Crowdfunding

How Crowdfunding Opened Doors and Follow-on Funding for a Healthy Food Market

Kathleen Minogue | October 20, 2016

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On a busy stretch of Southwest Los Angeles known as the El Salvador Community Corridor, the cheery green and orange facade of With Love Market & Cafe stands out like a beacon. Since it opened last spring in a neighborhood dotted with schools and auto body shops, With Love has become more than a grocery store and cafe with healthy and affordable food; it’s a community hub and force for social good.

That it exists at all is remarkable. When Andrew McDowell (pictured above with colleague Karla Vasquez) set out to open a healthy food market in the food desert of South LA, he had no grocery experience. His chances of getting the financing for his innovative community market through traditional means were slim to none. So McDowell turned to the people he wanted to serve, raising $100,000 from the community through a rewards-based crowdfunding campaign. That initial funding paved the way for the nearly $1 million in additional capital that McDowell eventually raised to open the doors of his With Love Market & Cafe.

The story of the With Love Market & Cafe illustrates how engaging the community can lay the groundwork not just for a successful crowdfunding campaign, but for follow-on funding as well. Rewards-based campaigns have been shown to attract additional investment. Projects on Indiegogo have gone on to raise an additional $1.5 billion in funding, according to the company. And a recent study found that on Kickstarter, every dollar pledged to a successfully-funded project generates an additional $2.46 in revenue for the creator.

While the spotlight lately is on investment crowdfunding ushered in by the JOBS Act, rewards-based campaigns are still delivering results. And, as McDowell’s story shows, they can provide a springboard for more ambitious endeavors.

Listening at Bus Stops, Parks and Churches

McDowell’s success is no fluke; he spent three years laying the groundwork. In particular, he did something at the beginning of his journey that changed everything: he focused on building authentic relationships in the community he wanted to serve.

A horchata latte at With Love market & Cafe
A horchata latte at With Love Market & Cafe

McDowell moved to Los Angeles from Washington state nine years ago, buying a home in South LA and joining a neighborhood church. He saw the lack of access to healthy food, education, jobs and entrepreneurship that was all around him, and decided to do something about it. “This was my faithful response to the recognition of an injustice,” he says.

While working his day job in marketing, McDowell and an employee he paid out of his own pocket spent three months surveying the South LA community. They spoke with residents at bus stops, parks, churches, grocery stores, via mail and through online surveys to get as diverse a view as possible. McDowell didn’t want to make any assumptions about what the community needed and wanted, or their challenges in accessing healthy food, employment and education.

Two-thirds of the community surveyed expressed interest in shopping at a store focused on healthy foods. The most interested? The Hispanic population. The least interested? Caucasians. This finding surprised McDowell, but helped him focus on creating a space where the community would feel comfortable and respected. Those surveys would inform everything from With Love’s bilingual signage to the variety of food it stocks to the music piped through the market’s speakers.

McDowell spent the following year sharing his vision for the market and cafe through community events and fundraisers and continuing to build relationships. “We were winning advocates, winning champions, but not winning money. So we had to start rethinking: how can we really make a splash, to get people to be a part of this, to actually donate, and feel like they are a real part of it?” he says. “So crowdfunding became the thing that we decided to do, rather than seeking investors, because we wanted to prove that the community wanted and would support this business.”

McDowell hosted his own DIY crowdfunding campaign. From a community that others might have written off as too low-income to be able to make any significant financial impact, it received contributions from local churches and residents for amounts like $1,312.41. What he was doing meant so much to this community that they were giving down to the last pennies in their pockets to support it.

withlove_logo_transparent-300x219As successful as that campaign was—the average amount raised by successful rewards crowdfunding campaigns is $10,000—the $100,000 wasn’t enough to make the market a reality. The budget to open the doors was close to $1 million. But McDowell now had the development funds to quit his day job and work full-time on the market. After the campaign closed, he hosted community events and kept his crowdfunding backers posted by email and social media about how things were progressing, including his struggles to secure financing that would open the doors to the cafe.

