Gerard Centioli, Icon LLC, Founder, President and Chief Executive Officer, www.icon.com
Kurt Huffman, Chefstable LLC, Owner, http://chefstablegroup.com
Sam Goldfinger, The One Group, CFO, www.theonegroup.com
Brad Klapper, Nourish Capital, Managing Partner, www.nourishcapital.com
Marc Williams, DWT, Attorney, www.dwt.com
Earlier stage restaurants have learned to be extra creative and resourceful in obtaining financing over the past few years. The purpose of this session was to learn different strategies employed by operators and investors, and to discuss laws that apply to the offer and sale of securities.
Key Take Aways:
- Deal only with accredited investors. Accredited investors are those that can “fend for themselves” given their wealth and/or investment experience (and as defined by applicable securities laws). Although the offer and sale of securities to any investor comes with inherent risks, the laws are protective of non-accredited investors (those without wealth and/or sophistication) and selling to them without legal compliance (which is costly and burdensome) can land an offeror in hot water. The lesson: review any proposed offer with a securities lawyer before making any commitments.
- Those who treat their investors well do better in the long run. Treating an investor well does not necessarily mean agreeing to economic terms that are lopsided in the investor’s favor. On the contrary, one of our panelists informed the audience that his primary financing mechanism these days are interest-free promissory notes, given that he has reached a level of notoriety and success where he can command such terms. That said, he provides all investors with online access to the financial performance of the business in addition to annual dining credits. Another panelist has had the good fortune of working with the same group of high net worth investors for years. In all of their deals, they look to provide a meaningful return to their partners over the course of time, and have fostered such goodwill that financing new projects is without significant challenge.
- Private equity is a viable option for early stage restaurant companies. Professional funds, more than ever, are willing to entertain investment in top emerging concepts. Expect a private equity investor to take a more active role than most “friends and family” partners in the business; provided, however, a private equity group coupled with meaningful restaurant experience can be a valuable asset for a growth brand.
- Take out a loan when you don’t need it. A strong performing business is well-advised to obtain a commercial line of credit when the money is not needed – because when money is needed, the business will likely not qualify for a loan.
- Educate yourself on different financing options, market terms, etc. Every deal is different and there are a variety of different financing structures available to growth stage restaurateurs. That said, there are common/market terms in each of these structures and a restaurateur is advised to do as much research as possible before committing to a given option.
- Be realistic. Early-stage restaurant investment is primarily relationship driven. Odds are most of your investors will be friends or family. If your friends/family networks are not accredited investors and/or they’re the type that need/want a quick return on their investment, you are likely setting yourself up for trouble. If you have insufficient strong financial contacts, it is also probably not worth investing the time and effort into a private offering. It is very difficult to convince strangers to invest in a restaurant, not to mention legally risky. The law prohibits the general solicitation of securities.
- Preserve your equity. Don’t give up the house or you won’t have a house to live in. If you find yourself giving away too much of the business, you should rethink your strategy.