Mob mentality – why crowdfunding is no longer a small player’s game

By James McAllister

- Last updated on GMT

Mob mentality – why crowdfunding restaurants is no longer a small player’s game

Related tags crowdfunding Gary usher Restaurant Bancone WatchHouse Private equity firm Funding

With some investors currently apprehensive about putting money into hospitality, could crowdfunding provide the solution, even for larger businesses?

In December last year London-based pasta restaurant group Bancone made the unexpected announcement that it had launched a crowdfund looking to raise £700,000 to help fund expansion. Unexpected not because growth didn’t appear to be on the cards for the business but because with two restaurants in prime London locations, in Covent Garden and Soho, and with the pasta sector burgeoning in the capital and beyond, it seemed like an unnecessary play.

With the restaurant sector regarded by many investors as fertile ground, and with pasta businesses having attracted investment, not least Lina Stores, which has backing from White Rabbit Projects, and Pasta Evangelists, of which pasta giant Barilla holds a majority stake, Bancone’s decision to turn to its customers appeared to swim against the tide. Yet, crowdfunding wasn’t the company’s first choice for raising funds.

“We explored other avenues first, but we’re at a size where we’re not quite big enough for the larger investment firms yet,” says Will Ellner, who co-founded Bancone with business partner David Ramsay in 2018.

“So, we decided to do it ourselves and turn to the crowd. We set a target and are very happy to have exceeded it.”

Bancone eventually raised £911,188 from 941 backers, which will be used to fund the launch of a third London restaurant later this year, with further openings also being explored.

Bancone’s crowdfund is telling for two reasons. First, because it hints to the first signs of a reluctance among firms to invest in hospitality businesses at such an early stage as they might have done a few years previously, with the current economic headwinds and rising costs likely to make it much harder to realise their required return. Second, it could mark a shift in mindset about restaurant funding where until now only the smallest of businesses believe going cap in hand to their customers is the answer.

Investor anxiety

According to the information posted on Crowdcube, which hosted the crowdfund, Bancone serves 4,500 customers and takes between £110,000 and £120,000 in turnover per week. It has recorded year-to-date sales of £3.8m with earnings before interest, taxes, depreciation and amortisation (EBITDA) of £53,000.

From an outsider’s perspective, it feels like a business that would be ripe for private investment.


“Bancone is a perfect example of a business that has realised having a higher-end, interesting and unique experience works really nicely, and is going to find an audience,” says Harry Heartfield, founder of investment firm Edition Capital. “But there’s an element that says it’s a little bit too small for private equity. That’s partly because the sector now likes to invest slightly later than it used to. And on top of that there’s the nervousness about consumer goods.”

Heartfield notes that the hangover left by the Covid-19 pandemic combined with current concerns over the ongoing cost of living crisis means investors are becoming more particular about who they give their money to. “The landscape has probably changed. But a lot of that is to do with larger institutional funds becoming very nervous on consumer-led investment, particularly within the hospitality sector.

“A number of them had a lot of exposure pre-pandemic and then got badly burnt as a result. There’s a lot of dry powder in venture capital and private equity at the moment, but people are sitting on their hands.”

The equity-based model

Twinned with this newfound nervousness is a bullishness from larger businesses about the merits of crowdfunding over seeking private investment.

The most high-profile example of crowdfunding on a large scale within hospitality is BrewDog, which has raised around £80m through its various Equity for Punks campaigns. Despite this, few players of its size have chosen to go down the same route, although things might change given the current economic climate.

“The sooner institutional players understand that they don’t
have a monopoly on good investment decisions, the better”

“Crowdfunding has moved up the value chain,” says Heartfield. “In some respects, it’s still viewed sceptically by larger players, but the upshot is: if crowdfunding goes well, it can raise significant levels of cash. We’re talking about potentially millions of pounds. And the sooner institutional players understand that they don’t have a monopoly on good investment decisions, the better.”

Unlike the more conventional crowdfund campaigns often used by new or one-site operators, which offer patrons rewards such as free meals and merch in return for their investment, Bancone followed an equity-based model that gave its backers a stake in the overall business.

“We’re already privately funded, which means equity would have to be on the table if you’re asking existing investors to put more money in as part of the raise; so, it’s the only route we ever looked at,” says Ellner.

“The benefit is it has allowed us to tap into our own database of guests. It gives them further buy-in to the business and creates more brand loyalty, which you don’t get if you go down the route of a conventional venture capital fundraise. And it has given us something to talk about and offered another avenue for engagement.”


Heartfield has himself been involved in several crowdfunding campaigns over the years across Edition Capital’s wider portfolio, most recently with upscale London coffee brand WatchHouse. It launched an equity-based crowdfund last September to secure the capital to help fund both continued expansion in the UK and a move into the US market. It was a huge success, with WatchHouse eventually closing the round seven days earlier than expected having raised more than £3m.

