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Restaurants Turn To Crowdfunding

Restaurants Turn To Crowdfunding

Has the notoriously unstable restaurant business found a stable funding source, or just a few hundred dupes?

Financing restaurants has always been a dicey business.

In early September the chefs behind the critically celebrated Travail turned to Kickstarter, the increasingly popular online “crowdfunding” site. When they reached their goal of $75,000 in a matter of hours, local jaws hit the floor. After 11 days, the campaign had raised more than $229,000 from 900 supporters, $150,000 more than Travail’s chef-owners said they needed.

New York-based Kickstarter is designed to fund creative projects. But the money is not an investment or a loan; it’s a donation that food businesses “value-exchange” by offering perks (priority reservations in Travail’s case).

If the public will now give money to help bankroll for-profit businesses, is Kickstarter changing the world of restaurant finance? (According to Travail’s Kickstarter pitch: “Getting a private investor is against everything we stand for.”)

The Travail operators closed the original Robbinsdale location in April, replacing it with Pig Ate My Pizza, a pizza concept. They are now working to open two new establishments—a new Travail and the Rookery—just a few doors down.

“I think it worked so well for them because it really matches their personality and their business plan,” says Stephanie Shimp, president of St. Paul-based Blue Plate Restaurant Company, slated to open its eighth local restaurant in December.

But, she notes, Travail’s success will draw scrutiny.

“It puts a lot of pressure on them. People will scrutinize how they run their business and how they spend their money,” says Shimp, who recalls selling her car to help finance Blue Plate’s Highland Grill in 1993.

Only 15 food projects on Kickstarter have raised more than $100,000, says spokesman Justin Kazmark.

For-profit Kickstarter collects a 5 percent fee from projects that are successfully funded. In 2012, projects collected $274.4 million, an increase of 238 percent from 2011. The company is profitable, according to Kazmark.

St. Paul’s Buttered Tin restaurant raised about $12,500 through a Kickstarter campaign to help buy equipment. Co-owner Jennifer Lueck says Kickstarter offers an early indication of community support.

“[Banks] aren’t just handing out loans for restaurants,” Lueck says, “so you have to be creative.”