As small-business owners, Marissa Stashenko and James Davids of Anchor & Hope Wine and Enotap LLC faced the lofty task of converting their property in the Rumford section of East Providence into a tasting room.
The project, which Stashenko and Davids envision as a 4,000-square-foot space with an outdoor patio along the Seekonk River, had an estimated $1.1 million cost.
Last year, the co-owners obtained a $99,000 loan through the city of East Providence to help finance the tasting room, which they hope to open by early summer. But a larger financial boost is coming from a very different source: the winery’s customers and other supporters, who contributed $250,000 to the business as part of an investment-based crowdfunding campaign.
“We liked the idea because [with] some of the other crowdfunding [platforms], you don’t necessarily get anything back for your money,” Stashenko said. “Or with some of them, you’re getting equity in the company.”
With the investment-based drive, which the business hosted last year through the Salem, Mass.-based platform Mainvest, “it’s revenue-based, sharing growth, so people are getting something back as we grow,” Stashenko said.
It’s an idea other Rhode Island small businesses and startups tried as well: In Warren, Bywater restaurant is using this method, also through Mainvest, to fund its planned expansion of the Bakeshop, a pop-up cafe offshoot Bywater launched as another revenue source during the COVID-19 shutdown.
But as the restaurant reopened to full capacity, owner Katie Dickson says it became clear that the Bakeshop, which has been on pause since the fall, needed its own space, and the restaurant could use the added daytime revenue to pay off remaining debts from before and during the COVID-19 pandemic.
“Our daytime bakery business was a wonderful addition to the community and a solid business model; now is the time to give it space to grow, and simultaneously solve Bywater’s space problem,” Dickson said in a fundraising statement.
This expansion isn’t cheap, with Dickson leasing a new storefront, located across the street at 277 Water St., to house the Bakeshop.
Supporters have already started answering the call: as of late last week, 123 investors have raised $85,400, with almost a month remaining in the drive.
This type of investment-based fundraising has only recently gained traction. It became possible in 2016 when the federal Jumpstart Our Business Startups Act – or JOBS Act – lifted regulations on crowdfunding for early-stage companies.
Nicholas Mathews, co-founder and CEO of Mainvest, saw an opportunity in the regulatory update and launched his platform in late 2018.
Since then, “demand has grown immensely,” Mathews said, with the platform so far hosting more than 600 campaigns, including seven or eight in Rhode Island. Mainvest operates in 44 states, with around 40% of its clients in New England.
Interest has been higher than these numbers indicate, Mathews says, noting the company only accepts around 7% of applicant businesses based on their viability, stage of development and category of business.
On average, the platform takes 5.5% of the total amount raised while investors receive a percentage of the business’s revenue paid back quarterly until the business hits its overall incremental return.
Mainvest isn’t the only company to offer a platform: New Majority Capital, a Providence-based startup and foundation that supports people of color and women in acquiring existing businesses, is also in the process of an investment crowdfunding drive using San Francisco-based Wefunder.
As of mid-March, New Majority Capital has raised approximately $500,000 from 84 investors, with another $50,000 anticipated investment on the way, says co-founder and CEO Havell Rodrigues. The crowdfunding drive will continue through April.
Investment-based crowdfunding “is an underutilized tool,” Rodrigues said. “There’s a big need to see other companies, startups raise money from their customers, and suppliers are becoming part of the investment group, so it’s more grounded with the immediate stakeholders.”
Funding from the drive will contribute to capacity building, staffing and acquisition closings, Rodrigues says, noting that the startup has so far assisted 180 entrepreneurs, including 31 currently enrolled in its eight-week BETA Accelerator program. The foundation has also closed nearly eight acquisitions, Rodrigues says, including one in Rhode Island’s manufacturing sector that the company has yet to disclose.
Beyond opening the fund to a larger pool of potential investors, the fundraising drive also builds a sense of community among supporters, Rodrigues says.
Investors are “recommending entrepreneurs of color who they know could be a good business owner; they’re recommending businesses in their communities who are coming up for sale,” Rodrigues said, “ and they’re offering them to us, so we like the community [aspect] of what this investment opportunity has allowed us to do.”