An invested interest

Beyond the immediate injection of cash, the long-term benefits that can come from crowdfunding are, in Heartfield’s eyes, huge. “If you do a crowdfund and it works, you end up with some really evangelical consumers who are really invested in the brand,” he says.

“It’s why we did it with WatchHouse. We didn’t think we’d raise nearly as much money as we did. We went out looking to crowdfund a small amount of money to bring on some new team members and open a couple of sites, but then we put it out to our subscribers, and they loved the brand; they were already sold on it and wanted to see it go further.

“For businesses that have proven themselves with a brand presence and a few sites, crowdfunding is a great steppingstone to demonstrate that they can get to 10 or 15 locations; and then bigger, institutional funds are more likely to be interested because they’re at the right scale, making profit at that point, and can move on from there.”

Arguably the biggest pioneer of crowdfunding within the hospitality space is Elite Bistros founder Gary Usher, who has used it on and off to help grow his business over the past decade. Most recently he raised £223,748 within a week from 1,352 backers to support the opening of the group’s first pub site, The White Horse in Churton, Chester, which is set to launch in March.

“Crowdfunding for us has been amazing because it’s created a massive community of people that like what we do; a community of people that feel unbelievably invested in the business,” says Usher. “They have a sense of ownership and that they’ve helped make it all happen.”

Usher originally turned to crowdfunding having struggled to obtain a bank loan to fund the opening of his second restaurant, Burnt Truffle. “It was 2013 and the only food businesses crowdfunding at the time were in America, apart from a few street food businesses in London. No one had crowdfunded a full restaurant at that point. I thought it was an odd idea and nearly gave up on it, but I eventually decided to give it a go, and the rest is history.

“It took 28 days to complete our first crowdfund, and less than year later I found myself thinking about doing it again. And now we’ve done it eight times in total.”

Success with a rewards-based model

For the most part, Usher, whose business now incorporates six restaurants concentrated in the northwest of England, as well as a meal kit business and the soon-to-launch pub, has stuck to a rewards-based crowdfunding model, with most of his finance coming from supporters effectively buying their meals in advance. Last year, though, he attempted a larger, equity-based raise to help support several forthcoming projects including the development of a new tapas concept and retail arm. Hosted on Seedrs, the aim was to raise £750,000 within a month, but Usher eventually pulled the campaign after just a week having been dissatisfied with its early progression.


“Everyone tells me to stop being so hard on myself, but the truth is I was fucking naive and pretty fucking basic about how I approached it,” he says, frankly. “I should have sought professional advice and spoken to a corporate accountancy firm that understood the lay of the land before pushing ahead, but I didn’t. I went in headfirst, and I point the finger of blame squarely at myself.”

Usher notes various issues with setting up the equity-based crowdfund, including having to determine a realistic value for the business, sort through the numerous legal requirements, and obtain a lead investor prior to the campaign going live. And the challenges didn’t stop once the crowdfund launched, with many of Usher’s loyal supporters struggling to negotiate the myriad stream of documentation that needed to be signed off prior to them making an investment.

“I was in an environment that was totally out of my comfort zone; selling shares and equity didn’t suit me and I didn’t suit it. I was just completely out of my depth.”

Despite its failure, though, Usher remains open to the benefits that a larger, equity-based raise can bring and would be keen to explore doing another one further down the line. “If you asked me about future plans for crowdfunding and whether I would look to go down the equity path again, the answer is yes, I would,” he continues. “I’ve learnt a lot from this experience; I know what I did wrong and what to do to make them right.”

Alternative routes

Having effectively funded most of his business to date through crowdfunding, Usher is understandably evangelical about continuing to use it as a tool to grow his business, but he also wouldn’t rule out eventually exploring other means of investment. “The truth is you just don’t know what you’ll do until there’s an opportunity in front of you,” he says.

“What I would say about the type of rewards-based crowdfunding we do is we always need more cash than we can raise to open a new restaurant, and I would love to get to the point where we’re able to do it anyway. There will come a time where I feel I’d like to take the business to the next level of maturity and be able to just walk into a bank and show them what we need and what our plan is and secure the funds to facilitate that.

“I love doing crowdfunds, but it would also be great to not have to do them as well.”

For Ellner, meanwhile, the hope is that Bancone will be in a strong enough position going forwards that it will not have to rely on crowdfunding to open other additional sites.

