Food startups get a taste of raising money online

Preservation & Co. is selling its pickled vegetables and bloody mary mix. Huck’s Hollow Farm in Grass Valley wants to expand nationwide with its organic, GMO-free, artisanal crackers. Gluten Free Specialty is trying to open Sacramento’s first allergen-free restaurant, while Save Point Tavern plans to host the first bar and nosh spot for gamers.

What’s their common ingredient? They’re all independent foodie ventures turning to crowdfunding to raise money. And in Sacramento, that makes them something of a rarity.

From T-shirts to documentaries, all kinds of entrepreneurs have raised money to launch their startup dreams by gathering financial backers online. Known as crowdfunding, it’s been around for more than 10 years, housed on sites like Kickstarter, Indiegogo and RocketHub.

But in Sacramento, only a small percentage of crowdfunding campaigns have been for things we eat.

Jason Poole, owner of Preservation & Co. on 19th Street in midtown Sacramento, is one of the veterans. In 2013, he raised $14,250, enough for him to quit brining and mixing his vegetable concoctions after work at his former restaurant, Pour House. Last year, he dipped back into crowdfunding, picking up another $22,360 to complete the rustic interior decor of his company’s storefront shop.

For Poole, it was an easy choice.

“Why not give it a go?” he said. “Worse comes to worst, you just make yourself look like a fool on video like I did.”

In typical crowdfunding appeals, entrepreneurs like Poole film a video describing their projects and sharing their passion. They set a fundraising goal, anything from under $1,000 to $1 million, and list the rewards or giveaways that donors get in return for their donations. There’s no bank, no loan, no paperwork.

Preservation & Co.’s small storefront shop is filled with jars full of pickled vegetables and bloody mary mix lined up on aged wood shelving, all paid for by 160 different people who kicked in online contributions.

“I think people around here are just starting to support more, especially the food movement,” said Poole, who blew past both of his initial Kickstarter goals by several thousand dollars.

“The marketing value of it is huge,” he said. “We had 238 people back our campaign. That’s 238 people (who) have tried our products ... . That usually costs me money, going out and doing advertising and all that, but I actually made money by doing that now.”

Crowdfunding has come of age in the last decade. According to an industry report compiled by crowdfunding consulting agency Massolution, crowdfunders globally pulled in about $2.7 billion for more than 1 million campaigns in 2012, an 81 percent increase over 2011. The crowdfunding industry was projected to reach $5.1 billion in 2013.

According to Kickstarter, about 3,580 food-related projects have been funded through their site, while 8,908 have gone unfunded. (On Kickstarter, you don’t collect any donations until you’ve hit your goal. The company takes a 5 percent fee. Indiegogo offers flexible funding, taking a 4 percent fee if you reach your goal or 9 percent if you don’t.)

In 2014, Sacramento didn’t yield any restaurants that secured funding on Kickstarter. It’s not for lack of a budding food scene. Sacramento recently made The Wall Street Journal’s list of six mid-size U.S. cities with a lively “foodie culture,” although it trailed behind the other five cities in terms of food-related crowdfunding projects.

Alex Sheshunoff, founder of Foodstart, a food-specific crowdfunding site, said the reasons for Sacramento’s lack of online success could be a “constellation of different things.” For one thing, he said, crowdfunding is “still a new idea for a lot of people,” both for creators and their backers.

That’s backed up by numbers: There are no Sacramento-based projects on Foodstart, and only about 45 Sacramentans have tried using Kickstarter to fund their food-related projects.

Currently, there are at least two open Kickstarter campaigns in Sacramento: Project Vino and The Amazing Food Truck Project. Ideas that fell short of their funding goals include a brewery, two barbecue sauce companies and a juice bar.

Gluten Free Specialty, a gluten- and allergen-free storefront in downtown Sacramento owned by Melanie Weir, is running a $60,000 Indiegogo campaign to open Roots Creative Kitchen, an “allergen aware” cafe. As of this week, it’s only 5 percent funded.

