A blended capital strategy is critical for emerging restaurants looking to grow beyond their first unit, according to Lauren Fernandez, CEO and founder of investment firm Full Course.
Fernandez, who also has experience as general counsel for Focus Brands and as a franchisee of 11 Chicken Salad Chick units, shared a primer on restaurant finance options on Monday at CREATE: The Experience, as one of three TED-talk style presentations.
Fernandez started by outlining the most common funding sources for all startup businesses, not just restaurants: personal savings and credit, friends and family, and crowdfunding, or what she called “an extended friends and family raise.”
“[Founders] don’t think beyond these wedges as they grow beyond one unit,” she said.
But they need to, because fewer than 10% of startups get any funding at all, and by by their 10th year, almost 70% of U.S. businesses that do get off the ground will have failed.
Only 4% of U.S. businesses hit $1 million in revenue, Fernandez said.
She talked through both the macro and micro factors that impact funding decisions for restaurants, urging operators to have regular conversations about their options.
“This is not a once-a-year conversation,” she said.
In addition to the top three funding sources for startups, options Fernandez outlined were broken down as debt, equity, and gift. She encouraged restaurateurs to pursue a blended capital strategy, incorporating all three types of financing into a business strategy.
The types of funding include:
- Debt: Self, friends, and family; factoring; traditional bank; SBA loans; crowdfunding; private equity
- Equity: Friends and family; angel investors; crowdfunding; venture capital; private equity
- Gifts: Government grants; private grants; sponsorships; scholarships; gifts
Fernandez advised operators to evaluate each option on a risk vs. reward matrix, identifying ways to raise capital that are high reward and low risk based on a restaurant’s current maturity stage and needs.
“The biggest risk you could have as a company – besides failing because you’re undercapitalized – is someone coming in to take over your business,” she said. “We didn’t all start these companies so someone else could tell us what to do, right? Most of us have a fairly people-minded, service-minded attitude, but we’re fairly independent as well.”
Most entrepreneurs want the money to grow their business, but don’t want to give up control, she continued.
“This is a very personal and internal thing,” she said.
Fernandez also spoke at CREATE’s inaugural Investment Summit on Sunday, designed to help connect emerging restaurant operators with investors who may be able to help them grow.
Contact Leigh Anne Zinsmeister at [email protected]
