How to Raise Funds for Your Restaurant

How to Raise Funds for Your Restaurant

How to Raise Funds for Your Restaurant

We recently announced the release of How to Open a Restaurant, OpenTable’s complete digital guide to starting and growing a restaurant business. We partnered with hospitality consultant Alison Arth to share tips, stories, and best practices from the best in the business (think the groups of Daniel Boulud and Danny Meyer, plus restaurateurs Gavin Kaysen and Aaron London). PLUS: we’re giving away a $38,000 prize package to help one restaurant industry professional fund his or her dream project!

Over the next few weeks, we’ll be excerpting some of our favorite (and most valuable) content from the guide. Today, it’s all about how to build a business plan that makes investors pay attention. Read on, then get the guide and enter the contest here.

What to Expect from the Fundraising Process

Raising money will be a process with each person you approach. Nearly no one will be willing to give you money after just one meeting, so think about the process as building a relationship, not as a transaction.

In more than one conversation with restaurateurs and investors, the process was likened to dating. Get to know each other. Take the time to figure out if your areas of expertise complement one another, if your passions align, and if your personalities click. They don’t need to be your best friend, but it also doesn’t make sense to do business with someone you don’t trust. When appropriate, try dining in a restaurant with a potential investor and using the backdrop as an opportunity to discuss and evaluate your concept and establish some common ground.

Pitch Meetings

A pitch meeting is exactly what it sounds like — the first time you meet with a potential investor or speak to them over the phone is your opportunity to present your concept and get them excited about it. Some people will request a copy of your business plan in advance of the meeting (yes, you should send it to them), and if not, bring them a copy to keep. This is also where your pitch deck will come in handy. Be ready to explain who you are, how you came to this idea, and most importantly, why the market needs your restaurant.

Mike Harden, Co-Founder and Senior Partner at venture capital firm ARTIS Ventures, says:

“The first five to 10 minutes are crucial, especially for people that get pitched all the time. In that first meeting, just focus on getting them excited. Don’t focus on too many details, just present the core of what you’re doing and if it meshes with that person and they’re excited about it then you’ll earn yourself another meeting.”

If the relationship doesn’t quite click in this first meeting, don’t throw away their email address. Keep them on your list and invite them to any events you host on behalf of your future restaurant (explained below). You never know if and when that person may warm up to the idea.

Site Visits

If you have a location secured while you’re in the pitching process, invite potential investors to meet you at your site. The more you can incorporate tangible, visual elements into your presentation to help the potential investor better understand what you’re planning to build, the better.

However, you will also need to be prepared to hold pitch meetings before you’ve secured a location because signing a lease not only requires a good chunk of capital, it also requires confidence that you’ll be able to find the rest of the funding you need to get the restaurant up and running.

Charles Bililies, founder of Souvla in San Francisco, says that this was one of the most challenging aspects of the fundraising process for him. Almost everyone that was interested in his concept would immediately ask where the restaurant was going to be. Despite having a well-researched list of neighborhoods ready to go, the response he got to that was mostly, “Let me know when you have a location.” This can turn into a real chicken-and- egg situation, especially in cities like San Francisco, where finding and securing the right site for your restaurant can take years.

If investors commit to you before you’ve found a location, be sure to meet with them again on site so they have an opportunity to get a status update on the project, familiarize themselves with the site, ask questions, and get excited about the progress you’ve made.

Events

Host an event where you bring everyone who’s interested together for a tasting dinner or something that represents your specific concept, so people can really envision it. When? It depends. These events are a great way of getting investors that are on the fence off of it, but they also come at a financial cost, so be mindful of making sure the money you’re investing in events has a tangible payoff.

How to Raise Funds for Your Restaurant

Friends, Family & You

Before approaching anyone about investing money in your restaurant, figure out how much you’ll personally be able to contribute. Even if it’s nowhere near the six-figure range, any outside investor will want to see that you’ve got some skin in the game.

After you’ve assessed how much you’ll be able to chip into the pot, your friends and family will likely be the next group of people you speak to about investing money. For the sake of your business and your personal relationships, be pragmatic and professional in your approach. Treat each individual in this group just as you would any other potential investor because regardless of your personal ties, you’re asking them to give you real money, and to take a real risk on your business. Both parties need to be emotionally and financially prepared in the event that the business fails; if the idea of not being able to pay them back is too tough to bear, it’s probably best that you pass.