Theresa Huck, owner of Huck’s Hollow Farm in Grass Valley, launched her crowdfunding campaign on March 13, but she’s been working on it for months.

“What I’ve learned is that it requires a lot of pre-marketing,” said Huck, who makes and sells GMO-free, no-additive, organic spice blends, cooking mixes and artisanal crackers. “You can put a whole thing up on Kickstarter, but if you don’t do any pre-marketing, you’re not going to be successful. I’ve been working night and day and I don’t even know that mine is going to be successful.”

She hopes to raise $20,000 to expand her business – her goal is to open four new wholesale accounts a month, first in California and then nationwide.

To do so, she first needs state and federal certification that her products are organic, non-GMO, vegan and gluten-free, a process that will require about $8,000, she said. Then she wants to invest in new kitchen equipment, such as a cracker-rolling machine and costly plastic-free packaging.

The Kickstarter campaign would help make those goals attainable, but Huck is not completely counting on reaching her $20,000 goal. As of this week, with 20 days to go, she had 36 backers, who’ve donated $3,907.

“Huck’s Hollow Farm will go nationwide no matter what,” said Huck, adding that she might have to take out a loan to achieve that.

Avoiding the bank

Aspiring restaurateurs often gather their cash from a variety of sources, said Andy Soto, a Sacramento-based restaurant consultant. For those with solid credit, a conventional bank loan can be a major funding source. Others might partner with friends and family; some are independently wealthy, he said. For most projects, it’s a combination of all three.

By using crowdfunding, Anthony Barajas and his business partner Dariush Gheyssarieh are hoping to bypass the bank as long as possible for their Save Point Tavern, a gaming bar and food venue.

“Every dollar we got through Kickstarter would mitigate what we would get through loans,” Barajas said.

They raised $27,911 in September from 252 different backers. Combined with what they’d already pooled from their own funds, they’ve been able so far to avoid taking out a loan, but Barajas expects they’ll go that route to finish their financing.

Aside from alleviating future debt, crowdfunding enabled the pair to see if the gaming bar idea would fly in Sacramento.

Save Point Tavern, to be located at 65th Street and Folsom Boulevard, will be a place where “gamers game like grownups,” according to its Kickstarter page. Half bar, half restaurant, the main area will include tabletop games and gaming consoles, with separate rooms for groups of role-playing gamers.

To spread the word on their campaign, Barajas and Gheyssarieh bought ads on Facebook, tweeted up a storm, attended charity game tournaments, joined Sacramento gamers meetups and teamed up with Beers and Fears, a local horror show.

“It was almost more worth it for the word of mouth, for the exposure, as it was for the money itself,” Barajas said.

The gaming community is a tightknit group, he said, and willing to help donate for a place to game, eat and drink. In return, they reap Save Point’s crowdfunding rewards, such as getting a menu item named after them or free entry into a gaming tournament. Those rewards “allow our very-appreciated backers to put their stamp on the place,” Barajas said.

Reaping the rewards

Restaurants and food-related projects are uniquely positioned to use crowdfunding because they can offer unique perks as rewards for donors, Sheshunoff said.

“Try paying back Bank of America with a free dessert,” he said.

Another plus, he said, is that everyday backers are easier to please. “People have this kind of emotional connection to food and restaurants that they don’t have with other kinds of businesses.”

The most successful crowdfunding campaigns require a compelling personal narrative, a wide social media presence and a willingness to include backers in the process.

“In the end, people are backing people and their stories, as much as they are a new restaurant in town,” said Sheshunoff. “You’re creating this network of people who feel like a part of the business.”

Soto, co-owner of Spectrum Restaurant Consulting, said more of his consulting clients are considering using crowdfunding to build up capital for their restaurant dreams.

“People in our area are good at stepping up behind something that is worthy of supporting,” he said. “And for some people, that’s a good place to eat food.”

This story was originally published March 21, 2015 at 5:00 PM with the headline "Food startups get a taste of raising money online."