Bay Area Food Firms Tap Into New Type Of Crowdfunding

By Carolyn Said
San Francisco Chronicle.

Steve Carlin has been drawn to high-end food purveyors for years. In the past decade, he developed San Francisco’s bustling Ferry Building Marketplace and Napa’s Oxbow Public Market, which has 24 vendors, from butchers to bakers to cheese shops.

Now he’s opening up Oxbow to investors — a lot of investors. Along with new partner Madison Marquette, he wants to raise up to million in a crowdfunding campaign, seeking investments online from 100 to 150 people.
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Why go that route? “This brings us not only X number of investors, but X number of ambassadors who believe in the project,” Carlin said. “That’s an important part of creating a public space that is vibrant and sustainable.”

Equity crowdfunding — people taking an ownership stake in a company, as opposed to contributing to creative projects on Kickstarter or Indiegogo — became legal only a couple of years ago under the federal Jobs Act. It lets a private company solicit funds from accredited investors, meaning affluent people. (A provision to open equity crowdfunding to ordinary investors will take effect in May.)

While the field is still new, businesses related to food are a natural fit for crowdfunding. A basic financial maxim is invest in what you know — and everyone is familiar with food.

“People are looking for authentic brands that speak to them,” said Rory Eaken, founder of CircleUp, a crowdfunding platform that specializes in consumer products. Of about 220 projects it’s now handling, 100 are food and beverage businesses, including Tava Indian Kitchen and Artis Coffee, both of San Francisco.

The majority are packaged foods, with an emphasis on smaller brands, natural and organics, rather than restaurants, he said.
Restaurants are a sort of double-edge sword for fundraising.

On the one hand, their business proposition is easy to grasp. “Many people secretly think, ‘Gee, wouldn’t it be fun to have a restaurant,'” said Jason Best, co-founder of Crowdfund Capital Advisors, which consults investors, regulators and entrepreneurs on crowdfunding.

On the other hand, restaurants have an even higher failure rate than most startups. Possible failure is a reality that all investors should factor into their calculations, Best said.

“Small businesses and startups are high-risk investments,” he said. “They are not something you should invest a majority of your retirement savings in. Crowdfunding should be done with a very small portion of your portfolio designed for high-risk investments. It’s an opportunity for a potentially strong return, but you also could lose all your money.”

Adam Hooper, CEO of RealCrowd, a crowdfunding platform that’s handling the Oxbow project, said he’s seeing increased interest in backing food-related ventures, including recent offerings in wine, cider and kombucha.

“What’s exciting is connecting the business with the end consumer in a new way beyond just brand affinity,” he said. “It creates a big evangelist user base — a community that’s literally bought into the success of those companies.”

The Oxbow venture is different from any crowdfunding ventures in that it’s an established company seeking money to recapitalize. Investments will be in the actual real estate that houses the food businesses rather than the food purveyors themselves. Tenants’ rents will generate cash flow for investors.

“This is a continuation of a direct-to-consumer experience,” Carlin said. “As our lives become faster and faster, we have this enormous need to slow down. Food represents that, I think. Americans became accustomed to inexpensive, homogenized and pretty flavorless food. These artisan products demonstrate that doesn’t have to be the case. People want to connect to their food sources.

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