When crowdfunding fails to deliver

About six months ago, Thor Cheston’s nascent beer business was strapped for cash.

He needed $125,000. Without it, he said he couldn’t move forward with lease negotiations for the location which he hoped would eventually hold the Right Proper Brew Pub, a neighborhood brewery, bar and restaurant.

“We were coming to a crossroads,” Cheston said.

Cheston and his business partner, John Snedden, who owns Rocklands Barbeque and Grilling Company in Northwest D.C., had already raised about a quarter of their budget through private equity sales, and had taken out a bank loan for about $350,000. But much of the equity they’d raised was in escrow, and they needed cash.

So Cheston decided to try to raise money from the crowd, soliciting small donations from lots of individuals looking to help his fledging business get on its feet. Such crowdfunding appeals are becoming an increasingly popular way to bankroll all manner of enterprises, including indie movies, products, even restaurants.

Cheston thought he had a winner, especially when he was able to line up some heavy-hitting endorsements.

Right Proper’s campaign page featured testimonials from other brewers and bar owners, including Sam Calagione, president and founder of Milton, Del.’s Dogfish Head Craft Brewery, Derek Brown, owner of Passenger, a restaurant and bar in Northwest D.C., and Garrett Oliver, brewmaster of New York’s Brooklyn Brewery.

“The setting is right for D.C. to be one of the major craft beer cities...no cities are as ripe for that as D.C. because no city in this country is as international,” Calagione said in the video.

But the crowd didn’t buy in, illustrating both the promise and disappointment of crowdfunding.

It wasn’t for lack of effort.

Cheston set up his campaign on Indiegogo, a platform allowing entrepreneurs to solicit donations from contributors online in exchange for non-financial perks. He chose Indiegogo over Kickstarter, he said, because Indiegogo allows entrepreneurs to keep whatever funds they raise, even if they don’t meet their funding goal, whereas Kickstarter runs on an “all-or-nothing” model.

Once he’d set up the campaign page, Cheston tweeted, posted on Facebook, and talked up the Right Proper Brew Pub to whomever would listen, hoping to reach the people he thought would be most interested and most generous.

“I was nervous because I knew this concept was going to be very attractive to people in my demographic, but most of us don’t really have that much money,” Cheston said, referring to D.C.’s young residents interested in craft beers.

He was surprised to find friends and family donating hundreds of dollars — two ex-girlfriends contributed $500 each, he said. The funders he didn’t know just “really liked the idea of a brewery, a new business in D.C...it reaffirmed our business plan in our minds, because we knew there was a wider audience.”

But fundraising was slow.

Toward the end of the campaign, the team had only raised a few thousand dollars. Cheston asked Indiegogo staff if they could extend the campaign, and were granted an additional 45 days — but finished having raised $7,565 out of $125,000, from 66 people.

D.C. resident Jacques Arsenault, one of the campaign’s 66 funders, donated $25 in exchange for two free beers and his name on a plaque in the future pub. He heard about the campaign through Twitter — he follows several foodies and restaurateurs, some of whom were interested in Right Proper, he said. “I like beer and am really excited about a lot of the local breweries.”

Arsenault said he wasn’t disappointed when Right Proper didn’t reach its goal, because his contribution was so small. “For me, $25 is a meal out, and not a huge stake.”

The money Right Proper had raised on Indiegogo was just enough to cover brewing equipment, barrels, kegs and a blending tank.

So Cheston returned to private equity and cut costs to raise the rest of the funds. They acquired a used brew house and worked with an architect to bring down the project’s roughly $2 million budget by hundreds of thousands of dollars. By then, they’d gained some publicity, which he said ramped up Right Proper’s equity sales.

Last week, Cheston signed a lease for the pub’s future location in D.C.’s Shaw neighborhood, which will likely open in the fall.

Cheston said he hopes he doesn’t have to use crowdfunding in the future.

“I was a little disappointed. If we were to do this again, we probably would just have focused on one specific piece of what we needed, not the entire brew house. People look at that gigantic number and think, well, they’re never going to make it.”

But he noted the campaign did help generate some grass-roots buzz about the business, though it didn’t hugely impact its finances.

After signing the lease, Cheston is working out furniture, fixtures, and design with a building engineer. He also still has to provide perks for those who did contribute to the campaign, most of which can’t be delivered until after the pub opens.

“Now the real work starts,” he said.

Mohana Ravindranath covers IT and small business for the Washington Post and its weekly Capital Business publication.
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