The menu at Fishnet in Mount Vernon Marketplace offers a tempting array of freshly made fish sandwiches, tacos and salads. Less appetizing are the fish heads, bones and unusable parts from the whole fish filleted in the kitchen.
Keyia Yalcin built the Baltimore restaurant on a model of sustainability and couldn't tolerate the waste, so she began "upcycling" the castoffs and four other simple ingredients into crunchy, fish-shaped dog treats.
The new venture, Fishies, quickly became profitable, and Yalcin wanted to expand into new markets and new products. But she didn't go to a bank for capital; rather she turned to her customers and the wider community for funding, seeking to borrow at least $35,000 in microloans and pledging a 10.75% return on their investment.
"This strategy can have a huge impact," Yalcin said. "It can raise the level of consciousness about sustainability. It allows people to have a more direct say in how their investment money is used."
Yalcin joined a growing movement in Baltimore and around the country of raising capital outside the traditional banking system through what's known as crowdfunding. That's where multiple individuals invest or lend usually small sums of cash for products they like in their local communities or within their interests.
The most established online platform is Kickstarter, launched in 2009. But supporters and observers say such platforms are proliferating and growing because everyone sees benefits when everything works.
Businesses avoid a sometimes cumbersome approval process — and possibly rejection — from banks, as well as gain investors incentivized to spread a positive word. Investors get some kind of return and satisfaction in supporting favorite businesses or causes. Communities build a stronger and often diversified economic base.
There are more than 70 mostly small, minority-owned businesses in the Baltimore area that have tapped a crowdfunding platform through the local nonprofit Community Wealth Builders, which helps the entrepreneurs navigate federally regulated platforms through its Maryland Neighborhood Exchange. They can choose from national platforms, and a local one is planned soon.
"This is a dynamic way for businesses to show their community focus," said Stephanie Geller, founder and director of Community Wealth Builders. "Why should businesses pay interest to a financial institution when they can ensure the community and the customers benefit from growth?"
Geller is promoting the opportunity to businesses and investors "who love Baltimore and now go to farmers markets, shop local and wear purple on Fridays but don't know they can have this kind of impact on local businesses."
Of course, all investments come with risks, said Jian Ni, an associate professor in the Johns Hopkins' Carey Business School who published a study on crowdfunding earlier this year. In his paper, published in Management Science in March, he found Kickstarter had taken in more than $4.6 billion in pledges from 17.2 million backers to fund 445,000 projects through 2019.
Ni estimates investment numbers have jumped in subsequent years, driven by younger entrepreneurs and investors more comfortable with technology. The younger people may be socially conscious or just without deep enough pockets to make traditional investments. They often have choices of rewards, such as products, equity in companies or interest on debt.
Entrepreneurs get the crowdsourced money only if they reach their fundraising goal. (Kickstarter keeps a 5% service fee and 3% processing fee plus 20 cents per pledge, Ni found in his research.) When Ni drilled into the video game category, a potentially higher-risk category, he found 18% failed to produce a product. Mostly that was due to lack of experience or understanding of consumer interest.
Still, Ni said crowdfunding provides small businesses with "unique opportunities to foster interest in their communities" and sidestep the banks that can't or won't lend to them because of a poor credit history, no collateral or sometimes biases against women or minority-owned businesses.
"How fast and how much money they raise can serve as kind of a signal to market success," he said. "I'm quite positive about this type of online crowdfunding, but remember the potential downsides."
For Fishies, Yalcin is using Honeycomb Credit, founded by a longtime community banker in Pennsylvania and a Kansas City juice shop owner, according to its website. Since Aug. 22, her campaign has raised $15,050 of her $35,000 to $45,000 goal from 21 investors, who are offered a 10.75% interest rate over 60 months.
They are all local people, including many customers, who she reached with an extensive email list, by advertising at the restaurant and on receipts, and through community events.
If she fails to reach her goal, she said, "It'll mean slower growth for Fishies."
Geller from Community Wealth Partners said the group is using local grant money and partnering with other associations to make local entrepreneurs aware of crowdfunding and the options. For example, she said, during the coronavirus pandemic, many businesses chose to offer a share of revenue so they wouldn't owe money if their shop was shuttered and had little or no income.
Yalcin said she wants to use the money for marketing and development of more products. She already makes a bone broth to top doggie kibble and plans to make plant fertilizer and maybe cat treats.
She's largely been selling at farmers markets and her restaurant counter but hopes to scale up online ordering to like-minded people. (A bag of Fishies dog treats costs $10 with free shipping, and subscriptions, which come with a dog bowl, are available at six months for $60 and a year for $100.)
"Baltimore is very community-minded," she said. "I think they just need to learn about this."
That will come in part from Kristin Speaker, executive director of the Charles Street Development Corp., which promotes the city corridor. The group linked Yalcin to Community Wealth Builders and continues to seek other businesses to refer.
Speaker said the pandemic made people embrace their favorite small businesses a little more. They were "ordering takeout more deliberately because we knew we were helping sustain our neighborhood restaurants and retailers," she said.
Crowdfunding, she said, feels like an extension of that.
"We love that Fishnet's regular customers, who live and work nearby and actually know Keyia, can invest directly in her expansion into dog treats," Speaker said. "Instead of putting your investment dollars into large national and international companies, the Mount Vernon community can assist her in growing her business and earn a profit in the process."