Banking on Rewards Crowdfunding Success

He was striking a chord. More than a dozen community members—local social impact investors—stepped up to invest a total of $250,000 of equity in the store. A quarter of them had also donated to the crowdfunding campaign. “We have investors now who gave at the crowdfunding campaign—either a little bit or a lot at that time and decided that they wanted to invest in a bigger way,” says McDowell.

With the crowdfunding and investor dollars, McDowell secured a location for the market on a concrete-dominated street surrounded by five schools within two blocks. But the raw space would require significant renovations before opening the market. To make it all the way, McDowell needed a loan of over $635,000.

“Banks don’t want to invest in urban poor neighborhoods,” he explains. Fourteen lenders said no. One, Self-Help Credit Union, said maybe. McDowell took that ‘maybe’ as a positive sign. “Our mission was aligned with theirs, and the community support we had from the crowdfunding campaign was important to them,” he says. McDowell worked with the credit union for 15 months to address their concerns, including getting more grocery experience on the management team. With persistence, that ‘maybe’ became a ‘yes,’ and construction began.

Graduates of one of With Love's cooking programs for kids
Graduates of one of With Love’s cooking programs for kids

The market opened its doors to the public seven months later on March 12, 2016, to a room full of crowdfunding backers, investors, community leaders and neighborhood friends—and one elated founder who celebrated the 1,000+ volunteers who had demolished walls and planted trees and never lost faith that this dream could be realized.

Among the people that celebrated with McDowell that evening was Karla Vasquez, With Love’s director of community programs. She had worked side-by-side with McDowell during the year prior to the opening, rallying community volunteers for neighborhood cleanups and fitness walks, and designing community education programs on healthy eating and entrepreneurship.

Since opening its doors, With Love has offered classes in cooking, yoga, financial literacy and parenting. It held a voter registration drive and hosts community game nights and spoken-word open mic events. And it launched “With Love for Business,” providing healthy snacks to neighborhood corner markets and liquor stores, and hopes to create a With Love mobile classroom and food truck to reach more of their neighbors looking for healthy food options.

The store is committed to hiring locals, and pays employees a living wage with benefits. And the emphasis is on good, affordable food that reflects the local culture, rather than high-priced hipster fare. Fresh juices and grab-and-go sandwiches are served alongside horchata lattes.

The store and cafe has generated local news coverage and even attention from Derek Jeter, Kevin Durant and JJ Watt, who volunteered at the store. With Love Market & Cafe was also awarded a grant by the California FreshWorks Fund.

A yoga class in the market's back garden
A yoga class in the market’s back garden

When McDowell set out on his journey three years ago, there were few models for using rewards crowdfunding as a path to bankability. But awareness of crowdfunding as a first step on the funding ladder is now growing among small business owners, small business development advisors and alternative lenders. Non-investment crowdfunding platforms such as Kickstarter and Credibles, as well as peer-to-peer microfinance lending platform Kiva, provide tools to gather much-needed seed capital, market validation and customer feedback for entrepreneurs and small businesses who find themselves turned down by lenders and investors. With the social and financial capital from the crowd, entrepreneurs like McDowell no longer have to wait for investors or lenders to provide funding to move their ideas toward reality.

McDowell is often asked how he raised close to $1 million. “I don’t know how I got these people to join, to be honest,” he says. “Something was going on in their hearts that said, ‘You know what, I want to be a part of that.’” Crowdfunding played a significant role, he adds. “Was it the only thing? No, but it was a large piece of the puzzle.”

Kathleen Minogue is the founder of Los Angeles-based Crowdfund Better, which provides crowdfunding education and strategic consulting services for small businesses, creatives, nonprofits and platforms.  

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Comments

  1. Congratulations @Andrew and @Kathleen – who as well as writing this played an important role in advising and helping make this happen – blazing a new trail for others to follow:

    “With the social and financial capital from the crowd, entrepreneurs like McDowell no longer have to wait for investors or lenders to provide funding to move their ideas toward reality”

    With profound implications for the future of society and the economy – because until now investors chose what got started (almost always on the grounds of the best ROI) meaning we all got what makes money for them. Now we have a new freedom – freedom of action, freedom to start something, freedom to come together and choose to co-create.

    As Buckminster Fuller said “We are called to be architects of our future, not its victims”. This future belongs to the Instigateurs, like Andrew and Kathleen, and us all.

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