How did Awaken Café raise start up funds from its community?

Awaken Café, the much-loved downtown Oakland coffee shop, sold Café Creator cards.  Oakland residents, excited to support the opening of a socially responsible, locally owned café in their community, purchased cards that entitled them to products from the café valued at more than the purchase price of the card.  For example, a $1,000 card would entitle the holder to $1,200 worth of purchases once the café opened.  The cards were fully refundable upon demand.  This enabled the café to raise sufficient funds to open.  They are now using this strategy again to fund an expansion.  In addition to raising capital, they have loyal customers invested in their success.  As a next door neighbor to the café, Katovich Law Group is definitely a fan!

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7 Responses to How did Awaken Café raise start up funds from its community?

  1. Sushil December 4, 2009 at 1:04 pm #

    Are there any Securities law concerns here?

  2. Jenny Kassan December 4, 2009 at 2:16 pm #

    Great question! The definition of a security is an “investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.” When people purchase Awaken Cafe gift certificates, they are not doing so with the expectation of profits but rather are purchasing something entitling them to coffee. Therefore, arguably, this is not a security. I wonder what might happen though if someone uses this strategy to raise start up funds, is unable to open the business, and is unable to refund the purchase price for the gift certificates. Might this result in a complaint to the securities regulators?!?!

    • Melissa September 13, 2013 at 7:05 am #

      I’ll second Jenny’s comment about Sushil’s question being great. I was worried about the same thing myself.

  3. Alex Moore December 7, 2009 at 10:43 am #

    How much was Awaken able to raise during the first round? And how did they go about marketing the opportunity?

    Is this a 20% interest loan or much less when you factor in cost versus retail price at the register.

    If their cost of goods sold is 35% and let’s say another 15% is variable, but the remaining is fairly sunk (monthly rental, part of wages, etc.) or net profit (probably 10%), then we can estimate a cost of 50% for these repayments.

    Cash is king and for $1,000, the repayment of $1,200 (in product) might only cost Awaken $600. That is an Extremely good loan.

    How does this strategy apply to other industries. Agriculture, for instance, has been using a CSA model for decades successfully, but the margins are lower and the risks are higher compared to retail food and beverages.

    And how about solar electric? Could a community pull together to buy their electricity up front from a startup community solar installer? The tax breaks and other incentives are only getting bigger each year for community-based renewable energy development.

    Alex Moore

  4. Jenny Kassan December 15, 2009 at 9:26 pm #

    I don’t know how much Awaken raised. They marketed the opportunity through community contacts and social media, I believe.
    I wouldn’t characterize it as a loan, but a purchase of a gift card with a face value higher than the purchase price.
    Prepayment for a product or service is something that could definitely be applied in other industries!

  5. Melissa September 13, 2013 at 8:13 am #

    Jenny, what about the legalities of using Awaken’s method? Do I need to talk to a state regulator?

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