Like many entrepreneurs before them, Kyle DeWitt and Tim Schmidt had a dream to turn their passion and talents into a business - in their case, the talent is making beer, and the business is the forthcoming Tecumseh Brewing Company
. Also like many others, securing startup funding was a huge challenge.
"We got an initial round of investment and then we stalled," says DeWitt. "We went to multiple banks. The whole system is kind of antiquated. It's really hard for people who don't come from money to get money."
And like an increasing number of business owner, DeWitt and Schmidt decided to turn what they were confident would be an enthusiastic base of supporters into the solution to their problem through crowdfunding. But their crowdfunding campaign was like none other before it in Michigan. Those who financially supported Tecumseh Brewing Company became actual investors in the company, rather than just getting a one-time reward like a shirt or name on a bar stool.
This was made possible by a recently passed Michigan law which, not coincidentally, Tecumseh Brewing Company played a role in getting the legislation on the books.
The limits of traditional crowdfunding
Though the partners considered Kickstarter and Indigogo, they found something lacking in the popular platforms for achieving their goal. When you can only offer one-time prizes to donors, how can a business motivate enough people to contribute enough money raise serious seed money? But prior to December of last year, giving investors equity in the company was illegal in Michigan.
"It adds teeth to the investment," DeWitt says of the new law that helped them raise $175,000 to complete their funding. "Otherwise you're just asking for a handout. They can make money back and you can structure it anyway you want."
In Tecumseh Brewing Company's case, their investment levels ranged from $250 to more than $10,000, offering investors the kind of rewards popular with traditional crowdfunding campaigns - such as membership in the mug club and complimentary beer - as well as revenue share payments. And as good as Tecumseh Brewing Company's beer might be, it's hard to believe that any number of complimentary pints would inspire a $10,000 donation.
The nuts and bolts of investment crowdfunding
As it turns out, a lot of people would love to make serious investments with local businesses - which is great news for the many local businesses that struggle to raise startup funds. But how can it be done safely and securely?
Tecumseh Brewing Company was funded using an online platform called Localstake
. Similar to sites like Kickstarter, an overview of each company is provided, along with investment levels and rewards. Visitors create an investment account and can then shop for local investment opportunities.
"It's basically like an E-trade for local businesses," says DeWitt, "We paid them a small up front fee and they only got paid once we met our goal. We put in our information and they put it all together."
Unlike traditional crowdfunding campaigns, during which creators often far exceed their goal amount during the funding period, the Tecumseh Brewing Company campaign ended right when they meet their goal - in just 45 days of their 90-day campaign.
"Even when we were fully funded we still had 100 people who were going on the site and interested in investing. We probably could have financed the whole business with it," DeWitt says. "But that's money you have to pay back."
Tips for a new wave of crowdfunders
DeWitt and Schmidt are more than just early adopters; they played a role in the new investment crowdfunding becoming possible in Michigan. Because the partners were so committed to opening their brewery, they reached out to a number of small business and economic development organizations to help them develop the company.
When the Michigan Municipal League
caught wind of what they were trying to do, they determined DeWitt and Schmidt were the exact kind of entrepreneurs who could benefit from what was then a proposed investment crowdfunding law. The brewers agreed and allowed their story to be held up as an example to lawmakers of the kind of business the could be helped by the law. It worked, and the men were therefore prepped and ready to become the first business in the state to jump on the opportunity.
That means they'd also have plenty of advice for future entrepreneurs hoping to take advantage of the new law. First and foremost, advises DeWitt, do your homework and be as far along in the development of the business as possible before launching a campaign.
"Get your grunt work done ahead of time," he says. "Become a legal business, do your research, have that all ready. Because if you do, these websites can get you up and running."
And while online platforms like Localstake are the best way to manage a campaign, the partners learned quickly that reaching out to potential investors in real life through tasting events was the key to their success.
"You have to get in front o people, says DeWitt. "It took a little while for us to get some traction. The tastings were the catalysts. It made sense for potential investors to meet you. Everybody was smart about their investment."
DeWitt and Schmidt have been working to create Tecumseh Brewing Company for four years. Today, they're beginning the buildout of the space, and could begin brewing by the end of October. It's been a long time coming for the partners, but now, they not only have the ability to get their doors open, but with more than 20 serious financial investors in their own town, keeping them open isn't something they'll have to do on their own.
Natalie Burg is a freelance writer, development news editor for Concentrate and IMG project editor.
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All photos by Doug Coombe