Well, those lovable techies have stirred up the economic landscape yet again. And many of those in the hospitality industry in need of alternative sources of capital will surely benefit. Through crowdfunding platforms, such as Kickstarter, Indiegogo and GoFundMe, restaurant owners no longer must rely on traditional sources of capital (e.g., bank loans, equity sales, friends and family). Sorry, Aunt Mildred, your services are no longer required. And wait there’s more…

These days, crowdfunding platforms include restaurant-specific options. Platforms such as inKind, Foodstart, and Barnraiser cater directly to those in the food and beverage industries. (PieShell was also an option until it recently shut down.)

Yet, despite all of the hoopla and promising aspects of crowdfunding for restaurants, there are some downsides. The first is the amount of money capable of being raised. The average amount of capital restaurants could reasonably expect to raise hovers around $5,000 – $15,000.

The next drawback has to do with the amount of effort it takes to raise those funds. Most restaurateurs should realize that any crowdfunding campaign will become a full-time job without any guaranteed success. Much thought and effort should go into the marketing and incentives to potential investors.

Another issue for New York restaurants involved in crowdfunding campaigns relates to disclosure of investors to the New York State Liquor Authority (NYSA). Any crowdfunding investor receiving equity for their investment must be disclosed. This causes problems when an investor is disqualified from holding a liquor license under NYSA regulations.

A third downside relates to commercial leases with assignment provisions. Landlords tend to include such clauses to protect their legal interests. Through imposing burdensome disclosure requirements, including the fees charged to review and vet the investors, landlords could hinder a restaurant’s ability to secure more capital from new investors.

Wanna learn more?

For a more in depth treatment of this topic, check out the New York City Bar’s report on alternative capital raises for restaurants.