Creating and developing a new restaurant is an exciting time, but one of the biggest hurdles operators need to overcome is finding sufficient financing — and it has to happen early on.
“Raising funds to start a new business, especially if you’re a person of color, a minority or a woman, is by far the biggest challenge,” says Sahil Rahman, who opened Rasa, an Indian fast casual in Washington, D.C., in December 2017, with his partner Rahul Vinod. They now have two locations with a third in the works.
The most important thing to know, Rahman says, is that you’re going to be rejected many times over, so have low expectations and develop a thick skin.
Here are five best practices for funding your restaurant:
1. Start with people you know.
Rahman started by canvassing friends and family then moved outwards from there in concentric circles “through personal and professional networks,” he says. He even looked into local events, “where we thought rich people would be and we showed up. We must have pitched our story 1,000 times to get a few folks to believe in us.”
Louis Maskin, Xenia All DayIf you’re approaching people you don’t know, try and speak to them by phone or video chat if you can’t get together in person, which is obviously harder these days than ever before, says Louis Maskin, co-founder of Xenia All Day, a cloud concept hoping to have a brick-and-mortar restaurant in Los Angeles in 2021. “It’s so much more personal than an email and so much harder for them to say no.”
Erik Oberholtzer, a founder of Tender Greens, which opened its first restaurant in 2006 in Culver City, Calif., and now has 30 locations, suggests using people you know to practice pitching people you don’t. “You need to be practiced, clear and confident that this is an adventure not to be missed,” he says.
2. Have an elevator pitch.
You never know when you’re going to bump into a potential investor, so have a short speech ready. “Saying it confidently without pitching the whole concept was really effective,” Rahman says. “Sharing that you’re in the process of raising money but without trying to get money out of them works. We just provide a statement of facts.”
Rasa, Washington, D.C.
3. Have a longer pitch, too.
Have a short write-up (a page or less) about your proposed restaurant as well as a full pitch PowerPoint or other presentation, too, Rahman suggests. He advises keeping it short — up to 10 pages or slides. Having it digitally is probably the best way to go but be prepared to print it out, too.
Maskin and his partners have two decks — one to present to potential investors in the restaurant industry and another, he says, that, “that explains a lot of jargon and makes a lot of comparisons to restaurants people are familiar with. We wanted to explain what we’re doing in terms of other concepts.”
Maskin also doesn’t show all his cards at once because he wants to keep people engaged. “Sending everything we have puts a lot of pressure on a single engagement,” he says. “We've had the most success by giving out the information in a way that builds upon itself. First a small introduction, then a mutual NDA, then the concept deck, then the financial model, and so on.”
Oberholtzer agrees. “Don’t over-pitch,” he says, because you sound like you’re selling. “It’s better to inspire, to draw them in on the mission and vision of the problem you are trying to solve.” He starts by answering the three whys for potential investors: Why does the world need my service? Why now? Why am I/we the best individuals to bring it to market and execute on the vision? And Oberholtzer shares some guidance he once received: “If you want to raise money, ask for advice. If you want advice, ask for money.”
Rasa, Washington, D.C.
4. Be prepared to walk away.
Rahman’s found it’s a good idea to give potential investors an “almost deadline,” because, he says, “you don’t want to waste too much time on someone. It’s really hard; you don’t want to close the door on someone. But if they’re not interested you can move on.”
Because you’ll be beholden to your investors for years, make sure you actually want to work with them. “Oftentimes your smallest investor is your loudest investor,” says Rahman. The people giving the smallest amount often care the most, because they have the least amount to give. They tend to be very involved, so you should really intentionally view who you’re working with. Don’t just view them as investors; you’re getting into bed with them and are going to be dealing with them for a number of years. They’ll have a say in how you run your business and, because of that, how you lead your life, so it’s not a decision to take lightly.”
But continue trying, says Maskin, who always asks, if investors say no, if anyone else in their network might be interested, “instead of us just hitting a wall of no. I kept trying to push into other people’s networks. It was really hard because when someone tells you no, they usually don’t want anything else to do with you.”
Rasa, Washington, D.C.
5. Run a test.
After Maskin’s two biggest investors pulled out, he and his partners considered throwing in the towel, but then opted to run a Sunday pop-up series. “The biggest problem we had was that everything we were showing was hypothetical,” Maskin says, but now, “the amount of data we have is invaluable. It’s something I wish we’d seen the importance of, so we could see some kind of intangibles.”
Maskin invites potential investors to these dinners. “Our goal for 2020 is just to get food in people’s mouths. We want more people to try what we’re doing.”