By Peter Farrell
Starting or growing a business will generally require some level of financial injection, whether you’re starting out with a single Food Hall concept, or scaling up to multi-site operations. It’s easy to imagine all investors as mysterious figures, hard to pin down and rolling in money. The reality is, most investors are simply normal people with access to funds that they’re seeking to use on a really good idea.
So, what does a restaurant investor actually look for?
The majority of investors will be looking for your business to tick a few key boxes before moving forward. If you’re missing any of the below, you may want to take a step back and re-evaluate if you’re truly ready to seek out an investor, or if you need to spend more time refining your concept or perfecting your business plan.
- A top team
The first thing an investor may do is try to assess whether they have a good connection with you. After all, going into business with someone is a highly personal experience. Regardless of the size of your team, they will want to see a strong, positive dynamic, with a level of credibility and professionalism from every member of the business. Experience in the sector is always a bonus but, if you’re a new business, they will still expect you to have done your homework. Knowledge about the industry is key, as well as any and all transferable skills you have – think commercial understanding and leadership experience.
- A winning concept
We’ve touched on this in a previous blog, but I think it’s worth saying again here. A winning concept doesn’t have to be a completely new idea. Investors aren’t necessarily looking for something they’ve never seen or heard of before. In fact, building on the success of something familiar can help prove to an investor that your concept has validation and traction. An investor will assess your concept on the quality of the product, but also the size of the market for the concept, and the potential to grow and scale. It is also very important to clearly present the investor with the unique parts of your concept, and any competitive advantages.
- Future investment
An investor is for life, not just for Christmas. The very nature of an investment is a long-term commitment in order to see results, so every investor will evaluate your business over a number of years. They’ll start by looking at your revenue streams and initial financial forecasts, but will also look beyond the first injection of cash to what might be needed further down the line. Some investors may ask for dividends; others will focus on your business increasing in value and look to exit in 3-5 years with a healthy return on their investment. These terms can be affected by numerous factors, from the investor’s current portfolio, to their appetite for risk.
So, how does it all work?
The process of securing an investor is going to differ for each business and, while there’s no cookie cutter format, there are a few key steps you’re likely to hit. Here’s a quick case study using one of our clients who was already trading successfully in a food hall, and was looking to raise £300k to launch a standalone site.
- We started by developing a high-level business plan and financial models, including projected costs for the launch of the restaurant and P&L forecasts. We also determined a valuation for the business so any potential investors could determine an equity percentage.
- We then went in search for a general location(s) for the launch so we could provide a rough idea of the size of the site, current state (for example, if it was a restaurant before or required a full fit out) and details around the neighbourhood and its opportunities. While it’s of course difficult to secure a site without initial investment, all of this fed into the financial models above, so the research was well worth completing.
- Next, we created a pitch deck for the business, an easy-to-read and attractive presentation that incorporated all the key information an investor would need. We shared this deck with potential angel investors – some were existing Food Motion contacts; others we found on LinkedIn.
- An initial meeting was set up with an interested investor, followed by a further meeting to go through more specific points and to begin negotiating potential investment terms.
- After finalising these negotiations over email, solicitors were engaged to draft an investment agreement, a shareholders agreement, establish the company structure and finalise SEIS (a Government-led investment scheme).
- Both parties reviewed the agreements, resulting in a formal sign off, transfer of funds and the distribution of all relevant paperwork.
Of course, that’s just one scenario, but the bottom line is this – investors want the same thing as you; for your business to succeed. If you’re offering a great product you will, in time, find the right investor for you. And don’t forget, if you need help with any or all of the above, we’re here – just hit the button below to get in touch.