A previous CED blog post analyzed securities law as it relates to crowdfunding, in which businesses use mass marketing and web-based platforms to raise investment capital from many investors in small amounts, with each investor becoming a share owner in the business. Another post described a different form of crowdfunding — a method of online fundraising in which many people, often each making small cash gifts or making advance purchases, collectively support a business, product, nonprofit, or cause without actually owning any shares or expecting an investment return. This post describes an example of the latter form of crowdfunding and will describe how Asheboro-based Four Saints Brewing Company used crowdfunding to find startup capital and ultimately attract debt financing for a craft brewery and tasting room it hoped to open in a historic downtown building. It will then discuss three lessons that the Four Saints case can teach entrepreneurs and community economic development practitioners considering crowdfunding.
Asheboro, located between Charlotte and Greensboro in Randolph County, has a population of 25,000. As in many communities around the state with a declining manufacturing base, city leaders began to look at their historic downtown as an underutilized economic asset. Just miles from the North Carolina Zoo, Asheboro hoped that a revitalized downtown would help draw tourists into the city. In 2010, the City of Asheboro adopted a downtown community revitalization plan to better coordinate existing redevelopment projects and direct strategic investments to spur economic development. When local hobby brewers Joel McClosky and Andrew Deming began to plan how they could take part in the growing revitalization by brewing beer downtown, there were few places serving drinks, and no breweries, anywhere in the city: Asheboro had been dry until 2008.
Though they sensed there was a market for a brewery and tasting room downtown, and had received encouragement from friends and other community members who were tired of driving to Greensboro for a craft beer, they did not have access to startup funding. (Other CED blog posts highlighted how changes in state laws have facilitated the growth of craft breweries in North Carolina.) For banks and other traditional sources of capital, the financing of a brewery in a rural, recently dry town, run by two friends with no experience starting a business or commercially brewing beer, seemed risky. Knowing this would be the case, and seeking a way to both raise initial funds and test the market, McClosky and Deming turned to Kickstarter, a popular crowdfunding site, in 2012: if their crowdfunding campaign was successful, they would have the money and market validation they needed to dive into launching a business.
By 2012, food businesses had begun turning to Kickstarter to raise startup funds. Most were in much bigger, younger cities: the four most highly funded food businesses when Four Saints began its campaign were in Brooklyn, Seattle, San Francisco, and Washington, DC. McCloskey and Deming knew that the catchy videos, social media campaigns, and frantic pace that propel many projects to success on Kickstarter would not be the best way to successfully engage Randolph County residents. Instead, they decided to run an offline, face-to-face campaign before beginning to actually raise money on the site. They also knew they would have to educate their potential “backers”—as those that donate to campaigns are known—about Kickstarter: the site may have had a buzz in Brooklyn and San Francisco, but it was not necessarily familiar to everyone they hoped to reach in Randolph County. Months before raising their first dollar, they were serving tastes of their beer at community events and guiding the conversation from stouts and ales to something bigger: a shared vision for not just their business, but for all of downtown Asheboro. To McClosky and Deming, beer could bring people together, and a downtown brewery could support the renaissance so many sought in Asheboro.
Four Saints’ Kickstarter campaign launched on May 23, 2012, and when it ended 39 days later, it had raised $52,375—$7,000 over the goal and enough to make Four Saints the fifth most highly funded food business on Kickstarter and the most highly funded brewery at that time. While a cause for celebration—the two now knew that the community was interested in their brewery, and they had enough money to start work—a functioning brewery and tasting room would take more than $52,000 to open.
From the beginning, the Kickstarter campaign was intended as only one source of capital for the company; the expected total startup costs far exceeded their $45,000 goal. Still, the initial money was critical: it allowed McClosky and Deming to sign a lease, begin the licensing and permitting process, and purchase some commercial-grade brewing equipment.
Importantly, the firm’s crowdfunding success also got the attention of an angel investor who was in a position to make a transformative investment. Soon after the campaign ended, Four Saints received $100,000 in equity financing from an investor who was impressed by both Deming and McClosky’s beer and their persistence and skill in running the Kickstarter campaign. That investment was increased to $150,000 in 2014.
Four Saints was able to leverage this equity investment to secure traditional debt financing. In early 2014, Four Saints obtained a Small Business Administration-guaranteed commercial loan to supply its remaining capital needs. Though the successful crowdfunding campaign was described in their business plan, McClosky believes that Four Saints’ ability to attract one large investor was a greater factor in receiving the loan than its ability to attract hundreds of small backers through Kickstarter.
Though the Four Saints case is a success story, they encountered challenges stemming from their many stakeholders’ expectations that may provide important lessons for businesses or community organizations considering crowdfunding capital. First, while crowdfunding can be a great way to create excitement and build momentum for a project, it typically takes advantage of a short timeframe, a sense of urgency, and frequent updates. This contrasts with the much slower pace of many physical projects: permitting, site selection, acquisition, and construction move much more slowly than a crowdfunding campaign. Four Saints generated tremendous excitement for their vision of a downtown brewery and bar, and more than two years after its campaign, construction is not yet complete. They have had to push back their opening date more than once, and they now expect to open in early 2015. For a business, this timeframe is not out of the ordinary. But for some backers of their campaign, the pace is surprising, and for a few, frustrating. Thus, for practitioners interested in using crowdfunding or another public engagement tool in a development project, the expectations of stakeholders who are not familiar with the pace of construction projects need to be closely managed from the beginning.
Second, stakeholders need to understand the total scale of financing required for a project. Four Saints exceeded its crowdfunding goal, but it required much more money before pushing its first beer across the bar. And though the business now looks very likely to open, its ultimate financing was not assured—backers who participated in the Kickstarter campaign were not guaranteed a brewery. Had Four Saints not been able to secure additional financing, their campaign’s 263 backers may have been disillusioned with the process of crowdfunding and community-minded investment and wary of similar projects in the future.
Finally, since there is no direct financial return for backers, a business crowdfunding project needs to connect with a community’s vision for itself. Though the SEC now allows some types of equity crowdfunding, and real estate crowdfunding is gaining in popularity in certain markets, Four Saints’ backers received only small “rewards” for their funds—t-shirts, bottle openers, and mugs, for example. Backers were funding the business for reasons that transcended financial gain. Crowdfunding provided important startup capital to Four Saints, but it had greater perceived value to the business owners: residents who were willing to give money at such an early stage were signaling an interest in Deming and McClosky’s overall vision. Their investment in Four Saints may have been part of a broader, symbolic “investment” in their community. Not all private businesses or redevelopment projects could hope to inspire such a connection with community members and customers. In the case of Four Saints, the connections to a larger community vision were explicitly drawn: from the beginning McClosky and Deming stressed the role they hoped their business would play in downtown revitalization.
Does the Four Saints case provide hope to businesses that need a foot in the door with financers? Perhaps. Certainly the business owners were creative, savvy, and lucky in leveraging crowdfunding success to ultimately attract debt financing. But what else can development practitioners take away from this case of a small community’s outsized crowdfunding success? First, new technologies may be tools to assist, but not replace, genuine, face-to-face community engagement. Second, this case demonstrates that getting a new business—in a new market—up and running requires more than capital: there is no substitution for the drive and focus of entrepreneurs who have both a good product and the ability to inspire a shared vision.
Andrew Trump is pursuing a Master of Public Administration and a Master of City and Regional Planning at UNC-Chapel Hill. This post was prepared in fulfillment of requirements for a graduate level course on community development and revitalization held at the UNC School of Government (PLAN764/PUBA 780).