18th May 2015
Over the last year restaurants have established themselves as a successful vertical category within the crowdfunding space.
During the economic downturn, the sector has continued to be an attractive investment proposition. One reason for this is that eating out is a relatively cheap leisure pursuit in comparison to alternatives such as going to the theatre or holiday. Additionally, whilst long established bricks and mortar retailers of physical products have retreated from the high street, service based sellers have been on the rise. Unlike CDs and books, it is not possible download a meal or a manicure on the internet.
The last couple of years has seen a number of high profile private equity buy outs of established chains such as Byron and Pizza Express. Additionally, last year’s sale of Giraffe to Tesco suggests that there are a potential pool of buyers for multi-site operators other than private equity companies.
Warren Buffet famously said, “Never invest in a business you can’t understand.” Everyday investors on crowdfunding platforms appear to have taken the Oracle of Omaha’s mantra to heart. Restaurants are a relatively easy proposition for lay investors to understand. They are able to conduct simple market research by walking down a high street and observing the footfall of different operators. Similarly restaurant concepts are not particularly difficult to understand. Recent trends have included burritos, Japanese ramen bars and gluten free food.
There are multiple reasons why restaurants are increasingly choosing to raise money through crowdfunding platforms as opposed to seeking more traditional corporate financing solutions. This includes the realisation that selling a small equity stake in their company, or lending money to the crowd can create an army of brand ambassadors. Furthermore, this marketing effect can be multiplied ten fold by introducing rewards to foster loyalty and increase revenues.
On Crowd2Fund we have run successful restaurant campaigns for operators who are both established, and brand new restaurants are a good fit for crowdfunding campaigns if they are well-branded, have a unique concept or are set up by an established restaurateur or Chef.
Silo, a new restaurant based in Brighton, which sought a £40,000 equity cash injection had all three of these qualities. The main creative force of the business, Doug McMaster, is a former BBC young chef of the year, and the restaurant already had a strong visual brand by the time that they approached us. From an investor perspective the most striking feature of the campaign is the restaurant’s concept. Silo is the UK’s first zero waste restaurant. They follow through on this mission statement by recycling all of their waste, and by supplies being delivered in reusable containers. Restaurants like Silo, which have emotive concepts are likely to be viewed favourably by investors due to them having a social enterprise slant, as well as being able to offer potential financial returns.
Established restaurants are proving a hit with crowdfunding investors as they already have a proven business model, and are well-known amongst consumers. If a restaurant is able to reach four or five units they stand an excellent chance of being able to scale up their business to operate from a number of other sites. Their high-street presence means that they are able to create awareness of crowdfunding campaigns in areas with a high footfall. Furthermore, they are able to market their wares to a captive audience.
Hummus Bros were able to demonstrate this to great effect on Crowd2Fund. The restaurant raised £170,000 by issuing a bond in order to open up an additional unit, to their existing four outlets. The restaurant was already well-known to Londoners due to operating from prime locations in London. During the campaign the company heavily promoted their crowdfunding campaign in store, and used their Holborn branch to put on an investor event. Another benefit of having such a physical presence is that this element brings campaigns to life and create awareness offline.
We are continuing to see an appetite from both investors and companies to raise money for and invest in hospitality companies. The latest example of this on Crowd2Fund is Inntuit Limited, a pub operator seeking £40,000 to develop an innovative EPOS system for the pub industry.
Originally published by The Funding Centre www.thefundingcentre.com
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