Equity Crowdfunding and the Democratisation of Coffee Investing

Welcome to the fourth article in a series investigating private equity and venture capital in the coffee industry. If you missed them, you can read Part One here, Part Two here, and Part Three here. This series has involved extensive research and dozens of interviews—if you value this kind of in-depth writing about the coffee industry, please consider becoming a paid subscriber on Substack.

If you were going to start a coffee company today, how would you fund it?

Maybe you have savings or a small inheritance, or a spouse with a well-paying job. Perhaps you could max out some credit cards, take a personal loan, or remortgage your house. Those options should pay for the startup costs, but what about if you want to grow—whether that’s opening a second location, buying a larger roaster, or moving into new markets?

This is usually the point at which investors come in. They could be angel investors—wealthy individuals who provide funding to a business in exchange for a minority stake. Or they could be a venture capital firm.

As discussed in Part One of this series, VC companies invest in early-stage brands with the potential for rapid growth, pumping them full of cash to hasten expansion. For companies seeking fast growth, and which don’t mind the risk and expectations that come with it, venture capital is an obvious option. It’s no wonder that so many specialty coffee companies have taken on such investment in recent years.

This kind of backing isn’t without its downsides, of course. Venture capital firms are not in it for the long haul—they’re looking to get a quick return on their outlay—and both the businesses they invest in and their workers can suffer if things don’t immediately go well. Private equity companies, which often buy out VC, can be more stable, because they tend to invest in more mature businesses. However, they often lean heavily on cost-cutting processes like layoffs to balance the books.

And anyway, for many founders, venture capital and private equity funding is out of reach. Perhaps their business model isn’t attractive enough, or maybe there’s a lot of competition and growth opportunities are scarce. It could be that their values don’t align with those of monied investment firms.

Or sometimes, they can’t even get in the room. Business owners from historically marginalised backgrounds often struggle to raise necessary funds: Black founders in the United States received just 0.48% of all venture capital investment in 2023, despite promises from big firms to address issues of diversity in the wake of the George Floyd and Black Lives Matter protests of 2020.

But for businesses with an existing customer base and a supportive community, and which want to retain more control, there are other—arguably better—sources of capital. Equity crowdfunding, a relatively recent investment concept, can act as a democratised alternative to venture capital that opens up fundraising to underserved groups and allows communities to directly support the businesses they care about.

Incentives vs. Ownership

Plenty of coffee companies have launched themselves using crowdfunding, usually on platforms like Kickstarter. It doesn’t always work out (I’ve written before about some of the many failed coffee Kickstarters), but such an approach can give young companies needed funding that might otherwise be unavailable to them. Well-known brands like gear-maker Fellow and sample roaster manufacturer Ikawa have started this way, and Kickstarter continues to be a major source of funding for all sorts of coffee projects.

Companies using such platforms entice backers with rewards and incentives, like discounts on the final products or exclusive merch, but the pledges are essentially donations. GoFundMe, another crowdfunding platform that’s popular with coffee startups, is based entirely on donations (it’s also now majority-owned by venture capitalists).

But there’s a third route. Since the new millennium, equity crowdfunding—a form of crowdfunding in which backers receive a small slice of ownership in exchange for their investment—has offered supporters greater and longer-term stakes in companies than a single donation would. It also enables would-be coffee companies and owners who feel shut out of (or disinterested in) traditional funding routes to effectively raise capital.

Regulations covering such platforms vary by country, but in general there are more rules than in donation-based fundraising. For example, in the United States, companies can raise up to $5 million each year through equity crowdfunding (it was originally $1 million as part of the 2012 JOBS Act, before being increased in 2015), but only through a Securities and Exchange Commission (SEC)-registered intermediary, and such raises require additional disclosures. 

Today, equity crowdfunding has become more mainstream—and is still gaining in popularity. Since 2018, companies have raised $1.7 billion in what the SEC calls “regulation crowdfunding”, while in the U.K. the total raised in 2020 was more than £300 million ($386 million).

A growing number of coffee brands around the world have gone down this route, from Redemption Roasters and The Coffee Apothecary in the U.K. and JRCoffee in China to Bosgaurus Coffee Roasters in Vietnam and Sepia Coffee Project and Steeped Coffee in the U.S. The benefits are obvious: If you’re a small coffee business looking to grow, and you have built a healthy following, then offering your customers and community the option to invest in your future seems like a no-brainer.

An Elevated Space for the Community

Bartholomew Jones, co-founder and CEO of the Tennessee-based coffee brand Cxffeeblack, has repeatedly utilised crowdfunding, whether that’s raising money for bail funds in 2020 or running a GoFundMe for the company’s barista exchange program. But when looking for ways to raise money to take Cxffeeblack to the next level, Jones knew that they would need more significant backing. 

“If you look back over the approach of our company, we’ve always done these big crowdfunding initiatives”, Jones tells me. “So we were like, if we want to make what we’re doing truly sustainable, we’re going to have to take capital. The deeper I get into this African supply chain thing, you start realising you’re up against giant multinational, neocolonial corporations founded in 1630. So in order to be a viable alternative for the communities that we’re partnering with, we’re going to have to do something bigger than what we could do with a T-shirt campaign or a GoFundMe”.

On Wefunder, an equity crowdfunding platform, Cxffeeblack has raised $225,000 from more than 300 investors as of the end of July, the majority of which Jones says are from their community. The money will be used primarily for a new roastery and cafe space in Memphis. “Our manager said, it’s like we’ve built the community’s living room, and now we want to build the community’s dining room. So I want to provide an elevated space in our community”, Jones says.

