Neil Blazin, owner and co-founder of Pittsburgh-based Driftwood Oven, is a crowdfunding veteran. In 2017 he raised more than $40,000 on Kickstarter to move his mobile pizza oven and bakery into a brick-and-mortar location, and in 2020, his regulation crowdfunding campaign on Honeycomb Credit set a platform record—the fastest time to raise $150,000, in just 14 days.
Regulation Crowdfunding is a means of selling securities to the public without registering them with the Securities and Exchange Commission. The sale is facilitated by an SEC-registered crowdfunding portal such as Mainvest, Nextseed, or in this case, Honeycomb Credit, also based in Pittsburgh.
Driftwood began in 2012 as a one-man baking operation. Blazin supplied Legume Bistro, where he worked, with bread, and later began supplying the Penn’s Corner Farm Stand. In 2015 he left Legume Bistro to launch his mobile pizza oven, and in 2017 he moved Driftwood Oven into a more permanent location in Pittsburgh’s Lawrenceville neighborhood. Driftwood now offers dining (suspended due to the pandemic), take-out and catering. In 2019, the business did more than $1.4 million in revenue.
Blazin elected to work with Honeycomb Credit after observing other Pittsburgh businesses, such as Millie’s Ice Cream and Square Café, find success on the portal. To apply, he paid a $250 application fee and submitted documents detailing Driftwood’s business plan, projections, financial history and his financial situation. In addition to the application fee, Honeycomb charges a 6% to 8% loan origination fee and a 2.85% investment fee capped at $37.25 per investor.
According to Blazin, Honeycomb was the only regulation crowdfunding portal he explored. This phenomenon—where a successful raise in a geographic area attracts additional interest from that area —is common, and informs the growth strategy of crowdfunding portals such as Honeycomb Credit.
In addition to the financials, Honeycomb evaluates the social media presence, engagement, and website of any prospective crowdfunder. These figures serve as a measurement of the business’s reach and as a proxy for its community support.
Chip Homer, director of growth at Honeycomb, told the Monitor that momentum is a critical part of any fundraising effort. As such, Honeycomb advises entrepreneurs to work outwards in concentric circles, tapping those closest to the business to invest before going to social media. Ideally, a business will have a significant group ready to invest before the campaign goes live.
Blazin attributes the success of his campaign to an outpouring of community support. He reached his minimum raise of $60,000 in “just four days” and the momentum never stopped. He’s using the funds to purchase new equipment
including a new oven and POS system, and to renovate the restaurant. The additions will allow for longer hours, increased catering capacity, and a small market space. According to the offering statement, completing construction “will, in essence, triple [Driftwood Oven’s] ability to produce revenue.”
Driftwood offered investors a secured loan with a 6-month interest-only period paying 8.5%. The terms were a collaboration between Blazin and Honeycomb, an offering that would appeal to investors on the platform without crushing the business. Blazin explored bank lending but ultimately decided to return to his crowdfunding roots. As a sole proprietor, he wasn’t interested in adding another equity owner.
“Bank loans are definitely a little bit cheaper [than crowdfunding],” said Blazin, but they have none of the promotional or customer loyalty upside that crowdfunding offers. According to Homer, rates on Honeycomb are “generally in the 6%-12% range”—cheaper than a credit card or merchant cash advance, but more expensive than a bank or Small Business Administration loan.
Although regulation crowdfunding can take many forms, portals often choose to focus on a single offering type. Despite experimenting with revenue sharing notes, Honeycomb Credit limits its offerings to secured loans.
According to Blazin, “about 90%” of investors in Driftwood were from the Pittsburgh area. One out-of-state investor told Blazin he regularly scrolled through crowdfunding portals, prospecting investments. The campaign had 74 investors and an average investment of just over $2,000. Larger investors drove the average up—the largest single investment was $25,000 and several others invested $10,000 or more.
Homer described “two tranches” of crowdfunding investors. The first, who typically contribute less than $1,000 (often closer to $100), are passionate about supporting local businesses. The second, who are “serious about adding Main Street to their portfolio,” invest between $5,000 and $25,000 at a time, and sometimes conduct guerilla due diligence by visiting the restaurant, tasting the food and talking to the owner. As a result, entrepreneurs aren’t always incentivized to get the lowest rate possible. A better yield may attract more investors from the second tranche and increase the likelihood of a second raise.
Honeycomb is handling the backend of Driftwood’s successful campaign. It facilitated the transfer of funds from investors to Driftwood, and when repayment begins, Honeycomb will facilitate those transfers. Payments from the business are due monthly, but investors are paid quarterly. Honeycomb leverages the payment notification to pass on messages from the entrepreneur and to introduce investors to new opportunities in their area.