants fail. The most consistently cited statistic is that 60 percent of them fail in the first three years, according to data released by the National Restaurant Association. One might say that those odds are at least better than the 90 percent failure rate of most startups, but the fact of the matter is that restaurants are perceived to be expensive liabilities – and entrepreneurs looking to wade into the restaurant business find startup capital hard to come by.

“I think bank robbers are more welcome by lenders than customers looking to finance restaurants,” one restaurateur wrote for Forbes. “We visited four banks, got outright rejections from three, one of them the same bank that we have had a perfect and significant lending relationship with for 20 years, each rejection because we used the dirty word ‘restaurant.’”

Attracting qualified investors isn’t much easier – considering that an accredited investor under current legal guidelines in the U.S. must earn more than $200K per year or have assets (excluding housing) in excess of $1 million and to launch the typical restaurant venture need as many as ten of them.

But those laws are changing – 15 states have opened up crowdfunding equity investment, and the SEC is currently creating a federal rules framework to expand the circle of who can invest. Thanks to a provision of the JOBS Act, purchasing equity in a small business will soon be open to any investor – within limits, offerings are open to anyone to invest 10 percent of their annual income or net worth in each deal.

EquityEats – a crowdfunding platform for entrepreneurs – is poised to take advantage of this forthcoming expansion in the investor base – and in so doing hopes to create an entirely new class of financier in the food services business  – the “investomer” – the person who buys in because they look forward, someday, to dining out.

“We have seen that those most engaged in restaurant crowdfunding are self-identified foodies, regardless of how much they invest,” EquityEats CEO Johann Moonesinghe noted on the firm’s blog “Opening restaurants with the support of 300-500 investomers (investors + customers) sets entrepreneurs up for success from Day 1. Not only does this group of local people express interest in a restauranteur’s concept, but also they provide tremendous value as loyal guests for the life of the restaurant.” ...more...visit article to read the rest.
[CLICK TO VISIT ARTICLE AT PYMNTS.COM]