Even if you’ve told your older brother about the restaurant of your dreams for the past 20 years, don’t waste a valuable opportunity to practice your pitch and answer questions. It will take you time to get comfortable with the process of presenting your idea to new people, so use your friends and family to help you build confidence.

What Makes Your Restaurant a Good Investment

First of all, an investor wants to know that the financial terms (ownership structure and payback terms) are reasonable. Next, they will assess the financial feasibility of your concept and whether it’s something they’re interested in or passionate about. Mike says, “Of course, the investor needs to know that you have a good business model that’s based on conservative projections and not a best-case scenario, but once that’s established, they’re looking at the vision, the concept, and the passion behind it.”

Matt Hemsley, one of the primary investors in Spoon and Stable in Minneapolis, stresses:

“Even if you know that the economics are sound, they are never going to be the compelling part of the deal. Ever. If you’re looking at high-net worth folks who are sophisticated investors and you say ‘please invest in this hugely risky operation with low financial returns for the sake of making money,’ they’ll look at you cross-eyed. For that reason, finding investors whose passions align with yours is really important.”

The moral of the story is, if you’ve done your due diligence up to this point — if you’ve written a researched business plan, built conservative financial projections, created investor-focused payback terms and a fair ownership structure — you should be able to walk into these meetings with confidence, tell your story, and make an emotional connection with the investor. Ultimately, how passionate that investor is about the core of what you’re doing will determine their willingness to invest.

What Makes Someone a Good Investor

Finding investors is a two-way street — it’s a relationship, not a transaction. As a restaurateur, you want to find investors who complement you and add value to your business outside of just providing capital. Don’t sign on investors if you don’t value their opinion in some capacity. Look for investors with experience in the restaurant industry or in areas that would be beneficial to a restaurateur.

Also, do your homework. Matt says, “Really get to know and try to understand from a third-party perspective who you’re doing business with. People build reputations over time and it’s not that hard to figure out if this is this someone whose previous business partners would all do business with him or her again or if it’s someone that’s burned every bridge that they’ve crossed.”

How to Raise Funds for Your Restaurant

How to Find Investors

Well folks, if you were hoping for a consolidated list of phone numbers in this section, we’re sorry to disappoint. There is no silver bullet when it comes to finding investors (or anything else, really).

Mike says, “You can sign up for every list and buy all the things and do all the stuff and go down every rabbit hole, but it just never works. I’ve just seen people try everything and the truth is, there isn’t any other way outside of just hustling the f*ck up and picking up the phone and calling every single person you know and just be out there living it and breathing it and doing it.”

For Charles, outside of friends and family, all of his investors came from networking. The group of people that ended up funding his business wasn’t what he initially expected it to be, but those people referred him to other people and that process, repeated many times, landed him with the capital he needed to start Souvla. Be persistent and patient, and as Mike warns, be honest with yourself. If you’re having a really hard time finding your first $200k, you’re probably just not quite ready yet.

There is no specific ideal number of investors. They key is setting a minimum amount for investment and then sticking to that; you want to avoid having a lot of people coming in at very small levels.

Investor Relations

Many restaurateurs have found themselves in difficult situations as a result of not being clear about the benefits of being an investor before any contracts are signed.

The contract and other investment documents that your attorney crafts for your investors will include information and parameters around what each party can and cannot do and how decisions relating to the business will be made, but some of the perks that your investors may be interested in aren’t appropriate for inclusion in legal documents.

With that said, it doesn’t mean that they shouldn’t be discussed. If an investor calls for a reservation for 10 people on Friday night at 8 p.m., how will you respond? Whether it’s yes or no, your investors should know in advance what special treatment they can expect. This conversation should be a positive one — this is an opportunity for you to get to know your investors and figure out what you can do to make them feel appreciated without compromising your operation.

Some restaurants have special beer steins with their investors’ names on them, or they host investor dinners a couple times a year. Roberta urges restaurateurs to do their research around investor perks because some of them, like meal credits, can be taxable to the investor and will incur an additional cost for the restaurant. Regardless of what you offer, make sure everyone is on the same page so that no one feels unsatisfied or taken advantage of down the line.

The key to healthy investor relations is managing expectations and creating a consistent flow of information regarding the state of your restaurant. A regular cadence of updates — from a quarterly investor meeting to a monthly email update — goes a long way to facilitate a strong relationship where investors feel in the loop. You may have to answer some uncomfortable questions (particularly when numbers are behind schedule), but there is no substitute for having a productive dialogue with the folks who are financing your project.

How to Open a Restaurant: Introducing Our Definitive Guide + $38,000 Prize Package!

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