Jones’ reasoning for using equity crowdfunding is threefold: As a self-confessed nerd, he grew up reading comic books and always feared “some Lex Luthor-type guy coming in trying to take over this movement that we’re building”. There is also a political aspect—Jones says he’s “just politically very against someone being able to use money as a reason for me not to be able to tell the truth”. And third is simply financial: lack of access to lines of credit or a wealthy relative.

He had pitched to more traditional investors before, but “the whole thing about having the Wefunder is, this is the centre of what we’re doing”, Jones says. “This is our community. You can literally see the strength of the community and the network we’ve been building, the amount of people who believe in us”.

‘Both And’

This concept—of empowering a company’s community by giving them a degree of ownership—is key to equity crowdfunding in coffee and its associated industries. Ghost Town Oats was founded by three coffee professionals in 2020 and was described by Saveur as “the world’s first Black- and queer-owned oat milk company [that] wants to break down the barrier surrounding one of today’s trendiest health-promoting products”.

That barrier, co-founder and chief product officer Ezra Baker told Saveur, is that the target market for alternative milks is generally affluent, wellness-focuses, and white. Ghost Town’s goal is to provide oat milk to “anybody, on every block” and that aim is reflected in the company’s approach to investment. Also using Wefunder, it has raised more than $250,000 from 600-plus supporters over two campaigns (full disclosure: I am one of those small investors).

“Ghost Town Oats is made by baristas and is serving a community that has been abandoned by the plant-based milk space, especially in marketing”, co-founder and CEO Michelle Johnson tells me. “And we figured one of the best ways to really drive that home was to create an opportunity where all of those people could then invest in us”.

Not only does offering the chance to invest for as little as $100 open up the opportunity to more people, Johnson says, but it “creates a sort of permanent consumer for us too. When you have someone who actually has invested their own dollars into the company, they’re just as invested in the success of that company as we are”.

Johnson describes their fundraising strategy as a “both and” approach, combining different phases like the equity crowdfunding campaigns with larger investments from angel investors. “It takes a long time to raise money, period, and it takes longer for Black women to raise money, and for queer people to raise money”, Johnson says. “But that sort of thing doesn’t deter me at all, because it allows us the opportunity to not only raise in phases, but to also focus in on certain parts of the business at different times”.

Interestingly, as Ghost Town grows—right now the company is focusing on the coffee shop market, where its production runs routinely sell out—Johnson doesn’t discount the option of looking at venture capital or private equity funding. It just has to be the right kind.

“If we can embody patience, and take it back to what makes specialty coffee so special in the first place—really getting down to the craft of it all, from crop to cup—and apply that to how we want to grow our businesses, there are investors out there who are down for that”, she says. “I believe they exist in venture capital, too, and so it’s just a matter of finding them and not letting the dollars force you into a direction that may not actually be good for your business in the long run”.

Independence and Resilience

Another theme among the businesses I interviewed for this piece is the idea of independence—of not being reliant on, or beholden to, a single investor. One way to do that is to give ownership to the people who power a business. Equal Exchange, a worker-owned co-operative, was founded in 1986 with the goal of creating a more just food system, one with farmers and workers at the centre.

The company had rather radical beginnings. The first product it imported was coffee from Nicaragua, at the height of the U.S. embargo against the Sandinista government, which meant that finding investment was tricky. “No one would really finance you in the beginning—who’s going to finance a couple of hippies to buy coffee embargoed in Nicaragua?—so there’s no other option than to raise your own money”, says Todd Caspersen, vice president and director of purchasing at Equal Exchange.

The founders’ friends and family supplied the original investment, and since then the company has grown to include over 100 worker-owners, partnering with dozens of farmer organisations around the world.

Equal Exchange’s structure combines worker-owners—who hold Class A shares, which come with voting rights and other benefits—with small external investors, many of which have come through equity crowdfunding campaigns. “The model we were pitching back in the day was, we’ve created a class of Class B preferred stock”, says Nicole Vitello, vice president and capital coordinator at Equal Exchange. “There’s no guaranteed dividend, there’s no seat on the board or voting rights, and we could lose your money, right? This is not a secure investment! This was a slow money concept before that was even a concept”.

This approach to funding allows Equal Exchange to reinvest in itself—a portion of worker-owner dividends get put back into the company each year—and stay independent. “How you fund yourself and who controls that money is really the question in the coffee business”, Caspersen says. “So that gave rise to our initial plan to develop our own capital source, and that gives us a great degree of independence and resilience”.

Nothing Ventured

There’s a lot to be said for keeping control of your company’s future by raising funds from—and spreading ownership among—a wide pool of engaged and supportive people with shared goals. And because the ownership stake is small, founders can retain ultimate control over their vision.

Contrast that with venture capital or a single wealthy investor: A large investment tends to want a similarly large say in the direction of the business, while VC firms are inherently short-termist entities. Plus, there’s always the possibility that funding could disappear if things don’t go well.

Starting a coffee company is relatively simple—you just need an idea, some equipment, and a cool name. However, growing a coffee company is incredibly hard, assuming growth is your goal, and having the cash to support that growth is essential. If you’re lucky enough to fit the VC template, you could strike it rich; otherwise you will be left looking for alternatives.

Equity crowdfunding is powerful in its ability to leverage an existing customer base and a supportive community for small investments, all in exchange for something tangible. Giving your community—or your workers—a piece of ownership in your business can also let them share in your collective future.

“[Crowdfunding] is a way for a local business to tap into community money, because people see all their local coffee shops disappearing, and there’s nothing they can do about it—they don’t want to just go to Starbucks”, Vitello says. “I think a lot of people would support something in their community if they had a mechanism to do that, and that is what crowdfunding was designed to do”.