Looking for a Restaurant Investor? Take This Advice

Like any business, restaurants require a confluence of factors to succeed. The concept, and of course the food, should be appealing; the location should attract customers; and everyone involved needs to be on the same page — most of all, perhaps, a restaurant’s creative team and its investors.

All too often, soured investor relationships lead to quick endings for restaurants. In May, SFist reported that chefs Nigel Jones and Reem Assil cut ties to projects with Daniel Patterson’s Alta Group due to disagreements with Patterson; Jones’s restaurant Kaya closed as a result. For young chefs especially, eagerness to turn an idea into a fully functioning, customer-serving reality can end in abruptly dashed hopes. In his memoir Notes From a Young Black Chef, D.C. chef Kwame Onwuachi puts much of the blame for the Shaw Bijou’s sudden closing in 2017 on the mismanagement of two investors. More recently, the mysterious closing of JJ Johnson’s New York City restaurant Henry after just 11 months has caused some to wonder if a similar situation played out.

For upcoming chefs in need of capital, investors are unavoidable — but, a bad investor relationship doesn’t have to be. Eater turned to San Francisco’s La Cocina for perspective on creating and maintaining positive relationships with restaurant investors. The incubator has launched dozens of food businesses. Assil’s Oakland bakery, Reem’s California; Nyum Bai, founded by 2018 Eater Young Gun Nite Yun; and counter-service momo spot Bini’s Kitchen all started in the incubator program, which helps low-income food entrepreneurs, and primarily women of color, grow their businesses. And like any other restaurant founder or food business entrepreneur, the chefs of La Cocina need money to turn their ideas into real, successful restaurant spaces. Here’s what La Cocina program director Geetika Agrawal had to say.

On starting a businesses

“At La Cocina, most of our entrepreneurs have to bootstrap up their businesses. Food businesses in general have difficulty accessing venture capital, and when they do, usually it’s at the restaurant-group level or once you have an established restaurant. There’s a real skew on who’s getting capital there. In the beginning, most of our entrepreneurs are using their savings and then their ability to hustle, which I think is really incredible. I think about people like Bini [Pradhan of Bini’s Kitchen], who started with a $5,000 loan and some rent money from her sister and now is employing 26 people. She did over $2 million out of the La Cocina kitchen and just graduated into her own space. She did all that without taking loans or investment until she opened her brick-and-mortar space.”

On ownership as a path to social mobility

“I don’t think La Cocina entrepreneurs get to have the same experience that a lot of privileged entrepreneurs have. In other spaces, if the company fails, it doesn’t mean their personal financial failure. La Cocina business owners are asked to put personal guarantees on things that I don’t feel like somebody with more privilege would be on the hook for in the same way. [I’d like to] shift this conversation and have folks understand ownership is their opportunity for social mobility. It’s not a career advancement — it’s like some level of claiming freedom.”

On finding investors

“In the case of investment, what I try to do is continue to cultivate a network of lawyers and people familiar with investments that can review deals and support the entrepreneur. The first set of folks often choose, even with their individual investor relationships, to go more of the promissory note route, so structuring the investment like a loan. Ownership is the biggest asset our entrepreneurs have, and they’ve been denied access for so long that I think there’s a little bit of, ‘Why should I give up ownership now?’”

On the ideal investors

“Find investors who are willing to look at it as a partnership, not purely an investment for themselves. [Investors should] think about how to structure [partnerships] in a way that also lifts up the entrepreneur. So in the lease structure, what that means to me is fronting build-out, because that reduces the amount of startup capital. It reduces the amount of debt the business is in when they take the next step. So for example, can [an investor] do the build-out and then maybe have a percentage of that paid back? It’s a percentage of rent over time so that they get their money back. But [the investor is] the one with the privilege to put that capital down and take that risk. Then the entrepreneur will activate and transform that space, so they’ll get the rewards financially and with activation.

“That’s the way that market forces and investor-driven economies can work for everybody instead of overly benefiting the investor. Businesses are such an important part of what [makes] a place feel vibrant and alive and destination-worthy. I [want investors to] think of it that way: Can you acknowledge all of the gains that you’re getting beyond financial? And then, can you use your privilege to restructure this in a new way, so that we can have new types of entrepreneurs getting to actually participate in this ecosystem?”

On why entrepreneurs should recognize their value

“The value of our entrepreneurs is that they’re bootstrapping their businesses. They’re coming to the table, not with an idea to speculate on, but a business that’s looking for growth capital. [They should] call out what might not seem special to them because that’s how they’ve survived. You should call out that you’ve already been running this business for five years when you open it. Your business doesn’t start when the restaurant opens.

“Bini’s oldest employees have been with her literally since the first year. She’s got employees in the food industry who’ve been with her for five-plus years. Entrepreneurs are usually able to point to a fan base, right? But there’s also deeper things that demonstrate that you’re bringing a business that’s been [successful].

“We need to eventually look at the biases we have about what businesses we’re supporting and who gets to thrive in our economies because it’s better for all of us. Women make less money and people of color make less money. It has a damaging effect on all of us. At the end of the day, when we’re talking about food people and aspiring entrepreneurs getting investment, it links back to economic equity because entrepreneurship is an amazing way to shift that equation.”

On how to spot a bad potential partnership

“If you’re going to share ownership in a real way, that’s almost like a personal relationship; that person’s going to have a real impact. You can really listen to your gut if somebody is not jiving. If you’re not feeling good in those conversations, that’s something to listen to. The time when they’re courting you and trying to give you money, this is the honeymoon phase. So if you’re not feeling good during that, listen.

“Any good landlord or investor is not going to be threatened by legal review, by financial review, by taking the time to make sure you understand the structure of the deal. So if anybody’s trying to put time pressure on you or pushing back on any of that, those are huge red flags, because this should be a long-term, transparent, honest relationship. I’m always scared when someone’s trying to be high pressure. Trust needs to be there from the beginning.

“Even if it’s hard, if it’s challenging, find mentors, find resources to make sure you understand what you’re getting yourself into. Don’t be scared. I think sometimes it can feel really intimidating, because finance is its own language. It has its own grammar, and I think it can feel really intimidating. I still go through the moments where I’m like, ‘I don’t know what that said.’ But really fight through that and make sure that you understand or ask questions. If you’re taking in an investor on something that you’ve built, that’s such a huge labor of love in the food industry and a real investment of your time, your creative talents, your energy. You deserve to understand what you’re getting yourself into and make sure that your contract protects you too.”

On making partnerships last

“Once you have a relationship, it’s important. Keep your investor engaged and updated, share how things are going.

“Once you get the capital to open the restaurant, there can be this feeling of ‘Okay, I got my money, check. [Now I’ll] move to the next insane project that I have to do.’ Restaurant build-outs are so complicated. There are so many people involved. Remember to bring them along, even if it’s having just a monthly email update.

“Make sure you have an individual connection with that entrepreneur ... treating them that way is critical for long-term success, because they can become a long-term partner in your business. It makes a huge difference when there’s a place people can go to feel engaged in an investment they’ve made. Everybody has their own style. You’re making something people love if they’re investing in you, so remember that that’s an asset to use.”