“I love doing crowdfunds, but it would also be great to not have to do them as well”

“We’d never say never about doing it again,” he says. “Crowdfunding has worked really well for us this time, but it’s nerve-racking. The process is quite involved and perhaps not as straight forward as it sounds. You’re getting funding from more than 900 people rather than having one source, so there are a lot of questions to be answered from a lot of people.

“There are more hoops to jump through to get your raise over the line, and without Covid we would have been able to self-fund our next site. I’m hoping that will be the case in the future.”

Reducing risk

The wider question of whether this broader embrace of crowdfunding within the sector is representative of a permanent shift, hinges somewhat on the movement of the sector’s investors in the months to come.

For Edition there has certainly been a change in approach with regards to the point at which it invests. “It’s really about de-risking as much as possible,” says Heartfield. “We used to be a little bit more flexible about the timing of entry and would invest in a brand that showed significant promise when it had one site. Now, though, we tend to look later, when they have five or six locations and either close to breaking even or making a small profit.

“We can then provide expansion capital. If we give a business a couple of million pounds, then it’s solely to open sites. It’s not to provide working capital to support their overheads. The more execution risk you can remove, the better. A business that’s proved itself to open multiple sites and manage it effectively has a lot of more potential to generate really good returns for our investors, whose interests we ultimately have to put first and foremost.”

With regards to the larger, institutional investors, Heartfield’s general view is that when the country gets over the peak of inflation, probably towards the back end of this year, the cash that’s currently burning a hole in their back pockets is going to need to be deployed, and that hospitality will be a place they want to put that money. Although he notes that an element of caution is likely to remain.

“If you go back 10 years or so, a lot of private investors looked to provide cash to potentially scalable brands to take them from three to five sites, to 60 or 70. Now, though, a lot of private equity firms have said they don’t want to follow that approach. Instead, they want to come on board when the business is already at 25 sites and then scale it from there.

“There’s much less execution risk at that point. If you’ve demonstrated that you can open sites on a routine basis and have the right management team in place, then all the private equity firm is doing is providing cash.

“So, if you take a business like Bancone, which has a great concept and is a really nice business prospect, they’ve got to go out and prove they can take those next steps. That’s what a crowdfunding campaign can do.”

How crowdfunding is helping first-time restaurateurs navigate a volatile economy

It goes without saying that the impact of rising inflation is having a huge impact on the sector’s ability to trade. Beyond that, though, it is also proving a significant barrier to fledgling operators trying to get their doors open in the first place.

East London-based restaurateurs Martin and Charlotte Major initially found the site for their first permanent venture two years ago. The pair had run their ‘relaxed fine dining’ supper club, Gather, since 2018 and prior to the pandemic spent two years in residence at the Blackhorse Lane Ateliers. And now they had an opportunity to move the business into bricks and mortar. Initially the costs for labour and materials to fix up the site ahead of its launch were expected to come it at around £350,000, but inevitable delays combined with the impact of rising inflation meant that when it came to finally starting work on the venue last year, the costs were closer to £1m. That’s when the idea to launch a crowdfund came about.

“We ran supper clubs and pop-ups before pandemic and then lockdown hit and our cashflow went from high to non-existent,” recalls Charlotte. “And when you’re trying to get traditional types of funding like a loan from a bank or Funding Circle, you can only borrow a certain percentage of turnover and when you haven’t been operational for eight months, you’re not ever going to be able to borrow the amount of money you need. So that’s when we began to explore the prospect of doing a crowdfund.”


The pair launched their crowdfund in November 2022 with a target of £100,000 but missed out on reaching their goal. Off the back of that, though, they were approached by several private investors who each offered some capital towards the project in return for shares, which secured the bulk of the money needed. Encouraged by their new backers, in December Martin and Charlotte relaunched the crowdfund with a lower target of just £20,000. The rewards-based raise offered incentives including allowing patrons to buy meals or have their name inscribed on a founder’s wall. It eventually closed in mid-January having raised £27,511 from 278 backers.

“It was really unexpected,” says Charlotte. “What’s interesting is that second time around we had fewer backers but raised over £1,000 more. So, our average pledge was higher. It’s demonstrated the excitement and momentum of people wanting to be involved. That’s not something I appreciated as much before – people get really excited about being part of the journey and the story.”

She notes numerous benefits to crowdfunding, including how it demonstrates the viability of your business. “We had loads of people offering to hand over hundreds of pounds of their money in the middle of a cost-of-living crisis to get our restaurant open, which is quite an endorsement, really.”

However, the campaign wasn’t without its challenges. “You can’t take your foot off the gas. It’s constant social media, messaging and answering questions. And if you’re actually trying to run a business while doing this then it can begin to feel quite relentless. Plus, because we did it twice, it felt particularly acute. But the result is we’re now able to open our restaurant in the coming months. So, it was definitely worth the effort.”

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