Young and Hungry

Equity Crowdfunding Site for Restaurants Prepares for D.C. Launch

downloadIf you want to be a restaurant investor, you pretty much have to be rich.

The Securities and Exchange Commission makes it a big pain for restaurants or other businesses to accept funds from anyone who isn't an "accredited investor." And to be an accredited investor, you have to have a net worth of $1 million (which can include assets owned jointly with a spouse, but not the value of their primary home), or an income of at least $200,000 for the last two years ($300,000 with a spouse). If you don't have that kind of cash, you can technically invest, but the government makes it burdensome on businesses with lots of extra paperwork, disclosures, and costs. That's one of the takeaways from my recent cover story about restaurant investors, which you can read here.

But a new local site called EquityEats is looking to do the heavy lifting so that restaurateurs can more easily bring on both accredited and unaccredited investors through an online crowdfunding platform. Basically, think Kickstarter, but with profits rather than just perks. The site will be similar to Fundrise, an equity crowdfunding site for real estate, except just for food businesses and restaurants.

The venture, which is slated to launch this fall, comes from tech entrepreneur Johann Moonesinghe and co-founders Jason Pinto, Andrew Harris, and Steve Lucas

A site like this is significant for two reasons: 1) It makes buying a stake in a restaurant much more accessible to your average Joe. If you're not a millionaire, there aren't a lot of opportunities to (legally) invest in restaurants and make a profit. 2) Restaurateurs won't have to solely rely on deep-pocketed connections, as most do now.

"We want to democratize the whole process of opening a restaurant," says Lucas, who heads up strategy and communications for EquityEats. The goal, he says, is to allow people to tangibly invest in the city and ultimately help stimulate local economies in neighborhoods.

EquityEats will vet all the business owners who want to use their platform to ensure that they actually have solid business plans. "It's important that as a platform that we're not setting people up to make bad investments," Lucas says. "It's not going to benefit us, it's not going to benefit the entrepreneur, it's not going to benefit the investor, if we have an open canister of business plans." And like Kickstarter, businesses won't get any funds they raise unless they meet their stated goal.

The platform will have a dashboard that lets business owners report out data to their investors and even automate the process of sending out tax returns and other pertinent paperwork. The businesses will be required to report earnings at least quarterly. In addition to any profits, restaurants will have the option to give investors additional Kickstarter-type perks if they want.

As for investors, there will be a minimum buy-in, likely a few hundred bucks. Unaccredited investors will also be limited in how much they can put forth, depending on their income.

EquityEats could be among the first of many platforms of its kind. The Jumpstart Our Business Startups Act, signed into law in April 2012, includes a new “crowdfunding exemption” that will make it easier for anyone to be an equity investor under certain limits. But the SEC is still writing regulations to implement it. EquityEats hopes to be at the forefront of these new rules.

"That's sort of the linchpin for all of us," Lucas says. "The JOBS Act, it's going to allow crowdfunding to really explode, especially with equity crowdfunding. It's not necessarily loosening the regulations, but it's changing them so that it's easier to navigate, easier to do an offering."

EquityEats has already received verbal commitments from several chefs and entrepreneurs who are interested in using its platform. Stay tuned for more information closer to the fall launch.

  • Andrew

    Restaurants tend to be pretty high risk investments. I predict a lot of disappointment from this venture.

  • Jaime

    It seems like they're aware of the challenges and talk about them in detail on their website. This could be good for DC... Chefs with good ideas could open new places. AT the same time, ordinary people can say they're part-owners of new restaurants opening up in their neighborhoods and be part of the entrepreneurial process.
    Disappointment is a possibility but not an inevitability.

  • Jimmy Bonagle

    This is a great idea. Everyone always says restaurants are high risk and a tough industry, but that's only if your restaurant sucks. On the other hand, if you have a great restaurant, bar, or coffee shop, it can be VERY profitable.

  • Ralph Peterson

    This sounds like a fantastic idea. I invest a lot in kickstarted projects but would like to see a return on my money rather than just perks. An amazing idea for us non-accredited investors. Many of us are foodies and can now build our community through the development of restaurants, bars, and coffee shops. In terms of disappointment, if the community does not believe in the concept or the restauranteur, the concept itself will not get funded! This company is just the platform to launch, not a backer of the entrepreneurs or the concepts, that falls to the community.

  • https://www.terrafunda.com TerraFunda

    We just listed a few new projects on a crowdfunding platform (groundbreaker.co) and invite you to follow them if you are interested in seeing some ongoing transactions:
    projects.terrafunda.com

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