Could funding from customers fuel the next great restaurant concept?

A new law taking effect this week will allow anyone to invest in startups, which could be a boon to local restaurants that the big venture capital firms typically overlook

By Nick Powills1851 Franchise Publisher

SPONSOREDUpdated 4:16PM • 05/18/16

It’s a story we often hear about in franchising - venture capitalist, private equity firms and wealthy investors looking for their “unicorn” that offers a big payoff and exit. But what about the single unit restaurant looking to make it big in the world of franchising? Or what about the guy with the great idea, but the lack of financial capital to get it off the ground? Well, things are about to change for the supposed “little guy.”

This week, the long awaited Title III JOBS Act will be released allowing anyone to invest in start-ups, rather than just the wealthy. Ever thought what it would be like to invest in the new Korean funk fusion restaurant that just opened in the hip, new neighborhood? Well now is your chance. Experts believe that these types of restaurants and many others are going to find a new foothold with small investors, which could put them on the path to franchising and growth much faster.

These new equity crowdfunding rules are set to change the relationship between customers and a restaurant. Customers turned investors will now have a vested interest in the performance of their investment. A dozen small investors could suddenly become a powerful marketing team leveraging everything from word-of-mouth to social media to drive sales and increase brand awareness. Unlike traditional funding establishments such as a bank, these new micro-investors will be walking sales and marketing representatives on behalf of local restaurants looking to make it big.

Equity crowdfunding won’t be without its challenges however. Restaurants are going to have to figure out how to pay back investors – whether that’s in food or in an actual cash return. A lot remains to be determined, but it will be interesting to see how this affects small single-unit restaurants and their ability to grow and scale. Maybe the next Subway is out there and ten or twelve of its most passionate customers will initially fund it. That wouldn’t necessarily be a bad way to start the next big thing.