Local businesses opt for ‘crowdfunding’ via Kickstarter

By Brittany Magee

Brandon Byxbe faced a challenge. In order to launch his cafe, he needed to outfit the kitchen with the proper equipment– pretty big-ticket, specialized gear. Unfortunately, the entrepreneur didn’t have the money to do so.

Byxbe is the owner of the Amazing Kale Burger: a Chicago-based company that makes vegan, gluten-free, soy-free burgers. He started out in 2012, selling his kale burgers at farmer’s markets, and to local grocers and restaurants. Since then, Byxbe’s veggie burgers have gained a strong following, with customers clamoring for more and more.

And now, responding to that growing demand, Byxbe plans to open the Amazing Kale Burger Lunch Counter on Howard Street.

“I’m hoping to open by the first of the year,” Byxbe said.

Brandon Byxbe, owner of The Amazing Kale Burger
Brandon Byxbe, owner of The Amazing Kale Burger

Before opening, however, he needed to purchase a 40-gallon steam kettle and a commercial convection oven, which will allow him to increase the scale of production for his burgers.

Together, the kettle and oven would cost nearly $5,000 — even if he bought used items. Byxbe didn’t have that money. The Amazing Kale Burger needed help.

In order to get the funding he needed, Byxbe turned to the global crowdfunding platform, Kickstarter.

Kickstarter launched in 2009 with the goal of creating “a way for artists, musicians, filmmakers, chefs, craftspeople, designers, adventurers, and other creative people to fund and build community around their ideas,” according to a company web post.

The rise of crowdfunding on the web over the past five to six years, through sites such as Kickstarter and Indiegogo, has changed the way many small businesses build and finance their business.  For a variety of Chicago startups, the novel funding tool has turned out to be not just a financial lifeline, but a way to grow without having to hand part of the company to lenders.

Under the crowdfunding model Kickstarter helped pioneer, projects are funded by “backers,” who can be anyone. In exchange for supporting a project, backers receive a reward determined by the project’s creator rather than a financial profit.

In stark contrast to the capital-raising methods used on Wall Street and the rest of the conventional financing community, a Kickstarter backer gains no ownership with their donation; their incentive is assumed to be the satisfaction of seeing a creative project that they find interesting succeed.

More and more small businesses, especially within the food and beverage industry, have turned to crowdfunding out of necessity. As entrepreneurs move away from traditional forms of financing their small businesses via loans and credit cards, they find that crowdfunding sites, such as Kickstarter, provide them with a unique opportunity that never existed in the past.

“For food and beverage businesses particularly that require some level of capital investment on the front end and for whom distribution is everything, crowdfunding are viable platforms,” said Andrew Razeghi, a lecturer of marketing at Northwestern’s Kellogg School of Management, in an e-mail.

Anyone can create a campaign on Kickstarter as long as their concept meets the Brooklyn-based company’s basic guidelines: the project creates something to share, it’s honest and clearly presented; and it isn’t for charity, doesn’t offer financial incentives or include prohibited items.

The projects remain under the complete control of their creators — a major issue, particularly with many tech-sector startups — and are based on an all-or-nothing plan. The creators set a funding goal and deadline, 30 or 60 days, and the projects must reach that goal in order to receive any money. If the goal is not reached, the project’s backers are not charged and Kickstarter does not take its normal 5% fee.

According to Kickstarter’s website, nearly $1 billion has been pledged to 75,000 projects since the company’s beginning.

The concept of crowdfunding is not new, however. Artists have solicited funds from patrons for centuries, providing their benefactors with a special offering, such as a piece of their work, in exchange for funds.

Many Chicago entrepreneurs are a part of this trend. For instance, the Amazing Kale Burger, which reached its $5,000 goal in October with the help of 130 backers, will be able to purchase the kettle and convection oven for its new lunch counter.

“It’s going to be a much better scenario very shortly,” Byxbe said. “I’ll be able to do four to five times the amount of burgers with the new equipment in the amount of time it takes me to do one batch now.”

In its premier year in 2009, only one food-related campaign that was based in Chicago was launched on Kickstarter. So far in 2014, nearly 35 food-related, Chicago-based projects have been funded, and fifteen are currently live on the site.

While not all small food and beverage businesses in Chicago use Kickstarter, the trend is obviously growing, with more small businesses likely to turn to crowdfunding in the future for a variety of reasons.

For Zach Jordan of Chicago’s Tonguespank Spice Co., a line of unique-flavored spice blends, Kickstarter was the beginning of his business.

“I would not have started the business if Kickstarter hadn’t shown me that there was a possibility of success,” he said.

After seeing what other people were doing on Kickstarter and researching successful projects, Jordan launched Tonguespank’s first campaign, a line of liquor-infused spices, last year to see if it would take off.

Zach Jordan, owner of Tonguespank Spice Co.
Zach Jordan, owner of Tonguespank Spice Co.

One of the biggest benefits of crowdfunding besides money: product validation, Jordan said.

“Kickstarter’s a great way to do it because you can just put up a campaign and see if people respond,” he said. “There’s millions of people on there that want to spend money on cool stuff.”

Experts agree.

“Crowdfunding is about more than money,” said Razeghi. “Crowdfunding also allows a small business or a startup to test their concept with potential customers before they’ve made the investment to build their businesses. In this way, crowdfunding helps entrepreneurs mitigate the risk of failure by figuring out whether or not their idea is worth pursuing at all.”

After its extremely successful project last year, earning $18,534 above its $7,500 goal, Tonguespank launched another campaign last month to promote spiced-infused liquor kits. The funding period for the current project ends Dec. 10.

So why Kickstarter?

“Kickstarter means crowdfunding to a lot of people because there’s this massive community and there are the people that I think it’s best to reach,” Jordan said. “I think it’s viewed as the best way to get started.”

Craig Alexander, owner of Chicago-based Headstash Roasting Co. and HERO Coffee Bar, has a similar view.

“By doing a Kickstarter, it lets a ton of people that may not have already known that you have this idea and you want to do this,” he said. “A lot of other things can come from the Kickstarter other than just being successfully funded.”

Alexander started Headstash Roasting Co. two years ago with the help of Chicago coffee roaster, Dark Matter Coffee. After selling his coffees at farmer’s markets in the city and surrounding suburbs, Alexander began to plan the opening of HERO Coffee Bar.

Craig Alexander, owner of Headstash Roasting & HERO Coffee Bar
Craig Alexander, owner of Headstash Roasting & HERO Coffee Bar

The Kickstarter for HERO Coffee Bar was not to fund the project in its entirety, Alexander said, but to gain some extra funds for the shop when it opened. However, before the store even opened its doors, Alexander saw the benefits of the Kickstarter campaign.

People in the coffee shop’s future neighborhood knew all about Headstash Roasting and HERO Coffee Bar, and were backing the project, Alexander said. The Kickstarter “gave us a presence in the neighborhood.”

HERO Coffee Bar reached its funding goal last month, and opened last month in the South Loop at 439 S. Dearborn St. Even if the project had not reached its funding goal, Alexander said, doing the Kickstarter would have still been worth it.

“For me,” said Alexander, the process “was a success even before it was a success.”

For more info about Kickstarter campaigns: http://prezi.com/-xyy9ojerxim/?utm_campaign=share&utm_medium=copy