New Restaurants Need Cash but Investors Aren't the Only Option

New Restaurants Need Cash but Investors Aren't the Only Option

Opening a restaurant has always taken literal blood, sweat, and tears, and in many cities it's only getting more competitive, particularly when it comes to funding. Traditionally, chefs and restaurateurs have turned to investors or loans, but in the era of crowdfunding, new technologies are creating alternative ways to get the cash needed to open the doors.

March 11, 2015
Opening a restaurant has always taken literal blood, sweat, and tears, and in many cities it's only getting more competitive, particularly when it comes to funding. Traditionally, chefs and restaurateurs have turned to investors or loans, but in the era of crowdfunding, new technologies are creating alternative ways to get the cash needed to open the doors.

But replacing (or combining) suits carrying briefcases with the fickle temperament of the internet doesn't necessarily make it any easier on chefs.

Roy Choi and Daniel Patterson know this very well. The highly respected chefs and restaurateurs in Los Angeles and San Francisco, respectively, have joined forces to create a healthy fast food chain with locations in both cities, with ambitious plans for expansion elsewhere.


They need $2 million to get the first two storefronts off the ground, they say, and then each new location will require about $500,000.

While looking for traditional investors, they’ve also turned to Indiegogo to raise $150,000 and rally community support and funding for the project.


They’ve raised 45 percent of their goal as of today, with one week left till the campaign ends on March 19.

Choi visited San Francisco this week to spread the word about Loco’l and even stopped by the offices of some notable tech giants, including Facebook, Quora and Instagram, tweeting about his Bay Area tour along the way.


Why the tech tour?

“We believe in the intelligence and the youthful spirit [that tech embodies] because that's who's gonna change food culture. Not the old guard, as they've proven they don't give a shit about us,” Choi told Chefs Feed via email.

Did the trip translate into money for Loco’l? Hard to say for sure but the Indiegogo page increased by about $3,000 in one day during Choi’s visit.

One size doesn’t fit all

While crowdfunding sites like Indiegogo work for some, it’s still a gamble.

Unlike Indiegogo, which allows campaigns to collect all the funds raised regardless of if it meets its goal, it’s all or nothing on Kickstarter.

After starting with an unpermitted pop up in their home in 2009, Nguyen Tran and his wife finally opened a brick-and-mortar spot for Starry Kitchen in Los Angeles. They had to relocate the restaurant twice due to lease issues, though, and then eventually went bust and closed the restaurant.


“Everything we had, we reinvested (in the restaurant),” Tran said. “We were suffering as a couple. I’m surprised we’re still together. And we’re supposed to take care of our parents but we were living off of them” to survive.

So they decided to do a Kickstarter for one more shot at reopening.

“Save our balls!” Tran pleads in a video for the ambitious campaign, alluding to the restaurant’s wildly popular crispy tofu balls.


The fundraising goal? $500,000 in just one month. But it only got pledges for just over 20 percent of the goal, so no dice. Tran and his wife, who oversaw the kitchen, have no regrets, though.

“We were gonna go big or go home,” Tran said. “My wife has a serious talent and we want to share that. We have a lot of options right now and we’ll see where we land. I hope we have another restaurant” at some point. Kickstarter and Indiegogo are popular crowdsourcing platforms for fundraising but they offer no equity in the project or business, which has spurred a growing backlash to what’s seen as asking for a “handout.”

Unless you’re just trying to make a bowl of potato salad that is, then the internet gives generously.


Other options

Another new model emerging attempts to eschew Kickstarter, Indiegogo and traditional investors altogether.

Modeled after the “community supported agriculture” movement, “community supported restaurants” (CSR) are slowly popping up. Members pay an amount in advance and receive monthly or yearly benefits that range from meal credits to VIP access at special events.


An Austin-based husband-wife team decided to apply this model to their new restaurant, Lenoir, which opened in 2012 after five long years of planning.


Jessica Maher and Todd Duplechan wanted to do a CSR from the beginning but soon realized it was something they would have to phase in after opening.

“You can’t do the CSR without already having a location for people to wrap their heads around,” Maher said. “Todd did some research and found other restaurants in northeast Austin that were community supported, but they were more like Kickstarters—(support us) one time and we’ll give you a kickback.”

Lenoir’s CSR model has three tiers, from $1,000 to $5,000 for a year’s membership, that give members a 20 percent return or more on their “investment” with the restaurant. Perks include house accounts and access to special events.

It’s allowed them to pursue their dream restaurant while building a direct consumer-business relationship.

“The old model is that you find someone wealthy who loves restaurants, but unless it’s franchisable, there’s little return. It’s a risky business,” Maher said. “So you have to give them more equity in the business (to make up for the risk). It’s a big risk to give away equity. It’s your sweat.”

So far the CSR has proved successful for them. Thirty couples hold memberships across all three tiers, Maher said, and they even had to put a cap on the number of memberships available because selling any more would have overwhelmed the small restaurant’s limited capacity.

For chefs who want to take a more traditional approach and seek out investors, EquityEats is a new platform that bridges the gap between crowdsourcing and real investors.


Instead of applying for a traditional loan from a bank, food and beverage startups can be matched with accredited investors, according to its website.

There’s no one-size-fits-all model for opening a restaurant, so it only seems natural that funding is evolving to include a more dynamic mix of options. Here's hoping it enables more chefs to get their visions onto the plate.

By Sara Bloomberg