Three experts took to the stage at this year’s Investment Summit to talk about securing capital in the restaurant industry, and the message was clear: regardless of what kind of financing you decide on, the most important things are to pace yourself, and to take care of your people.
“Don’t get caught for speeding,” said Andrew Smith, managing director and co-founder of private-equity firm Savory Fund. “You can go too fast and the wheels [can] come off. … Raise [capital] as you go and as you need it.”
Savory Fund typically finances corporate-owned restaurant businesses. But even when it gets involved in franchises, such as Swig, “we’re always going to be in the trenches with the franchisees,” he said. “You’re not ready to scale to franchising unless you know how to do it yourself.”
Michael Davis, CEO and founder of Homegrown Financing, provides what he calls “non-dilutive expansion capital.” He said that short-term financing is not appropriate in every situation, like for opening new locations.
“We created something that’s sort of a graduation between going to the bank and having to take a shorter cash advance,” he said. “We are a revenue contract. We’re not a loan.”
Funding that Homegrown provides can be paid back on a non-restrictive timeline, usually 3-5 years, and can be far less risky for operators than traditional financing.
“Equity is just a form of financing,” he said. “And it’s particularly good for certain situations, but there are also places where you might want to not sell your ownership.”
Jimmy Frischling is managing partner and co-founder at Branded Hospitality Group, an investment, advisory, and media firm.
“We’re seeing more active debt financing. We’re seeing spreads compress, in my opinion, in a very attractive way,” he said.
Branded is an early-stage investor in brands it considers “operator-centric.”
“If you have a multi-unit [operation], if you have the type of business that can, in fact, take on some debt, this is a really interesting moment for you, because [lenders] are moving, they’re active, and there are enough players right now that are competitive, that can drive down the spreads,” Frischling said.
He advises thinking about “human capital” as well as financial capital.
“At the end of the day we are in a human capital investing business,” he said. “If your units are outpacing your GM growth, [if] you are stretching your staff… your people-supply business failed.”
Davis agreed, and proposed employee bonus and incentive programs, “particularly at the GM level.” About 30% of Homegrown’s portfolio is franchised.
Ultimately, every type of capital may be right for your business at different stages.
“You need all of us for different steps of that journey,” Smith said.
The Investment Summit panel Funding the Future was moderated by Restaurant Business Editor-in-Chief Jonathan Maze.
